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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under (s)240.14a-12
Southwestern Energy Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
No fee required.
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules
14a-6(i)(1) and 0-11.
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MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Shareholders of Chesapeake Energy Corporation and Southwestern Energy
Company:
On behalf of the boards of directors of Chesapeake Energy Corporation
("Chesapeake") and Southwestern Energy Company ("Southwestern"), we are
pleased to enclose the accompanying joint proxy statement/prospectus relating
to the merger of Chesapeake and Southwestern. We are requesting that you take
certain actions as a Chesapeake or Southwestern shareholder, as applicable.
On January 10, 2024, Chesapeake and Southwestern entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Hulk Merger Sub, Inc. ("Merger
Sub Inc") and Hulk LLC Sub, LLC, each a newly formed, wholly owned subsidiary
of Chesapeake ("Merger Sub LLC"), pursuant to which Merger Sub Inc will merge
with and into Southwestern (the "Merger"), with Southwestern surviving the
Merger as a direct wholly owned subsidiary of Chesapeake (the "Surviving
Corporation").
At the effective time of the Merger (the "Effective Time"), each share of
Southwestern common stock, par value $0.01 per share ("Southwestern Common
Stock"), issued and outstanding immediately prior to the Effective Time
(excluding any shares held by Southwestern as treasury shares, or by
Chesapeake or Merger Sub Inc or Merger Sub LLC, and certain equity awards of
Southwestern) will convert into the right to receive 0.0867 (the "Exchange
Ratio") of a share of Chesapeake common stock, par value $0.01 per share
("Chesapeake Common Stock" and such shares, the "Merger Consideration"). No
fractional shares of Chesapeake Common Stock will be issued in the Merger, and
holders of shares of Southwestern Common Stock will receive cash in lieu of
fractional shares of Chesapeake Common Stock, if any, in accordance with the
terms of the Merger Agreement.
Immediately following the Effective Time, the Surviving Corporation will merge
with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving
entity and as a direct wholly owned subsidiary of Chesapeake.
The Merger Agreement also specifies the treatment of outstanding Southwestern
long-term incentive awards in connection with the Merger, which shall be
treated as follows, as of the Effective Time:
.
each outstanding restricted stock award of Southwestern (each, a "Southwestern
Restricted Stock Award") will automatically vest in full, any restrictions
with respect to each such Southwestern Restricted Stock Award shall lapse and
each such Southwestern Restricted Stock Award will convert into the right to
receive a number of shares of Chesapeake Common Stock equal to (i) the
Exchange Ratio, multiplied by (ii) the total number of shares of Southwestern
Common Stock attributable to such Southwestern Restricted Stock Award;
.
each outstanding restricted stock unit award of Southwestern under
Southwestern's Nonemployee Director Deferred Compensation Plan (each, a
"Southwestern Director RSU Award") will automatically vest in full, be
canceled, and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied by (ii)
the total number of shares of Southwestern Common Stock subject to such
Southwestern Director RSU Award, together with accrued dividend equivalent
payments in each case issuable and payable at the time or times specified in
Southwestern's Nonemployee Director Deferred Compensation Plan and in
accordance with such director's deferral elections as set forth in the
applicable Deferred Compensation Agreement;
.
each outstanding restricted stock unit award of Southwestern that (i) was
granted pursuant to Southwestern's 2013 Incentive Plan (the "2013 Plan") or
(ii) was granted prior to the date of the Merger Agreement and is held by an
employee of Southwestern or its subsidiaries whose employment is terminated
upon or immediately after the Effective Time, and, in either case, is subject
only to time-based vesting conditions (each, a "Southwestern Single-Trigger
RSU Award"), will vest in full, be canceled and convert into the right to
receive a number of shares of Chesapeake Common Stock equal to (A) the
Exchange Ratio, multiplied by (B) the total number of shares of Southwestern
Common Stock subject to each such Southwestern Single-Trigger RSU Award,
together with accrued dividend equivalent payments, in each case issuable and
payable in accordance with the terms of the applicable Single-Trigger RSU
Award agreement;
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.
each outstanding restricted stock unit award that was granted pursuant to
Southwestern's 2022 Incentive Plan (the "2022 Plan" and, together with the
2013 Plan, the "Southwestern Incentive Plans") (and not a Southwestern
Single-Trigger RSU Award) and that is subject only to time-based vesting
conditions (each, a "Southwestern Double-Trigger RSU Award") will be canceled
and convert into an award of restricted stock units in respect of shares of
Chesapeake Common Stock (a "Parent RSU Award") equal to the product (rounded
to the nearest whole share) of (i) the total number of shares of Southwestern
Common Stock subject to such Southwestern Double-Trigger RSU Award immediately
prior to the Effective Time multiplied by (ii) the Exchange Ratio. Such Parent
RSU Award will vest and be payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger RSU Award agreement (except that such award will
be payable in Chesapeake Common Stock);
.
each outstanding award of restricted stock units that is subject to
performance-based vesting conditions (a "Performance Unit Award") that was
granted by Southwestern (i) pursuant to the 2013 Plan or (ii) prior to the
date of the Merger Agreement and was held by an employee of Southwestern or
its subsidiaries whose employment was terminated upon or immediately after the
Effective Time (each, a "Southwestern Single-Trigger Performance Unit Award")
will (A) automatically vest in full and become payable at the greater of (1)
the level based on actual performance determined as of immediately prior to
the Effective Time in accordance with the terms of the applicable
Single-Trigger Performance Unit Award agreement and (2) the target level (the
number of shares of Southwestern Common Stock payable pursuant to the
foregoing, the "Earned Company Performance Shares"), and (B) be canceled and
convert into the right to receive a number of shares of Chesapeake Common
Stock equal to (1) the Exchange Ratio, multiplied by (2) the number of Earned
Company Performance Shares, together with accrued dividend equivalent
payments, in each case issuable and payable in accordance with the terms of
the applicable Southwestern Single-Trigger Performance Unit Award agreement;
.
each outstanding Performance Unit Award of Southwestern that was granted
pursuant to the 2022 Plan (and not a Southwestern Single-Trigger Performance
Unit Award) (each, a "Southwestern Double-Trigger Performance Unit Award")
will be deemed to correspond to a number of Earned Company Performance Shares
determined in the same manner as described in the immediately foregoing bullet
point, and will be canceled and convert into a Parent RSU Award in respect of
that number of shares of Chesapeake Common Stock equal to the product (rounded
to the nearest whole share) of (i) the number of Earned Company Performance
Shares with respect to such Southwestern Double-Trigger Performance Unit Award
multiplied by (ii) the Exchange Ratio. Such Parent RSU Award will vest at the
end of the original performance period associated with the corresponding
Southwestern Double-Trigger Performance Unit Award and will otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger Performance Unit Award agreement (except that such
award will be payable in shares of Chesapeake Common Stock and will no longer
be subject to performance-based vesting conditions);
.
each outstanding performance cash unit award of Southwestern that (i) was
granted pursuant to the 2013 Plan or (ii) was granted prior to the date of the
Merger Agreement and was held by a Southwestern employee whose employment was
terminated upon or immediately after the Effective Time (each, a "Southwestern
Single-Trigger PCU Award") will automatically vest in full and become payable
in cash in an amount equal to $1.00 multiplied by the greater of (A) the
percentage earned based on actual performance determined as of immediately
prior to the Effective Time in accordance with the terms of the applicable
Southwestern Single-Trigger PCU Award agreement and (B) 100%; and
.
each outstanding performance cash unit award of Southwestern that was granted
pursuant to the 2022 Plan (other than Southwestern Single-Trigger PCU Awards)
(each, a "Southwestern Double-Trigger PCU Award") will be deemed earned at a
level equal to $1.00 multiplied by the greater of (i) the percentage earned
based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Double-Trigger PCU Award agreement and (ii) 100%. Such amount will vest and be
payable in cash at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger PCU Award and will otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger PCU Award agreement, except that such award will
no longer be subject to performance-based vesting conditions.
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In connection with the proposed Merger, Chesapeake will hold a special meeting
of its shareholders (the "Chesapeake Special Meeting") and Southwestern will
hold a special meeting of its shareholders (the "Southwestern Special
Meeting").
At the Chesapeake Special Meeting, Chesapeake shareholders will be asked to
consider and vote on proposals to approve (i) the issuance of shares of
Chesapeake Common Stock to the Southwestern shareholders in connection with
the Merger pursuant to the terms of the Merger Agreement (the "Stock Issuance
Proposal"), (ii) by non-binding, advisory vote, certain compensation
arrangements for Chesapeake's named executive officers in connection with the
Merger contemplated by the Merger Agreement (the "Advisory Chesapeake
Compensation Proposal") and (iii) the adjournment of the Chesapeake Special
Meeting to solicit additional proxies if there are not sufficient votes cast
at the Chesapeake Special Meeting to approve the Stock Issuance Proposal (the
"Chesapeake Adjournment Proposal"). Assuming a quorum is present, approval of
the Stock Issuance Proposal and the Advisory Chesapeake Compensation Proposal
requires the affirmative vote of holders of a majority of the shares of
Chesapeake Common Stock cast at the Chesapeake Special Meeting. Assuming a
quorum is present, approval of the Chesapeake Adjournment Proposal requires
the affirmative vote of holders of a majority of the shares of Chesapeake
Common Stock present in person or represented by proxy at the Chesapeake
Special Meeting. Virtual attendance at the special meeting will constitute
presence in person for the purpose of determining the presence of a quorum for
the transaction of business at the Chesapeake Special Meeting.
The Chesapeake Special Meeting will be held virtually on June 18, 2024 at
10:00 a.m., Central Time. Shareholders of record at the close of business on
April 22, 2024 (the "Chesapeake Record Date") are entitled to vote at the
Chesapeake Special Meeting. In order to virtually attend the Chesapeake
Special Meeting, shareholders must register online at www.virtualshareholdermeet
ing.com/CHK2024SM. As part of the registration process, you will need to enter
the control number found on your proxy card, voting information form or notice
you previously received. Those holding their shares through an intermediary,
such as a bank, broker, or nominee, who want to participate should request a
control number from their intermediary in advance of the meeting.
The board of directors of Chesapeake has approved the Merger Agreement and
recommends that Chesapeake shareholders vote "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal.
At the Southwestern Special Meeting, Southwestern shareholders will be asked
to consider and vote on proposals to approve (i) the Merger Agreement (the
"Merger Proposal"), (ii) on a non-binding, advisory basis, the compensation
that may be paid or become payable to Southwestern's named executive officers
that is based on or otherwise relates to the Merger (the "Advisory
Southwestern Compensation Proposal") and (iii) the adjournment of the
Southwestern Special Meeting, if necessary or appropriate, to solicit
additional votes from shareholders if there are not sufficient votes to adopt
the Merger Proposal (the "Southwestern Adjournment Proposal"). Approval of the
Merger Proposal by the affirmative vote of holders of a majority of the
outstanding shares of Southwestern Common Stock entitled to vote thereon is
required to complete the Merger and the other transactions contemplated by the
Merger Agreement. The affirmative vote of the holders of a majority of the
outstanding shares of Southwestern Common Stock properly cast at the
Southwestern Special Meeting is required to approve the Advisory Southwestern
Compensation Proposal and the Southwestern Adjournment Proposal. Virtual
attendance at the special meeting will constitute presence in person for the
purpose of determining the presence of a quorum for the transaction of
business at the Southwestern Special Meeting.
The Southwestern Special Meeting will be held virtually on June 18, 2024 at
10:00 a.m., Central Time. Shareholders of record as of April 22, 2024 (the
"Southwestern Record Date") are entitled to vote at the Southwestern Special
Meeting. In order to virtually attend the Southwestern Special Meeting,
shareholders must register online at www.virtualshareholdermeeting.com/SWN2024SM
. As part of the registration process, you will need to enter the control
number found on your proxy card, voting information form or notice you
previously received. Those holding their shares through an intermediary, such
as a bank, broker, or nominee, who want to participate should request a
control number from their intermediary in advance of the meeting.
The board of directors of Southwestern has unanimously approved the Merger
Agreement and recommends that Southwestern shareholders vote "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal.
If the Merger is completed, at the Effective Time, each issued and outstanding
share of Southwestern Common Stock as of immediately prior to the Effective
Time that is eligible to convert into Chesapeake Common Stock in accordance
with the terms of the Merger Agreement will convert automatically into the
right to receive 0.0867 shares of Chesapeake Common Stock, with cash paid in
lieu of the issuance of
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fractional shares, if any. Although the number of shares of Chesapeake Common
Stock that Southwestern shareholders will receive in exchange for their
Southwestern Common Stock is fixed (subject to adjustments in accordance with
the terms of the Merger Agreement), the market value of the Merger
Consideration will fluctuate with the market price of Chesapeake Common Stock
and will not be known at the time Southwestern shareholders vote to approve
the Merger Proposal or at the time Chesapeake shareholders vote to approve the
Stock Issuance Proposal. Based on the closing price of Chesapeake Common Stock
on the Nasdaq Stock Market LLC ("Nasdaq") on January 10, 2024, the last
trading day before the public announcement of the parties entering into the
Merger Agreement, the Exchange Ratio represented approximately $6.69 in value
for each outstanding share of Southwestern Common Stock for a total Merger
Consideration of approximately $7.4 billion. Based on the closing price of
Chesapeake Common Stock on Nasdaq on May 16, 2024, the last practicable
trading day before the date of the accompanying joint proxy statement/prospectus
, the Exchange Ratio represented approximately $7.90 in value for each
outstanding share of Southwestern Common Stock. Based on the estimated number
of shares of Chesapeake Common Stock and estimated number of shares of
Southwestern Common Stock, as well as the outstanding equity awards of the
parties, that will be outstanding immediately prior to the consummation of the
Merger, we estimate that, upon consummation of the Merger, Chesapeake
shareholders will hold approximately 60%, and Southwestern shareholders will
hold approximately 40%, of the issued and outstanding shares of Chesapeake
Common Stock (in each case based on fully diluted shares outstanding of each
company). We urge you to obtain current market quotations for Chesapeake
Common Stock (Nasdaq trading symbol "CHK") and Southwestern Common Stock (NYSE
trading symbol "SWN").
The obligations of Chesapeake and Southwestern to complete the Merger are
subject to the satisfaction or waiver of a number of conditions set forth in
the Merger Agreement, a copy of which is attached as
Annex A
to the accompanying joint proxy statement/prospectus. The accompanying joint
proxy statement/
prospectus describes the Chesapeake Special Meeting and the proposals to be
considered thereat, the Southwestern Special Meeting and the proposals to be
considered thereat, the Merger and the documents and agreements related to the
Merger. It also contains or references information about Chesapeake and
Southwestern and certain related agreements and matters.
Please carefully read the entire accompanying joint proxy statement/prospectus,
including "
Risk Factors
" beginning on page
49
, for a discussion of the risks relating to the proposed Merger.
You also can obtain information about Chesapeake and Southwestern from
documents that each has filed with the U.S. Securities and Exchange Commission
(the "SEC"). Please see "
Where You Can Find More Information
" beginning on page 247 of the accompanying joint proxy statement/
prospectus for how you may obtain such information.
Sincerely,
Michael A. Wichterich Catherine A. Kehr
Chairman of the Board Chair of the Board
Chesapeake Energy Corporation Southwestern Energy Company
Neither the SEC nor any state securities commission has approved or
disapproved of the securities to be issued in connection with the Merger
described in the accompanying joint proxy statement/prospectus or determined
that the accompanying joint proxy statement/prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The accompanying document is dated May 17, 2024 and is first being mailed to
Chesapeake and Southwestern shareholders on or about May 17, 2024.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
CHESAPEAKE ENERGY CORPORATION
TO BE HELD ON JUNE 18, 2024
Dear Shareholder of Chesapeake Energy Corporation:
On June 18, 2024, Chesapeake Energy Corporation ("Chesapeake") will hold a
virtual special meeting of shareholders (the "Chesapeake Special Meeting") at
10:00 a.m., Central Time. Only shareholders of record at the close of business
on April 22, 2024 (the "Chesapeake Record Date") are entitled to receive this
notice and to vote at the Chesapeake Special Meeting or any adjournment or
postponement of that meeting. In order to virtually attend the Chesapeake
Special Meeting, shareholders must register online at www.virtualshareholdermeet
ing.com/CHK2024SM. As part of the registration process, you will need to enter
the control number found on your proxy card, voting information form or notice
you previously received. Those holding their shares through an intermediary,
such as a bank, broker, or nominee, who want to participate should request a
control number from their intermediary in advance of the meeting.
The Chesapeake Special Meeting has been called for the following purposes:
1.
To consider and vote on a proposal (the "Stock Issuance Proposal") to approve
the issuance of shares of the Chesapeake Common Stock, par value $0.01 per
share ("Chesapeake Common Stock"), pursuant to the Agreement and Plan of
Merger, dated as of January 10, 2024 (as it may be amended from time to time,
the "Merger Agreement"), by and among Chesapeake and Southwestern Energy
Company ("Southwestern") and Hulk Merger Sub, Inc. ("Merger Sub Inc") and Hulk
LLC Sub, LLC ("Merger Sub LLC"), each a newly formed, wholly owned subsidiary
of Chesapeake, a copy of which is attached as
Annex A
to the joint proxy statement/prospectus;
2.
To consider and vote on a proposal to approve, by non-binding, advisory vote,
certain compensation arrangements for Chesapeake's named executive officers in
connection with the Merger contemplated by the Merger Agreement (the "Advisory
Chesapeake Compensation Proposal"); and
3.
To consider and vote on a proposal to approve the adjournment of the
Chesapeake Special Meeting, if necessary or appropriate, to solicit additional
votes from shareholders if there are not sufficient votes to adopt the Stock
Issuance Proposal (the "Chesapeake Adjournment Proposal").
Chesapeake will transact no other business at the Chesapeake Special Meeting
or any adjournment or postponement thereof, except such business as may
properly be brought before the Chesapeake Special Meeting by or at the
direction of the board of directors of Chesapeake (the "Chesapeake Board") in
accordance with Chesapeake's second amended and restated bylaws. These items
of business are described in the enclosed joint proxy statement/prospectus.
The Chesapeake Board has designated the close of business on April 22, 2024 as
the Chesapeake Record Date for the purpose of determining the holders of
shares of Chesapeake Common Stock who are entitled to receive notice of, and
to vote at, the Chesapeake Special Meeting and any adjournment or postponement
of the special meeting, unless a new record date is fixed in connection with
any adjournment or postponement of the special meeting. Only holders of record
of Chesapeake Common Stock at the close of business on the Chesapeake Record
Date are entitled to notice of, and to vote at, the Chesapeake Special Meeting
and at any adjournment or postponement of the Chesapeake Special Meeting.
Assuming a quorum is present, approval of the Stock Issuance Proposal by the
affirmative vote of the holders of shares of Chesapeake Common Stock
representing a majority of votes properly cast in person or represented by
proxy on the Stock Issuance Proposal at the Chesapeake Special Meeting is
required to complete the Merger. Holders of Chesapeake Common Stock will also
be asked to approve the Advisory Chesapeake Compensation Proposal and the
Chesapeake Adjournment Proposal. Approval of the Advisory
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Chesapeake Compensation Proposal requires the affirmative vote of holders of a
majority of the shares of Chesapeake Common Stock cast on such proposal at the
Chesapeake Special Meeting. Assuming a quorum is present, approval of the
Chesapeake Adjournment Proposal requires the affirmative vote of holders of a
majority of the shares of Chesapeake Common Stock present in person or
represented by proxy at the Chesapeake Special Meeting. Virtual attendance at
the Chesapeake Special Meeting constitutes presence in person for purposes of
determining the presence of a quorum for the transaction of business at the
Chesapeake Special Meeting. As an advisory vote, the Advisory Chesapeake
Compensation Proposal is not binding upon Chesapeake or the Chesapeake Board,
and approval is not a condition to completion of the Merger and is a vote
separate and apart from the vote to approve the Stock Issuance Proposal.
The Chesapeake Board has (i) determined that it is in the best interests of
Chesapeake and its shareholders to enter into the Merger Agreement, (ii)
declared entry into the Merger Agreement to be advisable, (iii) authorized and
approved Chesapeake's execution, delivery and performance of the Merger
Agreement in accordance with its terms and Chesapeake's consummation of the
transactions contemplated thereby, including the merger of Merger Sub Inc and
Southwestern contemplated thereby (the "Merger") and the issuance of
Chesapeake Common Stock contemplated by the Stock Issuance Proposal, (iv)
directed that the approval of the Stock Issuance Proposal be submitted to a
vote at a meeting of the holders of Chesapeake Common Stock and (v)
recommended that the holders of Chesapeake Common Stock approve the Stock
Issuance Proposal.
The Chesapeake Board recommends that holders of Chesapeake Common Stock vote
"FOR" the Stock Issuance Proposal, "FOR" the Advisory Chesapeake Compensation
Proposal and "FOR" the Chesapeake Adjournment Proposal.
Properly executed proxy cards with no instructions indicated on the proxy card
will be voted "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal, if necessary. The holders of a majority
of the outstanding shares of Chesapeake Common Stock entitled to vote at the
Chesapeake Special Meeting must be represented at the Chesapeake Special
Meeting in person or by proxy in order to constitute a quorum. Virtual
attendance at the special meeting will constitute presence in person for the
purpose of determining the presence of a quorum for the transaction of
business at the Chesapeake Special Meeting. Even if you plan to attend the
Chesapeake Special Meeting virtually, Chesapeake requests that you complete,
sign, date and return the enclosed proxy card in the accompanying envelope
prior to the Chesapeake Special Meeting to ensure that your shares will be
represented and voted at the Chesapeake Special Meeting if you later decide
not to or become unable to attend virtually.
Please vote as promptly as possible, whether or not you plan to attend the
Chesapeake Special Meeting virtually. If your shares are held in the name of a
broker, bank, or other nominee, please vote by following the instructions on
the voting instruction form furnished by the broker, bank, or other nominee.
If you hold your shares in your own name, please submit a proxy to vote your
shares as promptly as possible by (i) visiting the website listed on the proxy
card, (ii) calling the toll-free number listed on the proxy card or (iii)
submitting your proxy card by mail by using the self-addressed, stamped
envelope provided. Submitting a proxy will not prevent you from voting
virtually, but it will help to secure a quorum and avoid added solicitation
costs. Any eligible holder of Chesapeake Common Stock entitled to vote thereon
and who is virtually present at the Chesapeake Special Meeting may vote,
thereby revoking any previous proxy. In addition, a proxy may also be revoked
in writing before the Chesapeake Special Meeting in the manner described in
this joint proxy statement/
prospectus.
Your vote is very important. Approval of the Stock Issuance Proposal by the
Chesapeake shareholders is a condition to the consummation of the Merger and
requires the affirmative vote of the holders of shares of Chesapeake Common
Stock representing a majority of votes properly cast in person or represented
by proxy on the Stock Issuance Proposal at the Chesapeake Special Meeting.
Chesapeake shareholders are requested to complete, date, sign and return the
enclosed proxy in the envelope provided, which requires no postage if mailed
in the United States, or to submit their votes by phone or the Internet.
Simply follow the instructions provided on the enclosed proxy card.
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If you have any questions concerning the Merger or the joint proxy
statement/prospectus, would like additional copies or need help voting your
shares of Chesapeake Common Stock, please contact Chesapeake's proxy solicitor:
Alliance Advisors LLC
200 Broadacres Dr., 3rd Floor
Bloomfield, NJ 07003
Shareholders may call toll free: 833-795-8496
Banks and Brokers may call collect: 973-873-7700
Email: CHK@allianceadvisors.com
By Order of the Board of Directors,
Benjamin E. Russ
Executive Vice President - General Counsel and Corporate Secretary
Oklahoma City, Oklahoma
May 17, 2024
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
SOUTHWESTERN ENERGY COMPANY
TO BE HELD ON JUNE 18, 2024
Dear Shareholder of Southwestern Energy Company:
On June 18, 2024, Southwestern Energy Company ("Southwestern") will hold a
virtual special meeting of shareholders (the "Southwestern Special Meeting")
at 10:00 a.m., Central Time. Only shareholders of record as of April 22, 2024
(the "Southwestern Record Date") are entitled to receive this notice and to
vote at the Southwestern Special Meeting or any adjournment or postponement of
that meeting. In order to virtually attend the Southwestern Special Meeting,
shareholders must register online at www.virtualshareholdermeeting.com/SWN2024SM
. As part of the registration process, you will need to enter the control
number found on your proxy card, voting information form or notice you
previously received. Those holding their shares through an intermediary, such
as a bank, broker, or nominee, who want to participate should request a
control number from their intermediary in advance of the meeting.
The Southwestern Special Meeting has been called for the following purposes:
1.
To consider and vote on a proposal to approve the Agreement and Plan of
Merger, dated as of January 10, 2024 (as it may be amended from time to time,
the "Merger Agreement"), by and among Southwestern and Chesapeake Energy
Corporation ("Chesapeake") and Hulk Merger Sub, Inc. ("Merger Sub Inc") and
Hulk LLC Sub, LLC ("Merger Sub LLC"), each a newly formed, wholly owned
subsidiary of Chesapeake, a copy of which is attached as
Annex A
to the joint proxy statement/prospectus (the "Merger Proposal");
2.
To consider and vote on a proposal to approve, on a non-binding, advisory
basis, the compensation that may be paid or become payable to Southwestern's
named executive officers that is based on or otherwise related to the Merger
(the "Advisory Southwestern Compensation Proposal"); and
3.
To consider and vote on a proposal to approve the adjournment of the
Southwestern Special Meeting, if necessary or appropriate, to solicit
additional votes from shareholders if there are not sufficient votes to adopt
the Merger Proposal (the "Southwestern Adjournment Proposal").
Southwestern does not intend to transact any other business at the
Southwestern Special Meeting or any adjournment or postponement thereof,
except such business as may properly be brought before the Southwestern
Special Meeting by or at the direction of the board of directors of
Southwestern (the "Southwestern Board") in accordance with the Amended and
Restated Certificate of Incorporation of Southwestern. These items of business
are described in the enclosed joint proxy statement/prospectus. Please refer
to the attached documents, including the Merger Agreement and all other
annexes and any documents incorporated by reference, for further information
with respect to the business to be transacted at the Southwestern Special
Meeting. You are encouraged to read the entire document carefully before
voting. In particular, please see the sections entitled "
The Merger
" beginning on page 84 for a description of the transactions contemplated by
the Merger Agreement and "
Risk Factors
" beginning on page 49 for an explanation of the risks associated with the
Merger between Merger Sub Inc and Southwestern (the "Merger") and the other
transactions contemplated by the Merger Agreement.
Only holders of record of Southwestern common stock, par value $0.01 per share
("Southwestern Common Stock") at the close of business on the Southwestern
Record Date are entitled to notice of, and to vote at, the Southwestern
Special Meeting and at any adjournment or postponement of the special meeting.
Assuming a quorum is present, approval of the Merger Proposal by the
affirmative vote of holders of a majority of the outstanding shares of
Southwestern Common Stock entitled to vote thereon is required to complete the
Merger and the other transactions contemplated by the Merger Agreement.
Southwestern
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shareholders will also be asked to approve the Advisory Southwestern
Compensation Proposal and, if necessary, to approve the Southwestern
Adjournment Proposal. As an advisory vote, the Advisory Southwestern
Compensation Proposal is not binding upon Southwestern or the Southwestern
Board or Chesapeake or the Chesapeake Board, and approval is not a condition
to completion of the Merger and is a vote separate and apart from the vote to
approve the Merger Proposal. Assuming a quorum is present, approval of the
Advisory Southwestern Compensation Proposal and the Southwestern Adjournment
Proposal each require the affirmative vote of the holders of a majority of the
shares of Southwestern Common Stock cast at the Southwestern Special Meeting.
The Southwestern Board has designated the close of business on April 22, 2024
as the Southwestern Record Date for the purpose of determining the
Southwestern shareholders who are entitled to receive notice of, and to vote
at, the Southwestern Special Meeting and any adjournment or postponement of
the special meeting, unless a new record date is fixed in connection with any
adjournment or postponement of the special meeting. Only holders of record of
Southwestern Common Stock at the close of business on the Southwestern Record
Date are entitled to notice of, and to vote at, the Southwestern Special
Meeting and at any adjournment or postponement of the special meeting. For
additional information regarding the Southwestern Special Meeting, see the
section entitled "
Special Meeting of Southwestern Shareholders
" beginning on page 75 of the joint proxy statement/prospectus accompanying
this notice.
The Southwestern Board has unanimously (i) determined that it is in the best
interests of Southwestern and its shareholders and advisable for Southwestern
to enter into the Merger Agreement, (ii) authorized and approved Southwestern's
execution, delivery and performance of the Merger Agreement in accordance with
its terms and Southwestern's consummation of the transactions contemplated
thereby, including the Merger, (iii) directed that the approval of the Merger
Proposal be submitted to a vote at a meeting of the Southwestern shareholders
and (iv) recommended that the Southwestern shareholders approve the Merger
Proposal.
The Southwestern Board recommends that Southwestern shareholders vote "FOR"
the Merger Proposal, "FOR" the Advisory Southwestern Compensation Proposal and
"FOR" the Southwestern Adjournment Proposal.
Properly executed proxy cards with no instructions indicated on the proxy card
will be voted "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal. The presence, in person or by proxy,
at the Southwestern Special Meeting of the holders of a majority of the shares
of Southwestern Common Stock entitled to vote at the Southwestern Special
Meeting as of the close of business on the Southwestern Record Date will
constitute a quorum for purposes of transacting business at the Southwestern
Special Meeting. Withheld votes and abstentions will count as present for
purposes of establishing a quorum during the Southwestern Special Meeting.
Virtual attendance at the Southwestern Special Meeting will constitute
presence in person for the purpose of determining the presence of a quorum for
the transaction of business at the Southwestern Special Meeting. Even if you
plan to attend the Southwestern Special Meeting virtually, Southwestern
requests that you complete, sign, date and return the enclosed proxy card in
the accompanying envelope prior to the Southwestern Special Meeting to ensure
that your shares of Southwestern Common Stock will be represented and voted at
the Southwestern Special Meeting if you later decide not to or become unable
to attend virtually.
Please vote as promptly as possible, whether or not you plan to attend the
Southwestern Special Meeting virtually. If your shares of Southwestern Common
Stock are held in the name of a broker, bank, or other nominee, please vote by
following the instructions on the voting instruction form furnished by the
broker, bank, or other nominee. If you hold your shares of Southwestern Common
Stock in your own name, submit a proxy to vote your shares of Southwestern
Common Stock as promptly as possible by (i) visiting the website listed on the
proxy card, (ii) calling the toll-free number listed on the proxy card or
(iii) submitting your proxy card by mail by using the self-addressed, stamped
envelope provided. Submitting a proxy will not prevent you from voting
virtually, but it will help to secure a quorum and avoid added solicitation
costs. Any eligible Southwestern shareholder entitled to vote thereon and who
is virtually present at the Southwestern Special Meeting may vote, thereby
revoking any previous proxy. In addition, a proxy may also be revoked in
writing before the Southwestern Special Meeting in the manner described in
this joint proxy statement/prospectus.
Your vote is very important. Approval of the Merger Proposal by the
Southwestern shareholders is a condition to the consummation of the Merger and
requires the affirmative vote of a majority of the total
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number of shares of Southwestern Common Stock entitled to vote thereon at the
Southwestern Special Meeting. Southwestern shareholders are requested to
complete, date, sign and return the enclosed proxy in the envelope provided,
which requires no postage if mailed in the United States, or to submit their
votes by phone or the Internet. Simply follow the instructions provided on the
enclosed proxy card. Abstentions, failure to submit a proxy or vote via the
Southwestern Special Meeting website and broker non-votes will have the same
effect as a vote "against" the Merger Proposal.
If you have any questions concerning the Merger Proposal, the Merger or the
joint proxy statement/
prospectus, would like additional copies or need help voting your shares of
Southwestern Common Stock, please contact Southwestern's proxy solicitor:
Morrow Sodali, LLC
509 Madison Avenue, Suite 1206
New York, NY 10022
Shareholders may call toll free: (800) 662-5200
Banks and Brokers may call collect: (203) 658-9400
Email: swn@info.morrowsodali.com
By Order of the Board of Directors
of Southwestern Energy Company,
Chris Lacy
Senior Vice President, General Counsel and Secretary
May 17, 2024
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ADDITIONAL INFORMATION
This document, which forms part of a registration statement on Form S-4 filed
with the U.S. Securities and Exchange Commission (the "SEC") by Chesapeake
(File No. 333-277555), constitutes a prospectus of Chesapeake under Section 5
of the Securities Act of 1933 (as amended, the "Securities Act") with respect
to the shares of Chesapeake Common Stock to be issued to Southwestern
shareholders pursuant to the Merger Agreement. This document also constitutes
a proxy statement of each of Chesapeake and Southwestern under Section 14(a)
of the Securities Exchange Act of 1934 (as amended, the "Exchange Act"). It
also constitutes a notice of meeting with respect to the Chesapeake Special
Meeting and the Southwestern Special Meeting.
You should rely only on the information contained in or incorporated by
reference into this joint proxy statement/prospectus. Chesapeake and
Southwestern have not authorized anyone to provide you with information that
is different from that contained in or incorporated by reference into this
joint proxy statement/
prospectus. This joint proxy statement/prospectus is dated May 17, 2024. The
information contained in this joint proxy statement/prospectus is accurate
only as of that date or, in the case of information in a document incorporated
by reference, as of the date of such document, unless the information
specifically indicates that another date applies. Neither the mailing of this
joint proxy statement/prospectus to Chesapeake shareholders and Southwestern
shareholders nor the issuance by Chesapeake of shares of Chesapeake Common
Stock pursuant to the Merger Agreement will create any implication to the
contrary.
This joint proxy statement/prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom it is unlawful to
make any such offer or solicitation in such jurisdiction. Chesapeake has
supplied all information contained in this joint proxy statement/prospectus
relating to Chesapeake, and Southwestern has supplied all such information
relating to Southwestern. Chesapeake and Southwestern have both contributed to
the information related to the Merger contained in this joint proxy
statement/prospectus.
Unless the context otherwise requires, all references in this joint proxy
statement/prospectus to "Chesapeake" refer to Chesapeake Energy Corporation,
an Oklahoma corporation. Unless the context otherwise requires, all references
in this joint proxy statement/prospectus to "Southwestern" refer to
Southwestern Energy Company, a Delaware corporation. All references in this
joint proxy statement/
prospectus to "Chesapeake Common Stock" refer to the common stock of
Chesapeake, par value $0.01 per share, and all references in this joint proxy
statement/prospectus to "Southwestern Common Stock" refer to the common stock
of Southwestern, par value $0.01 per share. All references in this joint proxy
statement/
prospectus to the "Merger Agreement" refer to the Agreement and Plan of
Merger, dated as of January 10, 2024, by and among Chesapeake, Southwestern,
Merger Sub Inc and Merger Sub LLC, as it may be amended from time to time, a
copy of which is attached as
Annex A
to this joint proxy statement/
prospectus and incorporated by reference herein. All references in this joint
proxy statement/prospectus to the "Merger Consideration" refer to the 0.0867
shares of Chesapeake Common Stock per outstanding share of Southwestern Common
Stock that will be issued to Southwestern shareholders in connection with the
Merger and all references to "Exchange Ratio" refer to the ratio of 0.0867
shares of Chesapeake Common Stock to each share of Southwestern Common Stock.
As permitted under the rules of the SEC, this document incorporates by
reference important business and financial information about Chesapeake and
Southwestern from other documents filed with the SEC that are not included in
or delivered with this document. Please read the section titled "
Where You Can Find More Information
." You can obtain any of the documents incorporated by reference into this
document from the SEC's website at
www.sec.gov
. This information is also available to you without charge upon your request
in writing or by telephone from Chesapeake or Southwestern at the following
addresses and telephone numbers:
Chesapeake Energy Corporation Southwestern Energy Company
6100 North Western Avenue 10000 Energy Drive
Oklahoma City, Oklahoma 73118 Spring, Texas 77389
Attn: Investor Relations Attn: Investor Relations
(405) 848-8000 (832) 796-1000
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Please note that copies of the documents provided to you will not include
exhibits, unless the exhibits are specifically incorporated by reference into
the documents or this document.
You may obtain certain of these documents at Chesapeake's website,
www.chk.com, and at Southwestern's website, www.swn.com. None of the
information contained on the websites of Chesapeake or Southwestern is
incorporated by reference into this document.
In order to receive timely delivery of the documents in advance of the special
meeting, your request should be received no later than June 11, 2024 , which
is five business days prior to the date of the special meeting. If you request
any documents, Chesapeake or Southwestern will mail them to you by first class
mail, or another equally prompt means, within one business day after receipt
of your request.
If you have any questions about the Merger or the consideration that you will
receive in connection with the Merger, including any questions relating to the
transmittal of materials, or would like additional copies of the letter of
transmittal (which is being mailed to Chesapeake shareholders and Southwestern
shareholders separately), you may contact Chesapeake's proxy solicitor or
Southwestern's proxy solicitor at the applicable address and telephone number
listed below. You will not be charged for any additional letters of
transmittal that you request.
The Solicitation Agent for the Chesapeake Special Meeting is:
Alliance Advisors LLC
200 Broadacres Dr., 3rd Floor
Bloomfield, NJ 07003
Shareholders may call toll free: 833-795-8496
Banks and Brokers may call collect: 973-873-7700
Email: CHK@allianceadvisors.com
The Solicitation Agent for the Southwestern Special Meeting is:
Morrow Sodali, LLC
509 Madison Avenue, Suite 1206
New York, NY 10022
Shareholders may call toll free: (800) 662-5200
Banks and Brokers may call collect: (203) 658-9400
Email: swn@info.morrowsodali.com
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TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETINGS 1
SUMMARY 17
PARTIES TO THE MERGER 17
THE MERGER AND THE MERGER AGREEMENT 17
MERGER CONSIDERATION 18
SPECIAL MEETING OF CHESAPEAKE SHAREHOLDERS 18
RECOMMENDATION OF THE CHESAPEAKE BOARD AND ITS REASONS FOR THE MERGER 19
OPINION OF CHESAPEAKE'S FINANCIAL ADVISOR 19
INTERESTS OF CERTAIN CHESAPEAKE DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER 20
SPECIAL MEETING OF SOUTHWESTERN SHAREHOLDERS 20
RECOMMENDATION OF THE SOUTHWESTERN BOARD AND ITS REASONS FOR THE MERGER 21
OPINION OF SOUTHWESTERN'S FINANCIAL ADVISOR 21
INTERESTS OF CERTAIN SOUTHWESTERN DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER 21
TREATMENT OF SOUTHWESTERN LONG-TERM INCENTIVE AWARDS IN THE MERGER 22
TREATMENT OF INDEBTEDNESS 23
CERTAIN BENEFICIAL OWNERS OF SOUTHWESTERN COMMON STOCK 24
OWNERSHIP OF CHESAPEAKE AFTER THE MERGER 24
BOARD OF DIRECTORS AND MANAGEMENT OF CHESAPEAKE AFTER COMPLETION OF THE MERGER 24
CONDITIONS TO THE COMPLETION OF THE MERGER 24
NO SOLICITATION OF ACQUISITION PROPOSALS BY SOUTHWESTERN 26
NO SOLICITATION OF ACQUISITION PROPOSALS BY CHESAPEAKE 28
NO CHANGE OF RECOMMENDATION BY SOUTHWESTERN 30
NO CHANGE OF RECOMMENDATION BY CHESAPEAKE 33
TERMINATION OF THE MERGER AGREEMENT 35
PAYMENT OF EXPENSES 36
TERMINATION FEE 36
ACCOUNTING TREATMENT 37
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES 37
EXCHANGE OF SHARES 38
COMPARISON OF RIGHTS OF SOUTHWESTERN SHAREHOLDERS AND CHESAPEAKE SHAREHOLDERS 38
LISTING OF CHESAPEAKE COMMON STOCK; DELISTING OF SOUTHWESTERN COMMON STOCK 38
REGULATORY APPROVALS 38
NO APPRAISAL RIGHTS 40
RISK FACTORS 40
CHESAPEAKE SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA 42
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Page
SOUTHWESTERN SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA 43
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL STATEMENTS 44
SUMMARY PRO FORMA COMBINED PROVED RESERVES AND PRODUCTION 45
DATA
UNAUDITED COMPARATIVE PER SHARE INFORMATION OF CHESAPEAKE AND SOUTHWESTERN 46
DIVIDEND INFORMATION 47
RISK FACTORS 49
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 64
PARTIES TO THE MERGER 65
SPECIAL MEETING OF CHESAPEAKE SHAREHOLDERS 66
GENERAL 66
DATE, TIME AND PLACE 66
PURPOSE OF THE CHESAPEAKE SPECIAL MEETING 66
RECOMMENDATION OF THE CHESAPEAKE BOARD 66
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE 67
QUORUM; ADJOURNMENT 67
REQUIRED VOTE 67
ABSTENTIONS AND BROKER NON-VOTES 68
FAILURE TO VOTE 68
VOTING BY CHESAPEAKE'S DIRECTORS AND EXECUTIVE OFFICERS 69
VOTING AT THE CHESAPEAKE SPECIAL MEETING 69
REVOCATION OF PROXIES 70
SOLICITATION OF PROXIES 70
TABULATION OF VOTES 70
NO APPRAISAL RIGHTS 70
HOUSEHOLDING OF CHESAPEAKE SPECIAL MEETING MATERIALS 70
QUESTIONS 71
ASSISTANCE 71
PROPOSAL 1 - CHESAPEAKE STOCK ISSUANCE PROPOSAL 72
PROPOSAL 2 - ADVISORY CHESAPEAKE COMPENSATION PROPOSAL 73
PROPOSAL 3 - CHESAPEAKE ADJOURNMENT PROPOSAL 74
SPECIAL MEETING OF SOUTHWESTERN SHAREHOLDERS 75
GENERAL 75
DATE, TIME AND PLACE 75
PURPOSE OF THE SOUTHWESTERN SPECIAL MEETING 75
RECOMMENDATION OF THE SOUTHWESTERN BOARD 75
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE 76
QUORUM; ADJOURNMENT 76
REQUIRED VOTE 76
ABSTENTIONS AND BROKER NON-VOTES 77
FAILURE TO VOTE 77
VOTING BY SOUTHWESTERN'S DIRECTORS AND EXECUTIVE OFFICERS 78
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Page
VOTING AT THE SOUTHWESTERN SPECIAL MEETING 78
REVOCATION OF PROXIES 79
SOLICITATION OF PROXIES 79
TABULATION OF VOTES 79
INSPECTOR OF ELECTION 79
NO APPRAISAL RIGHTS 80
HOUSEHOLDING OF SOUTHWESTERN SPECIAL MEETING MATERIALS 80
QUESTIONS 80
ASSISTANCE 80
SOUTHWESTERN PROPOSAL 1 - MERGER PROPOSAL 81
SOUTHWESTERN PROPOSAL 2 - ADVISORY SOUTHWESTERN COMPENSATION PROPOSAL 82
SOUTHWESTERN PROPOSAL 3 - SOUTHWESTERN ADJOURNMENT PROPOSAL 83
THE MERGER 84
STRUCTURE OF THE MERGER 84
BACKGROUND OF THE MERGER 84
RECOMMENDATION OF THE CHESAPEAKE BOARD AND ITS REASONS FOR THE MERGER 101
RECOMMENDATION OF THE SOUTHWESTERN BOARD AND ITS REASONS FOR THE MERGER 103
CERTAIN UNAUDITED FORECASTED FINANCIAL INFORMATION 109
OPINION OF CHESAPEAKE'S FINANCIAL ADVISOR 115
OPINION OF SOUTHWESTERN'S FINANCIAL ADVISOR 126
INTERESTS OF CERTAIN CHESAPEAKE DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER 132
INTERESTS OF CERTAIN SOUTHWESTERN DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER 135
CHANGE IN CONTROL COMPENSATION 141
INDEMNIFICATION AND INSURANCE 143
BOARD OF DIRECTORS OF THE COMBINED COMPANY FOLLOWING COMPLETION 144
OF THE MERGER
TREATMENT OF THE SOUTHWESTERN EQUITY AWARDS IN THE MERGER 144
ACCOUNTING TREATMENT OF THE MERGER 145
REGULATORY APPROVALS 145
NO ASSURANCES OF OBTAINING APPROVALS 146
DIVIDEND POLICY 147
LISTING OF CHESAPEAKE COMMON STOCK; DELISTING OF SOUTHWESTERN COMMON STOCK. 147
NO APPRAISAL RIGHTS 147
LITIGATION RELATING TO THE MERGER 147
THE MERGER AGREEMENT 148
EXPLANATORY NOTE REGARDING THE MERGER AGREEMENT 148
THE MERGER 148
CLOSING 149
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Page
ORGANIZATIONAL DOCUMENTS; DIRECTORS AND OFFICERS 149
POST-CLOSING MERGER 149
EFFECT OF THE MERGER ON CAPITAL STOCK; MERGER CONSIDERATION 149
TREATMENT OF SOUTHWESTERN LONG-TERM INCENTIVE AWARDS IN THE MERGER 150
CHESAPEAKE ACTIONS 151
PAYMENT FOR SECURITIES; EXCHANGE 151
CERTIFICATES 152
NON-DTC BOOK-ENTRY SHARES 152
DTC BOOK-ENTRY SHARES 152
NO INTEREST 152
TERMINATION OF RIGHTS 153
TERMINATION OF EXCHANGE FUND 153
NO LIABILITY 153
LOST, STOLEN, OR DESTROYED CERTIFICATES 153
DIVIDENDS OR OTHER DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF CHESAPEAKE COMMON STOCK 153
NO FRACTIONAL SHARES OF CHESAPEAKE COMMON STOCK 154
NO APPRAISAL RIGHTS 154
WITHHOLDING TAXES 154
REPRESENTATIONS AND WARRANTIES 154
DEFINITION OF MATERIAL ADVERSE EFFECT 156
INTERIM OPERATIONS OF SOUTHWESTERN AND CHESAPEAKE PENDING THE MERGER 157
NO SOLICITATION; CHANGE OF RECOMMENDATION 164
CERTAIN DEFINITIONS RELATING TO NO SOLICITATION AND NO CHANGE OF RECOMMENDATION COVENANTS 172
PREPARATION OF JOINT PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT 175
SHAREHOLDERS MEETINGS 176
ACCESS TO INFORMATION 178
CONFIDENTIALITY AGREEMENT 178
HSR AND OTHER REGULATORY APPROVALS 178
EMPLOYEE MATTERS 180
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE 181
TRANSACTION LITIGATION 182
PUBLIC ANNOUNCEMENTS 182
ADVICE ON CERTAIN MATTERS 182
FINANCING COOPERATION 182
REASONABLE BEST EFFORTS; NOTIFICATION 185
SECTION 16 MATTERS 185
STOCK EXCHANGE LISTING AND DELISTINGS 185
TREATMENT OF INDEBTEDNESS 186
TAX MATTERS 186
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Page
TAKEOVER LAWS 187
OBLIGATIONS OF MERGER SUB INC AND MERGER SUB LLC 187
TRANSFER TAXES 187
DERIVATIVE CONTRACTS; HEDGING MATTERS 187
CONDITIONS TO THE COMPLETION OF THE MERGER 188
TERMINATION 190
NO THIRD-PARTY BENEFICIARIES 193
AMENDMENT 193
GOVERNING LAW 194
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 195
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES 209
COMPARISON OF RIGHTS OF SOUTHWESTERN SHAREHOLDERS AND CHESAPEAKE 212
SHAREHOLDERS
CERTAIN BENEFICIAL OWNERS OF CHESAPEAKE COMMON STOCK 238
CERTAIN BENEFICIAL OWNERS OF SOUTHWESTERN COMMON STOCK 240
VALIDITY OF COMMON STOCK 242
EXPERTS 243
SHAREHOLDER AND SHAREHOLDER PROPOSALS 244
HOUSEHOLDING OF PROXY MATERIALS 246
WHERE YOU CAN FIND MORE INFORMATION 247
ANNEX A - AGREEMENT AND PLAN OF MERGER A-1
ANNEX B - OPINION OF CHESAPEAKE FINANCIAL ADVISOR B-1
ANNEX C - OPINION OF SOUTHWESTERN FINANCIAL ADVISOR C-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND SPECIAL MEETINGS
The following questions and answers briefly address some commonly asked
questions about the Chesapeake Special Meeting, the Southwestern Special
Meeting and the Merger. They may not include all the information that is
important to Chesapeake shareholders and Southwestern shareholders. Chesapeake
shareholders and Southwestern shareholders should carefully read this entire
joint proxy statement/prospectus, including the annexes and the other
documents referred to herein.
Q:
Why am I receiving these materials?
A:
This joint proxy statement/prospectus serves as a proxy statement for the
Chesapeake Special Meeting and the Southwestern Special Meeting.
You are receiving this joint proxy statement/prospectus because Chesapeake and
Southwestern have entered into the Merger Agreement, pursuant to which, on the
terms and subject to the fulfillment or, to the extent permissible under
applicable law, waiver of the conditions included in the Merger Agreement,
Merger Sub Inc will merge with and into Southwestern (the "Merger"), the
separate existence of Merger Sub Inc will cease and Southwestern will continue
as the surviving entity (the "Surviving Corporation") in the Merger as a
wholly owned subsidiary of Chesapeake. Immediately following the Effective
Time, the Surviving Corporation will be merged with and into Merger Sub LLC,
with Merger Sub LLC continuing as the surviving entity and as a wholly owned
subsidiary of Chesapeake (together with the Merger, the "Integrated Mergers").
As referred to in this joint proxy statement/prospectus, the "Effective Time"
means the Effective Time as set forth in the Merger Agreement. The Merger
Agreement governs the terms of the Merger of Merger Sub Inc and Southwestern
and is attached to this joint proxy statement/prospectus as
Annex A
.
In order to complete the Merger, among other things, Chesapeake shareholders
must approve of the issuance of Chesapeake Common Stock in connection with the
Merger, and Southwestern shareholders must approve the Merger Agreement in
accordance with Delaware law.
This joint proxy statement/prospectus serves as both the proxy statement
through which Chesapeake and Southwestern will solicit proxies to obtain the
necessary shareholder approvals for the Merger and the prospectus by which
Chesapeake will issue shares of Chesapeake Common Stock as consideration in
the Merger.
This joint proxy statement/prospectus, which you should carefully read in its
entirety, contains important information about the Southwestern Special
Meeting and Chesapeake Special Meeting, the Merger and other matters.
Q:
What will happen in the Merger?
A:
The Merger Agreement sets forth the terms and conditions of the proposed
Merger of Merger Sub Inc and Southwestern. Under the Merger Agreement, Merger
Sub Inc will merge with and into Southwestern, the separate existence of
Merger Sub Inc will cease and Southwestern will continue as the Surviving
Corporation in the Merger as a wholly owned subsidiary of Chesapeake.
Immediately following the Effective Time, the Surviving Corporation will be
merged with and into Merger Sub LLC, with Merger Sub LLC continuing as the
surviving entity and as a wholly owned subsidiary of Chesapeake.
The Merger Agreement is attached to this joint proxy statement/prospectus as
Annex A
. For a more complete discussion of the proposed Merger, its effects and the
other transactions contemplated by the Merger Agreement, please see "
The Merger
" elsewhere in this joint proxy statement/prospectus.
Q:
When and where is the Chesapeake Special Meeting? How can I attend the
Chesapeake Special Meeting?
A:
The Chesapeake Special Meeting will be held virtually at www.virtualshareholderm
eeting.com/CHK2024SM, on June 18, 2024, at 10:00 a.m., Central Time. Online
access will begin at 9:45 a.m., Central Time, and Chesapeake encourages its
shareholders to access the meeting prior to the start time. The Chesapeake
Special Meeting will be held in a virtual meeting format only, via live
webcast, and there will not be a physical meeting location.
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Chesapeake shareholders at the close of business on the Chesapeake Record Date
may attend, vote and submit questions virtually at the Chesapeake Special
Meeting by logging in at www.virtualshareholdermeeting.com/CHK2024SM. To log
in, Chesapeake shareholders (or their authorized representatives) will need
the control number provided on their proxy card, voting instruction form or
notice. If you are not a Chesapeake shareholder or do not have a control
number, you may still access the meeting as a guest, but you will not be able
to participate.
Even if you plan to attend the Chesapeake Special Meeting virtually,
Chesapeake recommends that you submit a proxy with respect to your shares in
advance as described above so that your vote will be counted if you later
decide not to or become unable to attend the Chesapeake Special Meeting.
Q:
What are Chesapeake shareholders being asked to vote on?
A:
Chesapeake is holding the Chesapeake Special Meeting to vote on (i) the
approval of the issuance of shares of Chesapeake Common Stock in connection
with the Merger (the "Stock Issuance Proposal"), pursuant to Rule 5635(a) of
the Nasdaq Stock Market Listing Rules, (ii) approval, by non-binding, advisory
vote, of certain compensation arrangements for Chesapeake's named executive
officers in connection with the Merger contemplated by the Merger Agreement
(the "Advisory Chesapeake Compensation Proposal") and (iii) if needed, the
approval of the adjournment of the Chesapeake Special Meeting to solicit
additional proxies if there are not sufficient votes cast at the Chesapeake
Special Meeting to approve the Stock Issuance Proposal (the "Chesapeake
Adjournment Proposal").
Your vote is very important, regardless of the number of shares that you own.
The approval of the Stock Issuance Proposal is a condition to the obligations
of each of Chesapeake and Southwestern to complete the Merger.
Q:
When and where is the Southwestern Special Meeting? How can I attend the
Southwestern Special Meeting?
A:
The Southwestern Special Meeting will be held virtually at www.virtualshareholde
rmeeting.com/SWN2024SM, on June 18, 2024, at 10:00 a.m., Central Time. Online
access will begin at 9:45 a.m., Central Time, and Southwestern encourages its
shareholders to access the meeting prior to the start time. The Southwestern
Special Meeting will be held in a virtual meeting format only, via live
webcast, and there will not be a physical meeting location.
Southwestern shareholders as of the Southwestern Record Date may attend, vote
and submit questions virtually at the Southwestern Special Meeting by logging
in at www.virtualshareholdermeeting.com/SWN2024SM. To log in, Southwestern
shareholders (or their authorized representatives) will need the control
number provided on their proxy card, voting instruction form or notice. If you
are not a Southwestern shareholder or do not have a control number, you may
still access the meeting as a guest, but you will not be able to participate.
Even if you plan to attend the Southwestern Special Meeting virtually,
Southwestern recommends that you submit a proxy with respect to your shares in
advance as described above so that your vote will be counted if you later
decide not to or become unable to attend the Southwestern Special Meeting.
Q:
What are Southwestern shareholders being asked to vote on?
A:
The Southwestern shareholders are being asked to consider and vote upon (i) a
proposal to approve the Merger Agreement, a copy of which is attached as
Annex A
to the joint proxy statement/prospectus (the "Merger Proposal"), pursuant to
which Southwestern shareholders will receive, for each share of Southwestern
Common Stock that they own as of immediately prior to the Effective Time,
0.0867 of a share of Chesapeake Common Stock, (ii) a proposal to approve, on a
non-binding advisory basis, the compensation that may be paid or become
payable to Southwestern's named executive officers that is based on or
otherwise relates to the Merger (the "Advisory Southwestern Compensation
Proposal") and (iii) a proposal to approve the adjournment of the Southwestern
Special Meeting, if necessary or appropriate, to solicit additional votes from
shareholders if there are not sufficient votes to adopt the Merger Proposal
(the "Southwestern Adjournment Proposal").
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Q:
How important is my vote as a Chesapeake shareholder?
A:
Your vote "
FOR
" each proposal presented at the Chesapeake Special Meeting is very important,
and you are encouraged to submit a proxy as soon as possible. The Chesapeake
Board recommends that holders of Chesapeake Common Stock vote
"FOR"
the Stock Issuance Proposal,
"FOR"
the Advisory Chesapeake Compensation Proposal and
"FOR"
the Chesapeake Adjournment Proposal. You are encouraged to submit a proxy as
soon as possible. The Merger between Chesapeake and Southwestern cannot be
completed without the approval of the Stock Issuance Proposal by Chesapeake
shareholders. The Advisory Chesapeake Compensation Proposal is not a condition
to the consummation of the Merger.
Q:
How important is my vote as a Southwestern shareholder?
A:
Your vote is very important. The board of directors of Southwestern (the
"Southwestern Board") unanimously recommends that Southwestern shareholders
vote "
FOR
" the Merger Proposal, vote "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" for the Southwestern Adjournment Proposal. You are encouraged to submit a
proxy as soon as possible. The Merger between Chesapeake and Southwestern
cannot be completed without the approval of the Merger Proposal by
Southwestern shareholders. The Advisory Southwestern Compensation Proposal is
not a condition to the consummation of the Merger.
Q:
What constitutes a quorum, and what vote is required to approve each proposal
at the Chesapeake Special Meeting?
A:
The holders of a majority of the outstanding shares of Chesapeake Common Stock
entitled to vote at the Chesapeake Special Meeting must be represented at the
Chesapeake Special Meeting in person or by proxy in order to constitute a
quorum. Virtual attendance at the Chesapeake Special Meeting will constitute
presence in person for the purpose of determining the presence of a quorum for
the transaction of business at the Chesapeake Special Meeting.
The Stock Issuance Proposal.
Assuming a quorum is present, approval of the Stock Issuance Proposal,
requires the affirmative vote of the holders of shares of Chesapeake Common
Stock representing a majority of votes properly cast in person or represented
by proxy on the Stock Issuance Proposal at the Chesapeake Special Meeting.
Accordingly, with respect to a Chesapeake shareholder who is present in person
or represented by proxy at the Chesapeake Special Meeting, such shareholder's
abstention from voting or the failure of a Chesapeake shareholder to vote will
have no effect on the outcome of the Stock Issuance Proposal. The failure of a
Chesapeake shareholder who holds shares in "street name" through a bank,
broker or other nominee to give voting instructions to the bank, broker or
other nominee will have no effect on the outcome of the Stock Issuance
Proposal.
The Advisory Chesapeake Compensation Proposal
. Assuming a quorum is present, approval of the Advisory Chesapeake
Compensation Proposal, requires the affirmative vote of the holders of shares
of Chesapeake Common Stock representing a majority of votes properly cast in
person or represented by proxy on the Advisory Chesapeake Compensation
Proposal at the Chesapeake Special Meeting. Accordingly, with respect to a
Chesapeake shareholder who is present in person or represented by proxy at the
Chesapeake Special Meeting, such shareholder's abstention from voting or the
failure of a Chesapeake shareholder to vote will have no effect on the outcome
of the Advisory Chesapeake Compensation Proposal. The failure of a Chesapeake
shareholder who holds shares in "street name" through a bank, broker or other
nominee to give voting instructions to the bank, broker or other nominee will
have no effect on the outcome of the Advisory Chesapeake Compensation Proposal.
Chesapeake Adjournment Proposal.
Assuming a quorum is present, approval of the Chesapeake Adjournment Proposal
requires the affirmative vote of holders of a majority of the shares of
Chesapeake Common Stock present in person or represented by proxy at the
Chesapeake Special Meeting. Virtual attendance at the Chesapeake Special
Meeting constitutes presence in person for purposes of determining the
presence of a quorum for the transaction of business at the Chesapeake Special
Meeting.
Accordingly, with respect to a Chesapeake shareholder who is present in person
or represented by proxy at the Chesapeake Special Meeting, such shareholder's
abstention from voting or the failure of a
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Chesapeake shareholder to vote will have no effect on the outcome of the
Chesapeake Adjournment Proposal. The failure of a Chesapeake shareholder who
holds shares in "street name" through a bank, broker or other nominee to give
voting instructions to the bank, broker or other nominee will have no effect
on the outcome of the Chesapeake Adjournment Proposal. Regardless of the
outcome of the Chesapeake Adjournment Proposal, in accordance with Section 1.5
of the Chesapeake Bylaws, the chair of the Chesapeake Special Meeting may
adjourn the Chesapeake Special Meeting from time to time, whether or not there
is a quorum. Chesapeake does not intend to call a vote on the Chesapeake
Adjournment Proposal if the Stock Issuance Proposal is approved at the
Chesapeake Special Meeting.
Q:
What constitutes a quorum, and what vote is required to approve each proposal
at the Southwestern Special Meeting?
A:
The presence, in person or by proxy, at the Southwestern Special Meeting of
the holders of a majority of the outstanding shares of Southwestern Common
Stock entitled to vote at the Southwestern Special Meeting as of the close of
business on the Southwestern Record Date will constitute a quorum for purposes
of transacting business at the Southwestern Special Meeting. Virtual
attendance at the Southwestern Special Meeting will constitute presence in
person for the purpose of determining the presence of a quorum for the
transaction of business at the Southwestern Special Meeting. Withheld votes
and abstentions will count as present for purposes of establishing a quorum
during the Southwestern Special Meeting.
The Merger Proposal
. Assuming a quorum is present, approval of the Merger Proposal requires the
affirmative vote of holders of a majority of the outstanding shares of
Southwestern Common Stock entitled to vote thereon. Accordingly, a
Southwestern shareholder's abstention from voting or the failure of a
Southwestern shareholder to vote (including the failure of a Southwestern
shareholder who holds Southwestern Common Stock in "street name" through a
bank, broker or other nominee to give voting instructions to the bank, broker
or other nominee) will have the same effect as a vote "against" the Merger
Proposal.
The Advisory Southwestern Compensation Proposal.
Assuming a quorum is present, approval of the Advisory Southwestern
Compensation Proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of Southwestern Common Stock properly cast
at the Southwestern Special Meeting. Accordingly, a Southwestern shareholder's
abstention from voting or the failure of a Southwestern shareholder to vote
(including the failure of a Southwestern shareholder who holds Southwestern
Common Stock in "street name" through a bank, broker or other nominee to give
voting instructions to the bank, broker or other nominee) will have no effect
on the Advisory Southwestern Compensation Proposal.
The Southwestern Adjournment Proposal
. Approval of the Southwestern Adjournment Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of Southwestern
Common Stock cast at the Southwestern Special Meeting. Accordingly, a
Southwestern shareholder's abstention from voting or the failure of a
Southwestern shareholder to vote (including the failure of a Southwestern
shareholder who holds Southwestern Common Stock in "street name" through a
bank, broker or other nominee to give voting instructions to the bank, broker
or other nominee) will have no effect on the Southwestern Adjournment
Proposal. Regardless of whether there is a quorum, the presiding officer of
the Southwestern Special Meeting or the chair of the Southwestern Board may
also adjourn the Southwestern Special Meeting. Southwestern does not intend to
call a vote on the Southwestern Adjournment Proposal if the Merger Proposal is
approved at the Southwestern Special Meeting.
Q:
What will Southwestern shareholders receive if the Merger is completed?
A:
If the Merger is completed, each share of Southwestern Common Stock issued and
outstanding at the Effective Time, excluding any share of Southwestern Common
Stock owned immediately prior to the Effective Time by Southwestern as
treasury shares or by Chesapeake or Merger Sub Inc (the "Excluded Shares")
(such shares of Southwestern Common Stock, the "Eligible Shares"), will
automatically convert into and will thereafter represent the right to receive
0.0867 duly authorized and validly issued shares
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of Chesapeake Common Stock. Each Southwestern shareholder will receive cash in
lieu of any fractional share of Chesapeake Common Stock that such Southwestern
shareholder would otherwise be entitled to receive in the Merger.
Because Chesapeake will issue a fixed number of shares of Chesapeake Common
Stock in exchange for each share of Southwestern Common Stock, the value of
the Merger Consideration that Southwestern shareholders will receive in the
Merger will depend on the market price of shares of Chesapeake Common Stock at
the Effective Time. The market price of shares of Chesapeake Common Stock that
Southwestern shareholders receive at the Effective Time could be greater than,
less than or the same as the market price of shares of Chesapeake Common Stock
on the date of this joint proxy statement/
prospectus or at the time of the Southwestern Special Meeting. Accordingly,
you should obtain current market quotations for Chesapeake Common Stock and
Southwestern Common Stock before deciding how to vote with respect to the
Merger Proposal or the Stock Issuance Proposal, as applicable. Chesapeake
Common Stock is traded on Nasdaq under the symbol "CHK." Southwestern Common
Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "SWN."
For more information regarding the Merger Consideration to be received by
Southwestern shareholders if the Merger is completed, please see "
The Merger Agreement - Effect of the Merger on Capital Stock; Merger
Consideration
."
Q:
Who will own Chesapeake immediately following the Merger?
A:
Chesapeake and Southwestern estimate that upon the completion of the Merger,
Chesapeake shareholders will own approximately 60% and Southwestern
shareholders will own approximately 40% of the outstanding Chesapeake Common
Stock (in each case based on fully diluted shares outstanding of each company).
Q:
Will Southwestern equity and other long-term incentive awards be affected by
the Merger?
A:
Upon the completion of the Merger, outstanding Southwestern long-term
incentive awards will be affected as described below.
.
each outstanding restricted stock award of Southwestern (each, a "Southwestern
Restricted Stock Award") will automatically vest in full, any restrictions
with respect to each such Southwestern Restricted Stock Award shall lapse and
each such Southwestern Restricted Stock Award will convert into the right to
receive a number of shares of Chesapeake Common Stock equal to (i) the
Exchange Ratio, multiplied by (ii) the total number of shares of Southwestern
Common Stock attributable to such Southwestern Restricted Stock Award;
.
each outstanding restricted stock unit award of Southwestern under
Southwestern's Nonemployee Director Deferred Compensation Plan (each, a
"Southwestern Director RSU Award") will automatically vest in full, be
canceled, and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied by (ii)
the total number of shares of Southwestern Common Stock subject to such
Southwestern Director RSU Award, together with accrued dividend equivalent
payments in each case issuable and payable at the time or times specified in
Southwestern's Nonemployee Director Deferred Compensation Plan and in
accordance with such director's deferral elections as set forth in the
applicable Deferred Compensation Agreement;
.
each outstanding restricted stock unit award of Southwestern that (i) was
granted pursuant to Southwestern's 2013 Incentive Plan (the "2013 Plan") or
(ii) was granted prior to the date of the Merger Agreement and is held by an
employee of Southwestern or its subsidiaries whose employment is terminated
upon or immediately after the Effective Time, and, in either case, is subject
only to time-based vesting conditions (each, a "Southwestern Single-Trigger
RSU Award") will vest in full, be canceled and convert into the right to
receive a number of shares of Chesapeake Common Stock equal to (A) the
Exchange Ratio, multiplied by (B) the total number of shares of Southwestern
Common Stock subject to each such Southwestern Single-Trigger RSU Award,
together with accrued dividend equivalent payments, in each case issuable and
payable in accordance with the terms of the applicable Southwestern
Single-Trigger RSU Award agreement;
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.
each outstanding restricted stock unit award that was granted pursuant to
Southwestern's 2022 Incentive Plan (the "2022 Plan" and, together with the
2013 Plan, the "Southwestern Incentive Plans") (and not a Southwestern
Single-Trigger RSU Award) and that is subject only to time-based vesting
conditions (each, a "Southwestern Double-Trigger RSU Award") will be canceled
and convert into an award of restricted stock units in respect of shares of
Chesapeake Common Stock (a "Parent RSU Award") equal to the product (rounded
to the nearest whole share) of (i) the total number of shares of Southwestern
Common Stock subject to such Southwestern Double-Trigger RSU Award immediately
prior to the Effective Time multiplied by (ii) the Exchange Ratio. Such Parent
RSU Award of Chesapeake will vest and be payable on the same terms and
conditions (including "double-trigger" vesting provisions) as are set forth in
the corresponding Southwestern Double-Trigger RSU Award agreement (except that
such award will be payable in Chesapeake Common Stock);
.
each outstanding award of restricted stock units that is subject to
performance-based vesting conditions (a "Performance Unit Award") that was
granted by Southwestern (i) pursuant to the 2013 Plan or (ii) prior to the
date of the Merger Agreement and was held by an employee of Southwestern or
its subsidiaries whose employment was terminated upon or immediately after the
Effective Time (each, a "Southwestern Single-Trigger Performance Unit Award")
will (A) automatically vest in full and become payable at the greater of (1)
the level based on actual performance determined as of immediately prior to
the Effective Time in accordance with the terms of the applicable Southwestern
Single-Trigger Performance Unit Award agreement and (2) the target level (the
number of shares of Southwestern Common Stock payable pursuant to the
foregoing, the "Earned Company Performance Shares"), and (B) be canceled and
convert into the right to receive a number of shares of Chesapeake Common
Stock equal to (1) the Exchange Ratio, multiplied by (2) the number of Earned
Company Performance Shares, together with accrued dividend equivalent
payments, in each case issuable and payable in accordance with the terms of
the applicable Southwestern Single-Trigger Performance Unit Award agreement;
.
each outstanding Performance Unit Award of Southwestern that was granted
pursuant to the 2022 Plan (and not a Southwestern Single-Trigger Performance
Unit Award) (each, a "Southwestern Double-Trigger Performance Unit Award")
will be deemed to correspond to a number of Earned Company Performance Shares
determined in the same manner as described in the immediately foregoing bullet
point, and will be canceled and convert into a Parent RSU Award in respect of
that number of shares of Chesapeake Common Stock equal to the product (rounded
to the nearest whole share) of (i) the number of Earned Company Performance
Shares with respect to such Southwestern Double-Trigger Performance Unit Award
multiplied by (ii) the Exchange Ratio. Such Parent RSU Award will vest at the
end of the original performance period associated with the corresponding
Southwestern Double-Trigger Performance Unit Award and will otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
award agreement (except that such award will be payable in shares of
Chesapeake Common Stock and will no longer be subject to performance-based
vesting conditions);
.
each outstanding performance cash unit award of Southwestern that (i) was
granted pursuant to the 2013 Plan or (ii) was granted prior to the date of the
Merger Agreement and was held by a Southwestern employee whose employment was
terminated upon or immediately after the Effective Time (each, a "Southwestern
Single-Trigger PCU Award") will automatically vest in full and become payable
in cash in an amount equal to $1.00 multiplied by the greater of (A) the
percentage earned based on actual performance determined as of immediately
prior to the Effective Time in accordance with the terms of the applicable
Southwestern Single-Trigger PCU Award agreement and (B) 100%; and
.
each outstanding performance cash unit award of Southwestern that was granted
pursuant to the 2022 Plan (other than Southwestern Single-Trigger PCU Awards)
(each, a "Southwestern Double-Trigger PCU Award") will be deemed earned at a
level equal to $1.00 multiplied by the greater of (i) the percentage earned
based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Double-Trigger PCU Award agreement and (ii) 100%. Such amount will vest and be
payable in cash at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger PCU Award
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and will otherwise be subject to and payable on the same terms and conditions
(including "double-trigger" vesting provisions) as are set forth in the
corresponding award agreement, except that such award will no longer be
subject to performance-based vesting conditions.
For additional information regarding Southwestern equity and other long-term
incentive awards, please see "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger
" and "
The Merger Agreement - Treatment of Southwestern Long-Term Incentive Awards in
the Merger
."
Q:
What will the composition of the board of directors and management of
Chesapeake be following completion of the Merger?
A:
The Chesapeake Board at the Effective Time is expected to be composed of (i)
seven directors selected by Chesapeake and (ii) four directors selected by
Southwestern (Catherine A. Kehr, the current Chair of the Southwestern Board,
John D. Gass, Shameek Konar and Anne Taylor), each of whom were members of the
Southwestern Board as of January 10, 2024. We expect the management of
Chesapeake following the completion of the Merger will include Domenic J.
Dell'Osso, Jr. as President and Chief Executive Officer, Mohit Singh as
Executive Vice President and Chief Financial Officer, Joshua J. Viets as
Executive Vice President and Chief Operation Officer and Chris Lacy as
Executive Vice President, General Counsel and Corporate Secretary. For
additional information regarding the Chesapeake Board and the management of
Chesapeake following the completion of the Merger, please see "
The Merger Agreement - Organizational Documents; Directors and Officers
."
Q:
How does the Southwestern Board recommend that I vote at the Southwestern
Special Meeting?
A:
The Southwestern Board unanimously recommends that you vote "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal. For additional information regarding
the recommendation of the Southwestern Board, please see "
The Merger - Recommendation of the Southwestern Board and its Reasons for the
Merger
."
Q:
Who is entitled to vote at the Southwestern Special Meeting?
A:
The record date for the Southwestern Special Meeting is April 22, 2024 (the
"Southwestern Record Date"). All Southwestern shareholders who held shares at
the close of business on the Southwestern Record Date are entitled to receive
notice of, and to vote at, the Southwestern Special Meeting. Each such
Southwestern shareholder is entitled to cast one vote on each matter properly
brought before the Southwestern Special Meeting for each share of Southwestern
Common Stock that such holder owned of record as of the Southwestern Record
Date. Attendance at the Southwestern Special Meeting, which will be held
virtually, is not required for a Southwestern shareholder's shares to be
voted. Please see "
Special Meeting of Southwestern Shareholders - Voting at the Southwestern
Special Meeting
" for instructions on how to submit a proxy for your shares without attending
the Southwestern Special Meeting.
Q:
How does the Chesapeake Board recommend that I vote at the Chesapeake Special
Meeting?
A:
The Chesapeake Board recommends that you vote "
FOR
" the Stock Issuance Proposal, "
FOR"
the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal. For additional information regarding
the recommendation of the Chesapeake Board, please see "
The Merger - Recommendation of the Chesapeake Board and its Reasons for the
Merger
."
Q:
Who is entitled to vote at the Chesapeake Special Meeting?
A:
The record date for the Chesapeake Special Meeting is April 22, 2024 (the
"Chesapeake Record Date"). All holders of shares of Chesapeake Common Stock
who held shares at the close of business on the Chesapeake Record Date are
entitled to receive notice of, and to vote at, the Chesapeake Special Meeting.
Each such holder of Chesapeake Common Stock is entitled to cast one vote on
each matter properly brought before the Chesapeake Special Meeting for each
share of Chesapeake Common Stock that such holder owned of record as of the
Chesapeake Record Date. Please see "
Special Meeting of Chesapeake
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Shareholders - Voting at the Chesapeake Special Meeting
" for instructions on how to vote your shares without attending the Chesapeake
Special Meeting.
Q:
What is a proxy?
A:
A shareholder's legal designation of another person to vote shares of such
shareholder's common stock at a special or annual meeting is referred to as a
proxy. The document used to designate a proxy to vote your shares is called a
proxy card.
Q:
How many votes do I have for the Southwestern Special Meeting?
A:
Each Southwestern shareholder is entitled to one vote for each share of
Southwestern Common Stock held of record as of the close of business on the
Southwestern Record Date for each proposal. As of the close of business on the
Southwestern Record Date, there were 1,102,846,071 outstanding shares of
Southwestern Common Stock.
Q:
How many votes do I have for the Chesapeake Special Meeting?
A:
Each Chesapeake shareholder is entitled to one vote for each share of
Chesapeake Common Stock held of record at the close of business on the
Chesapeake Record Date for each proposal. As of the close of business on the
Chesapeake Record Date, there were 130,794,770 outstanding shares of
Chesapeake Common Stock.
Q:
What will happen to my shares of Chesapeake Common Stock?
A:
Nothing. You will continue to own the same shares of Chesapeake Common Stock
that you owned prior to the Effective Time. As a result of the Stock Issuance
Proposal, however, the overall ownership percentage of current Chesapeake
shareholders in the combined company will be diluted.
Q:
What happens if the Merger is not completed?
A:
If the Southwestern shareholders do not approve the Merger Proposal or the
Chesapeake shareholders do not approve the Stock Issuance Proposal, or if the
Merger is not completed for any other reason, Southwestern shareholders will
not receive any Merger Consideration for their Southwestern Common Stock in
connection with the Merger. Instead, Chesapeake and Southwestern will each
remain independent public companies. The Chesapeake Common Stock will continue
to be listed and traded on Nasdaq, and Southwestern Common Stock will continue
to be listed and traded on the NYSE. Additionally, if the Merger Proposal is
not approved by Southwestern shareholders or if the Merger is not completed
for any other reason, Chesapeake will not issue shares of Chesapeake Common
Stock to Southwestern shareholders. If the Merger Agreement is terminated
under certain specified circumstances, Chesapeake may be required to reimburse
Southwestern in an amount equal to $37.25 million in respect of Southwestern's
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement, or to pay to Southwestern a
termination fee of $389 million, less any expenses previously paid. If the
Merger Agreement is terminated under certain specified circumstances,
Southwestern may be required to reimburse Chesapeake in an amount equal to
$55.6 million in respect of Chesapeake's costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement, or to pay Chesapeake a termination fee of $260 million, less
any expenses previously paid. Please see "
The Merger Agreement - Termination
" for a more detailed discussion of the termination fees.
Q:
What happens if the Advisory Southwestern Compensation Proposal is not
approved by Southwestern shareholders?
A:
This vote is advisory and non-binding, and the Merger is not conditioned or
dependent upon the approval of the Advisory Southwestern Compensation Proposal
by Southwestern shareholders. However, Southwestern and Chesapeake value the
opinions of Southwestern shareholders, and Chesapeake expects to consider the
outcome of the vote, along with other relevant factors, when considering future
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executive compensation, assuming the Merger is completed. Because the
executive compensation to be paid in connection with the Merger is based on
the terms of the Merger Agreement as well as the contractual arrangements
between Southwestern and its named executive officers, subject to the
contractual conditions applicable thereto, such compensation will be payable,
regardless of the outcome of this advisory vote if the Merger Proposal is
approved. However, Southwestern seeks the support of its shareholders and
believes that shareholder support is appropriate because Southwestern has a
comprehensive executive compensation program designed to link the compensation
of its named executive officers with Southwestern's performance and the
interests of Southwestern shareholders.
Q:
How can I vote my shares and participate at the Southwestern Special Meeting?
A:
If you are a Southwestern shareholder of record as of the close of business on
the Southwestern Record Date, you may submit your proxy before the
Southwestern Special Meeting in one of the following ways:
.
Telephone
-use the toll-free number shown on your proxy card;
.
Internet
-visit the website shown on your proxy card to vote via the Internet; or
.
Mail
-complete, sign, date and return the enclosed proxy card in the enclosed
postage-paid envelope.
If you are a Southwestern shareholder of record, you may also cast your vote
virtually at the Southwestern Special Meeting by following the instructions at
www.virtualshareholdermeeting.com/SWN2024SM. If you decide to attend the
Southwestern Special Meeting virtually and vote at the meeting, your vote will
revoke any proxy previously submitted.
The Southwestern Special Meeting will begin promptly at 10:00 a.m., Central
Time, on June 18, 2024. The Southwestern Special Meeting can be accessed by
visiting www.virtualshareholdermeeting.com/SWN2024SM, where Southwestern
shareholders will be able to participate and vote online. Southwestern
encourages its shareholders to access the meeting prior to the start time
leaving ample time for check-in. Please follow the instructions as outlined in
this joint proxy statement/prospectus.
Even if you plan to attend the Southwestern Special Meeting virtually,
Southwestern recommends that you submit your proxy with respect to your shares
in advance as described below so that your vote will be counted if you later
decide not to or become unable to attend the Southwestern Special Meeting.
Q:
How can I vote my shares without attending the Southwestern Special Meeting?
A:
Whether you hold your shares directly as a shareholder of record of
Southwestern or beneficially in "street name," you may direct your vote by
proxy without attending the Southwestern Special Meeting. You can submit your
proxy by mail, over the Internet or by telephone by following the instructions
provided in the enclosed proxy card. Please note that if you hold shares
beneficially in "street name," you should follow the voting instructions
provided by your bank, broker or other nominee.
Additional information on voting procedures can be found under "
Special Meeting of Southwestern Shareholders
."
Q:
How can I vote my shares and participate at the Chesapeake Special Meeting?
A:
If you are a Chesapeake shareholder of record at the close of business on the
Chesapeake Record Date, you may submit your proxy before the Chesapeake
Special Meeting in one of the following ways:
.
Telephone
-use the toll-free number shown on your proxy card;
.
Internet
-visit the website shown on your proxy card to vote via the Internet; or
.
Mail
-complete, sign, date and return the enclosed proxy card in the enclosed
postage-paid envelope.
If you are a Chesapeake shareholder of record, you may also cast your vote
virtually at the Chesapeake Special Meeting by following the instructions at
www.virtualshareholdermeeting.com/CHK2024SM.
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If you decide to attend the Chesapeake Special Meeting virtually and vote at
the meeting, your vote will revoke any proxy previously submitted.
The Chesapeake Special Meeting will begin promptly at 10:00 a.m., Central
Time, on June 18, 2024. Chesapeake encourages its shareholders to access the
meeting prior to the start time leaving ample time for check-in. Please follow
the instructions as outlined in this joint proxy statement/prospectus.
Even if you plan to attend the Chesapeake Special Meeting virtually,
Chesapeake recommends that you vote your shares in advance as described below
so that your vote will be counted if you later decide not to or become unable
to attend the Chesapeake Special Meeting.
Q:
How can I vote my shares without attending the Chesapeake Special Meeting?
A:
Whether you hold your shares directly as a shareholder of record of Chesapeake
or beneficially in "street name," you may direct your vote by proxy without
attending the Chesapeake Special Meeting. You can vote by proxy by mail, over
the Internet or by telephone by following the instructions provided in the
enclosed proxy card. Please note that if you hold shares beneficially in
"street name," you should follow the voting instructions provided by your
bank, broker or other nominee.
Additional information on voting procedures can be found under "
Special Meeting of Chesapeake Shareholders
."
Q:
What is the difference between holding shares as a shareholder of record and
as a beneficial owner of shares held in "street name?"
A:
If your shares are held in "street name" in a stock brokerage account or by a
bank or other nominee, you must provide the record holder of your shares with
instructions on how to vote your shares. Please follow the voting instructions
provided by your broker, bank or other nominee. Please note that you may not
vote shares held in street name by returning a proxy card directly to
Chesapeake or Southwestern, as applicable, or by voting in person at the
Chesapeake Special Meeting or Southwestern Special Meeting, as applicable,
unless you provide a "legal proxy," which you must obtain from your broker,
bank or other nominee.
Q:
If my Southwestern Common Stock or Chesapeake Common Stock are held in "street
name" by my bank, broker or other nominee, will my bank, broker or other
nominee automatically vote those shares for me?
A:
Under the rules of the NYSE and Nasdaq, as applicable, your bank, broker or
other nominee will only be permitted to vote your shares of Southwestern
Common Stock or Chesapeake Common Stock, as applicable, on "non-routine"
matters if you instruct your bank, broker or other nominee how to vote. All of
the proposals scheduled for consideration at the Southwestern Special Meeting
and Chesapeake Special Meeting are "non-routine" matters. As a result, if you
fail to provide voting instructions to your broker, bank or other nominee,
your shares will not be counted as present at the Southwestern Special Meeting
or Chesapeake Special Meeting, as applicable, for purposes of determining a
quorum and will not be voted on any of the proposals. To make sure that your
shares are voted on each of the proposals, you should instruct your bank,
broker or other nominee how you wish to vote your shares in accordance with
the procedures provided by your bank, broker or other nominee regarding the
voting of your shares.
The effect of a Southwestern shareholder not instructing its, his or her bank,
broker or other nominee how such shareholder wishes to vote its, his or her
shares will have the same effect as a vote "against" the Merger Proposal, but
will have no effect on the outcome of the Advisory Southwestern Compensation
Proposal or the Southwestern Adjournment Proposal.
The effect of a Chesapeake shareholder not instructing its, his or her bank,
broker or other nominee how such shareholder wishes to vote its, his or her
shares will have no effect on the outcome of the Stock Issuance Proposal, the
Advisory Chesapeake Compensation Proposal or the Chesapeake Adjournment
Proposal.
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Q:
What should I do if I receive more than one set of voting materials for a
shareholder or shareholder meeting?
A:
If you hold shares of Southwestern Common Stock or Chesapeake Common Stock in
"street name" and also directly in your name as a shareholder or shareholder
of record or otherwise, or if you hold Southwestern Common Stock or Chesapeake
Common Stock in more than one brokerage account, you may receive more than one
set of voting materials relating to the Southwestern Special Meeting or the
Chesapeake Special Meeting, as applicable.
Record Holders
. For shares held directly, please complete, sign, date and return each proxy
card, or you may cast your vote by telephone or Internet as provided on each
proxy card, or otherwise follow the voting instructions provided in this joint
proxy statement/prospectus in order to ensure that all of your shares of
Southwestern Common Stock or Chesapeake Common Stock, as applicable, are voted.
"Street name
"
Holders.
For shares held in "street name" through a bank, broker or other nominee, you
should follow the procedures provided by your bank, broker or other nominee to
vote your shares.
Q:
If a shareholder gives a proxy, how are shares of Southwestern Common Stock or
shares of Chesapeake Common Stock, as applicable, voted?
A:
Regardless of the method you choose to vote, the individuals named on the
enclosed proxy card will vote your shares of Southwestern Common Stock or
Chesapeake Common Stock, as applicable, in the way that you indicate. When
completing the proxy card or the Internet or telephone processes, you may
specify whether your Southwestern Common Stock or Chesapeake Common Stock, as
applicable, should be voted for or against, or abstain from voting on, all,
some or none of the specific items of business to come before the Southwestern
Special Meeting or Chesapeake Special Meeting, as applicable.
Q:
How will my Southwestern Common Stock or Chesapeake Common Stock be voted if I
return a blank proxy?
A:
If you sign, date and return your proxy card and do not indicate how you want
your Southwestern Common Stock to be voted, then your Southwestern Common
Stock will be voted "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and
"FOR"
the Southwestern Adjournment Proposal.
If you sign, date and return your proxy card and do not indicate how you want
your shares of Chesapeake Common Stock to be voted, then your shares of
Chesapeake Common Stock will be voted "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal.
Q:
Can I change my vote of Southwestern Common Stock after I have submitted my
proxy?
A:
Any shareholder giving a proxy has the right to revoke it before the proxy is
voted at the Southwestern Special Meeting by:
.
subsequently submitting a new proxy, whether by submitting a new proxy card or
by submitting a proxy via the Internet or telephone, which is received by the
deadline specified on the accompanying proxy card;
.
giving written notice of your revocation to Southwestern's Secretary;
.
voting virtually at the Southwestern Special Meeting; or
.
revoking your proxy and voting at the Southwestern Special Meeting.
Your attendance at the Southwestern Special Meeting will not revoke your proxy
unless you give written notice of revocation to Southwestern's Secretary
before your proxy is exercised or unless you vote your shares in person at the
Southwestern Special Meeting.
Execution or revocation of a proxy will not in any way affect your right to
attend the Southwestern Special Meeting and vote. Written notices of
revocation and other communications with respect to the revocation of proxies
should be addressed to:
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Southwestern Energy Company
10000 Energy Drive
Spring, Texas 77389
Attn: Investor Relations
(832) 796-1000
For more information, please see "Special Meeting of Southwestern
Shareholders - Revocation of Proxies."
Q:
Can I change my vote of shares of Chesapeake Common Stock after I have
submitted my proxy?
A:
Any shareholder giving a proxy has the right to revoke it before the proxy is
voted at the Chesapeake Special Meeting by:
.
subsequently submitting a new proxy, whether by submitting a new proxy card or
by submitting a proxy via the Internet or telephone, which is received by the
deadline specified on the accompanying proxy card;
.
giving written notice of your revocation to Chesapeake's Corporate Secretary;
.
voting virtually at the Chesapeake Special Meeting; or
.
revoking your proxy and voting at the Chesapeake Special Meeting.
Your attendance at the Chesapeake Special Meeting will not revoke your proxy
unless you give written notice of revocation to Chesapeake's Corporate
Secretary before your proxy is exercised or unless you vote your shares in
person at the Chesapeake Special Meeting.
Execution or revocation of a proxy will not in any way affect your right to
attend the Chesapeake Special Meeting and vote. Written notices of revocation
and other communications with respect to the revocation of proxies should be
addressed to:
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attn: Investor Relations
(405) 848-8000
For more information, please see "
Special Meeting of Chesapeake Shareholders - Revocation of Proxies
."
Q:
If I hold my shares in "street name," can I change my voting instructions
after I have submitted voting instructions to my bank, broker or other nominee?
A:
If your shares are held in the name of a bank, broker or other nominee and you
previously provided voting instructions to your bank, broker or other nominee,
you should follow the instructions provided by your bank, broker or other
nominee to revoke or change your voting instructions.
Q:
Where can I find the voting results of the Southwestern Special Meeting and
the Chesapeake Special Meeting?
A:
The preliminary voting results for the Chesapeake Special Meeting and the
Southwestern Special Meeting will be announced at their respective meetings.
In addition, within four business days of the Chesapeake Special Meeting and
Southwestern Special Meeting, Chesapeake and Southwestern intend to file the
final voting results of their respective meetings with the SEC on a Current
Report on Form 8-K.
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Q:
Do Chesapeake shareholders or Southwestern shareholders have appraisal rights
or dissenters' rights?
A:
No. Neither Southwestern shareholders under the General Corporation Law of
Delaware (the "DGCL") nor Chesapeake shareholders under Section 1091 of the
Oklahoma General Corporation Act (the "OGCA") are entitled to appraisal or
dissenters' rights in connection with the Merger.
Q:
As a Chesapeake shareholder or Southwestern shareholder, are there any risks
that I should consider in deciding whether to vote for the approval of the
Stock Issuance Proposal or the Merger Proposal (as applicable)?
A:
Yes. You should read and carefully consider the risk factors set forth in "
Risk Factors
." You also should read and carefully consider the risk factors of Chesapeake
and Southwestern contained in the reports of Chesapeake and Southwestern that
are incorporated by reference into this joint proxy statement/prospectus.
Q:
Do any of the officers or directors of Southwestern have interests in the
Merger that may differ from or be in addition to my interests as a
Southwestern shareholder?
A:
Yes. In considering the recommendation of the Southwestern Board that
Southwestern shareholders vote to approve the Merger Proposal, Southwestern
shareholders should be aware that certain of Southwestern's directors and
executive officers have interests in the Merger that are different from, or in
addition to, the interests of Southwestern shareholders generally. The
Southwestern Board was aware of and considered these differing interests, to
the extent such interests existed at the time, among other matters, in
evaluating and negotiating the terms and conditions of the Merger Agreement
and the Merger and in unanimously recommending that the Merger Agreement be
approved by Southwestern shareholders. See "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger
."
Q:
Do any of the officers or directors of Chesapeake have interests in the Merger
that may differ from or be in addition to my interests as a Chesapeake
shareholder?
A:
Yes. In considering the recommendation of the Chesapeake Board that Chesapeake
shareholders vote to approve the Stock Issuance Proposal, Chesapeake
shareholders should be aware that certain of Chesapeake's directors and
executive officers have interests in the Merger that are different from, or in
addition to, the interests of Chesapeake shareholders generally. The
Chesapeake Board was aware of and considered these differing interests, to the
extent such interests existed at the time, among other matters, in evaluating
and negotiating the terms and conditions of the Merger Agreement and the
Merger and in recommending that the Stock Issuance Proposal be approved by
Chesapeake shareholders. See "
The Merger - Interests of Certain Chesapeake Directors and Executive Officers
in the Merger
."
Q:
What happens if I sell my Southwestern Common Stock after the Southwestern
Record Date but before the Southwestern Special Meeting?
A:
The Southwestern Record Date is earlier than the date of the Southwestern
Special Meeting. If you transfer your Southwestern Common Stock after the
Southwestern Record Date but before the Southwestern Special Meeting, you
will, unless special arrangements are made, retain your right to vote at the
Southwestern Special Meeting.
Q:
What happens if I sell my shares of Chesapeake Common Stock after the
Chesapeake Record Date but before the Chesapeake Special Meeting?
A:
The Chesapeake Record Date is earlier than the date of the Chesapeake Special
Meeting. If you transfer your shares of Chesapeake Common Stock after the
Chesapeake Record Date but before the Chesapeake Special Meeting, you will,
unless special arrangements are made, retain your right to vote at the
Chesapeake Special Meeting.
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Q:
Who will solicit and pay the cost of soliciting proxies in connection with the
Southwestern Special Meeting?
A:
The Southwestern Board is soliciting your proxy in connection with the
Southwestern Special Meeting, and Southwestern will bear the cost of
soliciting such proxies, including the costs of printing and mailing this
joint proxy statement/prospectus. Southwestern has retained Morrow Sodali, LLC
("Morrow Sodali") as proxy solicitor to assist with the solicitation of
proxies in connection with the Southwestern Special Meeting. Solicitation
initially will be made by mail. Forms of proxies and proxy materials may also
be distributed through banks, brokers and other nominees to the beneficial
owners of Southwestern Common Stock, in which case these parties will be
reimbursed for their reasonable out-of-pocket expenses.
Chesapeake and Southwestern also may be required to reimburse banks, brokers
and other custodians, nominees and fiduciaries or their respective agents for
their expenses in forwarding proxy materials to beneficial owners of
Southwestern Common Stock. Chesapeake's directors, officers and employees and
Southwestern's directors, officers and employees, as applicable, also may
solicit proxies by telephone, by electronic means or in person. They will not
be paid any additional amounts for soliciting proxies.
Q:
Who will solicit and pay the cost of soliciting proxies in connection with the
Chesapeake Special Meeting?
A:
The Chesapeake Board is soliciting your proxy in connection with the
Chesapeake Special Meeting, and Chesapeake will bear the cost of soliciting
such proxies, including the costs of printing and mailing this joint proxy
statement/prospectus. Chesapeake has retained Alliance Advisors LLC ("Alliance
Advisors") as proxy solicitor to assist with the solicitation of proxies in
connection with the Chesapeake Special Meeting. Solicitation initially will be
made by mail. Forms of proxies and proxy materials may also be distributed
through banks, brokers and other nominees to the beneficial owners of shares
of Chesapeake Common Stock, in which case these parties will be reimbursed for
their reasonable out-of-pocket expenses.
Chesapeake and Southwestern also may be required to reimburse banks, brokers
and other custodians, nominees and fiduciaries or their respective agents for
their expenses in forwarding proxy materials to beneficial owners of
Chesapeake Common Stock. Chesapeake's directors, officers and employees and
Southwestern's directors, officers and employees, as applicable, also may
solicit proxies by telephone, by electronic means or in person. They will not
be paid any additional amounts for soliciting proxies.
Q:
What are the expected U.S. federal income tax consequences of the Merger to
Southwestern's U.S. shareholders?
A:
Assuming that the Integrated Mergers are completed as currently contemplated,
Chesapeake and Southwestern intend for the Integrated Mergers, taken together,
to qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). It is a condition to
Southwestern's obligation to complete the Merger that it receive an opinion
from Kirkland & Ellis LLP, or other legal counsel selected by Southwestern and
reasonably satisfactory to Chesapeake, dated as of the closing date, to the
effect that the Integrated Mergers, taken together, will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Provided
that the Integrated Mergers, taken together, qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, a U.S. holder (as defined in
"Material U.S. Federal Income Tax Consequences
") generally will not recognize any gain or loss for U.S. federal income tax
purposes upon the exchange of Southwestern Common Stock for shares of
Chesapeake Common Stock pursuant to the Merger, except with respect to any
cash received in lieu of fractional shares of Chesapeake Common Stock.
Please see "
Material U.S. Federal Income Tax Consequences
" for a more detailed discussion of the U.S. federal income tax consequences
of the Integrated Mergers to U.S. holders. Each Southwestern shareholder is
strongly urged to consult with a tax advisor to determine the particular U.S.
federal, state or local or non-U.S. income or other tax consequences of the
Integrated Mergers.
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Q:
When is the Merger expected to be completed?
A:
Subject to the satisfaction or, to the extent permissible under applicable
law, waiver of the closing conditions described under "
The Merger Agreement - Conditions to the Completion of the Merger
," including the approval of the Merger Proposal and the Stock Issuance
Proposal, the Merger is expected to close in the second half of 2024. However,
neither Chesapeake nor Southwestern can predict the actual date on which the
Merger will be completed, or if the Merger will be completed at all, because
completion of the Merger is subject to conditions and factors outside the
control of either company. Chesapeake and Southwestern hope to complete the
Merger as soon as reasonably practicable.
Q:
What are the conditions to completion of the Merger?
A:
The Merger is subject to a number of conditions to closing as specified in the
Merger Agreement. These closing conditions include, among others, (i) the
approval of the Merger Proposal by the Southwestern shareholders, (ii) the
approval of the Stock Issuance Proposal by the Chesapeake shareholders, (iii)
that no law shall be in effect restraining, enjoining, making illegal or
unlawful, or otherwise prohibiting the consummation of the Merger or the other
transactions contemplated by the Merger Agreement, (iv) that all waiting
periods (and any extensions thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act") applicable to the transactions contemplated
by the Merger Agreement, and any commitment to, or agreement (including any
timing agreement) with, any governmental entity to delay the consummation of,
or not to consummate before a certain date, the transactions contemplated by
the Merger Agreement, have expired or been terminated, (v) the registration
statement on Form S-4, of which this joint proxy statement/prospectus forms a
part, has been declared effective under the Securities Act and no stop order
suspending the effectiveness of the registration statement has been issued by
the SEC, nor have proceedings seeking a stop order been initiated or
threatened by the SEC, and (vi) the shares of Chesapeake Common Stock to be
issued pursuant to the Merger Agreement have been approved for listing on
Nasdaq, subject to official notice of issuance. More information may be found
in "
The Merger Agreement - Conditions to the Completion of the Merger
."
Q:
How will I receive the Merger Consideration to which I am entitled?
A:
If you hold your Southwestern Common Stock through The Depository Trust
Company ("DTC"), you will not be required to take any specific actions to
exchange your Southwestern Common Stock for shares of Chesapeake Common Stock.
After the completion of the Merger, Southwestern Common Stock held through DTC
in book-entry form will be automatically exchanged for shares of Chesapeake
Common Stock in book-entry form and an exchange agent (the "Exchange Agent")
selected by the parties will deliver to you a check in the aggregate amount of
cash that you have the right to receive in lieu of any fractional share of
Chesapeake Common Stock to which you would otherwise be entitled. If you hold
your Southwestern Common Stock in certificated form, or in book-entry form but
not through DTC, after receiving the proper documentation from you, following
the Effective Time, the Exchange Agent will deliver to you the Chesapeake
Common Stock and a check in the aggregate amount of cash that you have the
right to receive with respect to the Southwestern Common Stock held by you
immediately prior to the Effective Time, including any cash in lieu of
fractional shares to which you would otherwise be entitled. More information
may be found in "
The Merger Agreement - Payment for Securities; Exchange
."
Q:
What should I do now?
A:
You should read this joint proxy statement/prospectus carefully and in its
entirety, including the annexes, and return your completed, signed and dated
proxy card by mail in the enclosed postage-paid envelope, or you may submit
your voting instructions by telephone or over the Internet as soon as possible
so that your shares will be voted in accordance with your instructions.
Q:
Whom do I call if I have questions about the Southwestern Special Meeting, the
Chesapeake Special Meeting or the Merger?
A:
If you are a Southwestern shareholder and have questions about the
Southwestern Special Meeting or the Merger, or desire additional copies of
this joint proxy statement/prospectus or additional proxy cards, you may
contact:
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Morrow Sodali, LLC
509 Madison Avenue, Suite 1206
New York, NY 10022
Shareholders may call toll free: (800) 662-5200
Banks and Brokers may call collect: (203) 658-9400
Email: swn@info.morrowsodali.com
If you are a Chesapeake shareholder and have questions about the Chesapeake
Special Meeting or the Merger, or desire additional copies of this joint proxy
statement/prospectus or additional proxy cards, you may contact:
Alliance Advisors LLC
200 Broadacres Dr., 3rd Floor
Bloomfield, NJ 07003
Shareholders may call toll free: 833-795-8496
Banks and Brokers may call collect: 973-873-7700
Email: CHK@allianceadvisors.com
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SUMMARY
For your convenience, provided below is a brief summary of certain information
contained in this joint proxy statement/prospectus. This summary highlights
selected information from this joint proxy statement/
prospectus and does not contain all of the information that may be important
to you as a Chesapeake shareholder or Southwestern shareholder. To understand
the Merger fully and for a more complete description of the terms of the
Merger, you should read this entire joint proxy statement/prospectus
carefully, including its annexes and the other documents to which you are
referred. Additionally, important information, which you are urged to read, is
contained in the documents incorporated by reference into this joint proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page 247. Items in this summary include a page reference directing you to a
more complete description of those items.
Parties to the Merger (See page 65)
Chesapeake Energy Corporation
Chesapeake is an independent exploration and production company engaged in the
acquisition, exploration and development of properties to produce natural gas,
oil and NGLs from underground reservoirs. Chesapeake owns a large portfolio of
onshore U.S. unconventional natural gas assets, including interests in
approximately 5,000 gross natural gas wells. Chesapeake's natural gas resource
plays are the Marcellus Shale in the northern Appalachian Basin in
Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana.
Chesapeake's corporate headquarters are located in Oklahoma City, Oklahoma and
Chesapeake Common Stock trades on Nasdaq under the ticker symbol "CHK."
Chesapeake, which is incorporated in Oklahoma, has its principal executive
offices located at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118,
and can be reached by phone at (405) 848-8000.
Southwestern Energy Company
Southwestern is an independent energy company primarily engaged in the
production and development of natural gas, NGLs and crude oil within the
nation's most prolific shale gas basins. Southwestern is principally focused
on production and exploration within the Marcellus and Utica Shales in
Pennsylvania, Ohio and West Virginia as well as the Haynesville and Bossier
formations found in Louisiana. Southwestern markets and transports natural
gas, NGLs and oil through various transportation assets while also negotiating
optimal pricing and valuations. Southwestern's corporate headquarters are
located in Spring, Texas, and Southwestern Common Stock trades on the NYSE
under the ticker symbol "SWN." Southwestern, which is incorporated in
Delaware, has its principal executive offices located at 10000 Energy Drive,
Spring, Texas 77389, and can be reached by phone at (832) 796-1000.
Hulk Merger Sub, Inc.
Merger Sub Inc is a Delaware corporation and wholly owned subsidiary of
Chesapeake. Merger Sub has not carried on any activities to date, other than
activities incidental to its formation or undertaken in connection with the
transactions contemplated by the Merger Agreement.
Hulk LLC Sub, LLC
Merger Sub LLC is a Delaware limited liability company and wholly owned
subsidiary of Chesapeake. Merger Sub LLC has not carried on any activities to
date, other than activities incidental to its formation or undertaken in
connection with the transactions contemplated by the Merger Agreement.
The Merger and the Merger Agreement (See pages 84 and 148)
The terms and conditions of the Merger are contained in the Merger Agreement,
a copy of which is attached as
Annex A
to this joint proxy statement/prospectus. You are encouraged to read the
Merger Agreement carefully and in its entirety, as it is the primary legal
document that governs the Merger.
Pursuant to the Merger Agreement, Merger Sub Inc will merge with and into
Southwestern; the separate existence of Merger Sub Inc will cease, and
Southwestern will continue as the Surviving Corporation in the
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Merger as a wholly owned subsidiary of Chesapeake. Following the Merger,
Southwestern Common Stock will be delisted from the NYSE, will be deregistered
under the Exchange Act and will cease to be publicly traded. Immediately
following the Effective Time, the Surviving Corporation will be merged with
and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving
entity and as a wholly owned subsidiary of Chesapeake.
Merger Consideration (See page 149)
At the Effective Time, each share of Southwestern Common Stock (other than the
Excluded Shares) will automatically be converted into the right to receive
0.0867 duly authorized and validly issued shares of Chesapeake Common Stock.
The number of shares of Chesapeake Common Stock into which each share of
Southwestern Common Stock will be converted, as specified in the preceding
paragraph (as such number may be adjusted in accordance with the terms of the
Merger Agreement), is referred to as the Merger Consideration, and such ratio
is referred to as the Exchange Ratio. The Exchange Ratio is fixed (subject to
adjustments in accordance with the terms of the Merger Agreement), which means
that it will not change between now and the Effective Time, regardless of
changes in the market price of Chesapeake Common Stock and Southwestern Common
Stock.
Without limiting the parties' respective obligations under certain parts of
the Merger Agreement, if, during the period between the date of the Merger
Agreement and the Effective Time, any change in the outstanding Southwestern
Common Stock or Chesapeake Common Stock occurs as a result of any
reclassification, stock split (including a reverse stock split) or
combination, exchange or readjustment of shares, or any stock dividend with a
record date during such period, then the Exchange Ratio and any other amounts
payable pursuant to the Merger Agreement will be equitably adjusted to
eliminate the effect of such event on the Exchange Ratio or any such other
amounts payable pursuant to the Merger Agreement and provide Chesapeake,
Merger Sub Inc and the holders of Southwestern Common Stock (each such holder,
a "Southwestern shareholder") the same economic effect as contemplated by the
Merger Agreement prior to such action.
No certificates or scrip of Chesapeake Common Stock representing fractional
shares of Chesapeake Common Stock or book-entry credit of the same will be
issued upon the surrender of Southwestern Common Stock, and such fractional
interests will not entitle the owner thereof to vote or to have any rights as
a holder of Chesapeake Common Stock. Any Southwestern shareholder who would
otherwise be entitled to receive a fraction of a share of Chesapeake Common
Stock pursuant to the Merger (after taking into account all Southwestern
Common Stock held immediately prior to the Effective Time by such holder)
will, in lieu of such fraction of a share and upon surrender of such holder's
certificate (a "Southwestern Common Stock Certificate") formerly representing
any shares of Southwestern Common Stock (other than Excluded Shares) or each
uncertificated share of Southwestern Common Stock, be paid in cash the dollar
amount as specified in the Merger Agreement.
Chesapeake shareholders will continue to own their shares of Chesapeake Common
Stock that are owned immediately prior to the Effective Time, and it is
expected that Chesapeake shareholders will own approximately 60% of the
Chesapeake Common Stock and Southwestern shareholders will own approximately
40% of the Chesapeake Common Stock immediately following the Effective Time
(in each case based on fully diluted shares outstanding of each company).
Special Meeting of Chesapeake Shareholders (See page 66)
The Chesapeake Special Meeting will be held virtually at www.virtualshareholderm
eeting.com/CHK2024SM, on June 18, 2024, at 10:00 a.m., Central Time. The
Chesapeake Special Meeting is being held to consider and vote on the Stock
Issuance Proposal.
Chesapeake shareholders will also be asked to approve the Advisory Chesapeake
Compensation Proposal by non-binding, advisory vote and to vote on the
Chesapeake Adjournment Proposal to adjourn the Chesapeake Special Meeting to
solicit additional proxies if there are not sufficient votes at the time of
the Chesapeake Special Meeting to approve the Stock Issuance Proposal or to
ensure that any supplement or
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amendment to this joint proxy statement/prospectus is timely provided to
Chesapeake shareholders. Regardless of the outcome of the Chesapeake
Adjournment Proposal, in accordance with Section 1.5 of the Chesapeake Bylaws,
the chair of the Chesapeake Special Meeting may adjourn the Chesapeake Special
Meeting from time to time, whether or not there is a quorum. Completion of the
Merger is conditioned on, among other things, the approval of the Stock
Issuance Proposal by Chesapeake shareholders.
Only holders of record of outstanding shares of Chesapeake Common Stock at the
close of business on April 22, 2024, the Chesapeake Record Date, are entitled
to notice of, and to vote at, the Chesapeake Special Meeting or any
adjournment or postponement of the Chesapeake Special Meeting. Chesapeake
shareholders may cast one vote for each share of Chesapeake Common Stock owned
at the close of business on the Chesapeake Record Date for each proposal.
Assuming holders of a majority of the outstanding shares of Chesapeake Common
Stock entitled to vote at the Chesapeake Special Meeting (a "quorum") are
present in person or represented by proxy at the Chesapeake Special Meeting,
approval of the Stock Issuance Proposal and the Advisory Chesapeake
Compensation Proposal each requires the affirmative vote of holders of a
majority of the shares of Chesapeake Common Stock cast on such proposal at the
Chesapeake Special Meeting. Assuming a quorum is present, approval of the
Chesapeake Adjournment Proposal requires the affirmative vote of holders of a
majority of the shares of Chesapeake Common Stock present in person or
represented by proxy at the Chesapeake Special Meeting. Virtual attendance at
the Chesapeake Special Meeting constitutes presence in person for purposes of
determining the presence of a quorum for the transaction of business at the
Chesapeake Special Meeting.
Recommendation of the Chesapeake Board and its Reasons for the Merger (See
page 101)
The Chesapeake Board has determined that it is in the best interests of
Chesapeake and its shareholders, and has declared it advisable, to enter into
the Merger Agreement and has approved the execution, delivery and performance
by Chesapeake of the Merger Agreement and the consummation of the transactions
contemplated thereby, including the issuance of shares of Chesapeake Common
Stock in connection with the Merger. The Chesapeake Board recommends that
Chesapeake shareholders vote "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal. For additional information on the
factors considered by the Chesapeake Board in reaching this decision and the
recommendation of the Chesapeake Board, please see "
The Merger - Recommendation of the Chesapeake Board and its Reasons for the
Merger
."
Opinion of Chesapeake's Financial Advisor (See page 115)
Chesapeake retained Evercore Group L.L.C. ("
Evercore
") to act as its financial advisor in connection with the Merger. As part of
this engagement, the Chesapeake Board requested that Evercore evaluate the
fairness of the Exchange Ratio pursuant to the Merger Agreement, from a
financial point of view, to Chesapeake. At a meeting of the Chesapeake Board
held on January 10, 2024, Evercore rendered to the Chesapeake Board its oral
opinion, subsequently confirmed by delivery of a written opinion dated January
10, 2024, that as of the date of such opinion and based upon and subject to
the assumptions, limitations, qualifications and conditions described in
Evercore's written opinion, the Exchange Ratio was fair, from a financial
point of view, to Chesapeake.
The full text of the written opinion of Evercore, dated January 10, 2024,
which sets forth, among other things, the procedures followed, assumptions
made, matters considered and qualifications and limitations on the scope of
review undertaken in rendering its opinion, is attached as
Annex B
and is incorporated herein by reference into this proxy statement in its
entirety. You are urged to read Evercore's opinion carefully and in its
entirety. Evercore's opinion was addressed to, and provided for the
information and benefit of, the Chesapeake Board (solely in its capacity as
such) in connection with its evaluation of the proposed Merger. The opinion
does not constitute a recommendation to the Chesapeake Board or to any other
persons in respect of the Merger, including as to how any holder of shares of
Chesapeake Common Stock should vote or act in respect of the Merger.
Evercore's opinion does not address the relative merits of the Merger as
compared to other business or financial strategies that might be available to
Chesapeake, nor does it address the underlying business decision of Chesapeake
to engage in the Merger.
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For further information, see the section of this proxy statement captioned "
The Merger - Opinion of Chesapeake's Financial Advisor
" beginning on page 115 and the full text of the written opinion of Evercore
attached as
Annex B
to this proxy statement.
Interests of Certain Chesapeake Directors and Executive Officers in the Merger
(See page 132)
When considering the recommendation of the Chesapeake Board that Chesapeake
shareholders vote "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal, Chesapeake shareholders should be aware
that certain of Chesapeake's directors and executive officers have interests
in the Merger that are different from, or in addition to, the interests of
other Chesapeake shareholders generally. The Chesapeake Board was aware of
these interests when it approved the Merger Agreement and the transactions
contemplated thereby and recommended that Chesapeake shareholders vote "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal. Such interests include the following
and are more fully summarized below:
.
certain directors and executive officers are expected to continue as directors
and executive officers of Chesapeake following consummation of the Merger;
.
Chesapeake's executive officers have entered into letter agreements with
Chesapeake providing for enhanced severance payments and benefits, accelerated
vesting of certain equity and long-term incentive awards, and other payments
and benefits if their employment is terminated under certain circumstances in
connection with the Merger; and
.
executive officers and directors of Chesapeake have rights to indemnification,
advancement of expenses and directors' and officers' liability insurance that
will survive the completion of the Merger.
Special Meeting of Southwestern Shareholders (See page 75)
The Southwestern Special Meeting will be held virtually at www.virtualshareholde
rmeeting.com/SWN2024SM, on June 18, 2024, at 10:00 a.m., Central Time. The
Southwestern Special Meeting is being held to consider and vote on the
following proposals:
.
the Merger Proposal;
.
the Advisory Southwestern Compensation Proposal; and
.
the Southwestern Adjournment Proposal.
Completion of the Merger is conditioned on, among other things, the approval
of the Merger Proposal by Southwestern shareholders. Approval of the Advisory
Southwestern Compensation Proposal is not a condition to the obligation of
either Southwestern or Chesapeake to complete the Merger.
Only holders of record of outstanding Southwestern Common Stock as of the
close of business on April 22, 2024, the Southwestern Record Date, are
entitled to notice of, and to vote at, the Southwestern Special Meeting or any
adjournment or postponement of the Southwestern Special Meeting. Southwestern
shareholders may cast one vote for each Southwestern Common Stock owned as of
the Southwestern Record Date for each proposal.
Assuming holders of a majority of the shares of outstanding Southwestern
Common Stock entitled to vote at the Southwestern Special Meeting as of the
close of business on the Southwestern Record Date (a "quorum") are present in
person or represented by proxy at the Southwestern Special Meeting, approval
of the Merger Proposal requires the affirmative vote of holders of a majority
of the outstanding shares of Southwestern Common Stock entitled to vote
thereon.
Accordingly, a Southwestern shareholder's abstention from voting or the
failure of a Southwestern shareholder to vote (including the failure of a
Southwestern shareholder who holds Southwestern Common Stock in "street name"
through a bank, broker or other nominee to give voting instructions to the
bank, broker or other nominee) will have the same effect as a vote
"against"the Merger Proposal.
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Assuming a quorum is present, approval of the Advisory Southwestern
Compensation Proposal and the Southwestern Adjournment Proposal requires the
affirmative vote of holders of a majority of the shares of outstanding
Southwestern Common Stock cast at the Southwestern Special Meeting.
Accordingly, a Southwestern shareholder's abstention from voting or the
failure of a Southwestern shareholder to vote (including the failure of a
Southwestern shareholder who holds Southwestern Common Stock in "street name"
through a bank, broker or other nominee to give voting instructions to the
bank, broker or other nominee) will have no effect on the Advisory
Southwestern Compensation Proposal and the Southwestern Adjournment Proposal.
As an advisory vote, this proposal is not binding upon Southwestern, the board
of directors of Southwestern (the "Southwestern Board"), Chesapeake or the
Chesapeake Board, and approval of this proposal is not a condition to
completion of the Merger.
Virtual attendance at the Southwestern Special Meeting constitutes presence
in-person for purposes of the vote required.
Recommendation of the Southwestern Board and its Reasons for the Merger (See
page 103)
The Southwestern Board has unanimously determined that the Merger Agreement,
the Merger and the other transactions contemplated by the Merger Agreement are
in the best interests of, and are advisable to, Southwestern and its
shareholders and has unanimously approved and declared advisable the Merger
Agreement, the Merger and the other transactions contemplated by the Merger
Agreement. The Southwestern Board unanimously recommends that Southwestern
shareholders vote "
FOR
" the Merger Proposal,
"FOR
" the Advisory Southwestern Compensation Proposal and
"FOR"
the Southwestern Adjournment Proposal. For additional information on the
factors considered by the Southwestern Board in reaching this decision and the
recommendation of the Southwestern Board, please see "
The Merger - Recommendation of the Southwestern Board and its Reasons for the
Merger
."
Opinion of Southwestern's Financial Advisor (See page 126)
Goldman Sachs & Co. LLC ("Goldman Sachs") rendered its oral opinion,
subsequently confirmed in writing, to the Southwestern Board that, as of
January 10, 2024 and based upon and subject to the factors and assumptions set
forth therein, the Exchange Ratio pursuant to the Merger Agreement was fair
from a financial point of view to the holders (other than Chesapeake and its
affiliates) of Southwestern Common Stock.
The full text of the written opinion of Goldman Sachs, dated January 10, 2024,
which sets forth assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as
Annex C
. The summary of Goldman Sachs' opinion contained in this proxy statement/
prospectus is qualified in its entirety by reference to the full text of
Goldman Sachs' written opinion. Goldman Sachs' advisory services and its
opinion were provided for the information and assistance of the Southwestern
Board in connection with its consideration of the transaction and such opinion
does not constitute a recommendation as to how any holder of Southwestern
Common Stock should vote with respect to the transaction or any other matter.
Pursuant to an engagement letter between Southwestern and Goldman Sachs,
Southwestern has agreed to pay Goldman Sachs a transaction fee of
approximately $40 million, $8 million of which became payable upon the
announcement of the transaction, and the remainder of which is contingent upon
consummation of the transaction.
For more information, see "
The Merger - Opinion of Southwestern's Financial Advisor
" beginning on page 126 and the full text of the written opinion of Goldman
Sachs attached as
Annex C
to this proxy statement/prospectus.
Interests of Certain Southwestern Directors and Executive Officers in the
Merger (See page 135)
When considering the recommendation of the Southwestern Board that
Southwestern shareholders vote "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal, Southwestern shareholders should be
aware that, aside from their interests as Southwestern shareholders, certain
of Southwestern's directors and executive officers have interests in the
Merger that are different from, or in addition to, the interests of other
Southwestern shareholders generally. The Southwestern Board was aware of such
interests during its deliberations on the
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merits of the Merger, in approving the Merger Agreement and in recommending
that Southwestern shareholders vote "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and
"FOR"
the Southwestern Adjournment Proposal at the Southwestern Special Meeting on
June 18, 2024.
These interests include the following:
.
the executive officers of Southwestern have arrangements with Southwestern
that provide for certain severance payments or benefits, accelerated vesting
of certain equity-based awards and other rights and other payments or benefits
upon completion of the Merger and if their employment or service is terminated
under certain circumstances in connection with the Merger;
.
Southwestern may establish a cash-based retention program that may include
executive officers, but excluding named executive officers, but as of the date
hereof, Southwestern has not committed to pay any amounts under such retention
program to any of the executive officers;
.
executive officers and directors of Southwestern have rights to indemnification,
advancement of expenses and directors' and officers' liability insurance that
will survive the completion of the Merger; and
.
certain directors of Southwestern are expected to continue as directors of
Chesapeake following consummation of the Merger.
For a further discussion of the interests of Southwestern directors and
executive officers in the Merger, see "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger
" beginning on page 135.
Treatment of Southwestern Long-Term Incentive Awards in the Merger (See page
135)
The Merger Agreement also specifies the treatment of outstanding Southwestern
long-term incentive awards in connection with the Merger, which shall be
treated as follows at the Effective Time:
.
each outstanding Southwestern Restricted Stock Award will automatically vest
in full, any restrictions with respect to each such Southwestern Restricted
Stock Award shall lapse and each such restricted stock award will convert into
the right to receive a number of shares of Chesapeake Common Stock equal to
(i) the Exchange Ratio, multiplied by (ii) the total number of shares of
Southwestern Common Stock attributable to such Southwestern Restricted Stock
Award;
.
each outstanding Southwestern Director RSU Award will automatically vest in
full, be canceled, and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied by (ii)
the total number of shares of Southwestern Common Stock subject to such
Southwestern Director RSU Award, together with accrued dividend equivalent
payments in each case issuable and payable at the time or times specified in
Southwestern's Nonemployee Director Deferred Compensation Plan and in
accordance with such director's deferral elections as set forth in the
applicable Deferred Compensation Agreement;
.
each outstanding Southwestern Single-Trigger RSU Award will vest in full, be
canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (A) the Exchange Ratio, multiplied by (B) the
total number of shares of Southwestern Common Stock subject to each such
Southwestern Single-Trigger RSU Award, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger RSU Award agreement;
.
each outstanding Southwestern Double-Trigger RSU Award will be canceled and
convert into a Parent RSU Award equal to the product (rounded to the nearest
whole share) of (i) the total number of shares of Southwestern Common Stock
subject to such Southwestern Double-Trigger RSU Award immediately prior to the
Effective Time multiplied by (ii) the Exchange Ratio. Such Parent RSU Award
will vest and be payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger RSU Award agreement (except that such award will
be payable in Chesapeake Common Stock);
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.
each outstanding Southwestern Single-Trigger Performance Unit Award will (A)
automatically vest in full and become payable at the greater of (1) the level
based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Single-Trigger Performance Unit Award agreement and (2) the target level, and
(B) be canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (1) the Exchange Ratio, multiplied by (2) the
number of Earned Company Performance Shares, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger Performance Unit Award
agreement;
.
each outstanding Southwestern Double-Trigger Performance Unit Award will be
canceled and convert into a Parent RSU Award in respect of that number of
shares of Chesapeake Common Stock equal to the product (rounded to the nearest
whole share) of (i) the number of Earned Company Performance Shares with
respect to such Southwestern Double-Trigger Performance Unit Award multiplied
by (ii) the Exchange Ratio. Such Parent RSU Award will vest at the end of the
original performance period associated with the corresponding Southwestern
Double-Trigger Performance Unit Award and will otherwise be subject to and
payable on the same terms and conditions (including "double-trigger" vesting
provisions) as are set forth in the corresponding Southwestern Double-Trigger
Performance Unit Award agreement (except that such award will be payable in
shares of Chesapeake Common Stock and will no longer be subject to
performance-based vesting conditions);
.
each outstanding Southwestern Single-Trigger PCU Award will automatically vest
in full and become payable in cash in an amount equal to $1.00 multiplied by
the greater of (A) the percentage earned based on actual performance
determined as of immediately prior to the Effective Time in accordance with
the terms of the applicable Southwestern Single-Trigger PCU Award agreement
and (B) 100%; and
.
each outstanding Southwestern Double-Trigger PCU Award will be deemed earned
at a level equal to $1.00 multiplied by the greater of (i) the percentage
earned based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Double-Trigger PCU Award agreement and (ii) 100%. Such amount will vest and be
payable in cash at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger PCU Award and will otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger PCU Award agreement, except that such award will
no longer be subject to performance-based vesting conditions.
Treatment of Indebtedness (See page 186)
As of March 31, 2024, Southwestern had approximately $4.0 billion of debt
outstanding, consisting principally of existing senior notes maturing in
various increments from 2025 to 2032 and $270 million of borrowings under its
existing revolving credit facility, which matures in 2027.
As of March 31, 2024, Chesapeake had no borrowings outstanding under its
revolving credit facility and $1.95 billion of senior notes maturing in
various increments from 2026 and 2029.
For a description of Southwestern's and Chesapeake's existing indebtedness,
see Southwestern's
Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed
on May 2, 2024
, and Chesapeake's
Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed
on April 30, 2024
, each of which is incorporated by reference into this joint proxy
statement/prospectus. Please see "
Where You Can Find More Information
" for additional information.
Southwestern and its subsidiaries have agreed to deliver to Chesapeake at
least two (2) business days prior to the closing date a copy of a payoff
letter, setting forth the total amounts payable pursuant to Southwestern's
existing credit facility to fully satisfy all principal, interest, fees, costs
and expenses owed to each holder of indebtedness under Southwestern's existing
credit facility as of the anticipated closing date (and the daily accrual
thereafter), together with appropriate wire instructions, and the agreement
from the administrative agent under Southwestern's existing credit facility
that upon payment in full of all such amounts
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owed to such holders, all indebtedness under Southwestern's existing credit
facility shall be irrevocably discharged and satisfied in full, the Loan
Documents (as defined in Southwestern's existing credit facility) shall be
terminated with respect to Southwestern and its subsidiaries that are
borrowers or guarantors thereof and all liens on Southwestern and its
subsidiaries and their respective assets and equity securing Southwestern's
existing credit facility shall be immediately released and terminated,
together with any applicable documents reasonably necessary to evidence the
release and termination of all liens on Southwestern and its subsidiaries and
their respective assets and equity securing, and any guarantees by
Southwestern and its subsidiaries in respect of, Southwestern's existing
credit facility. Southwestern has also agreed to reasonably cooperate with
Chesapeake in replacing any letters of credit issued pursuant to Southwestern's
existing credit facility evidencing the above referenced indebtedness or
obligations.
Certain Beneficial Owners of Southwestern Common Stock (See page 240)
At the close of business on May 16, 2024, Southwestern's directors and
executive officers and their affiliates, as a group, beneficially owned and
were entitled to vote 9,250,728 shares of Southwestern Common Stock,
collectively representing less than 1% of the Southwestern Common Stock
outstanding on that date. Southwestern currently expects that all of its
directors and executive officers will vote their shares "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and
"FOR"
the Southwestern Adjournment Proposal. For more information regarding the
security ownership of Southwestern directors and executive officers, please
see "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger
" and "
The Merger Agreement - Treatment of Southwestern Long-Term Incentive Awards in
the Merger
."
Ownership of Chesapeake after the Merger
As of the date of this joint proxy statement/prospectus, based on the Exchange
Ratio, the number of outstanding Southwestern Common Stock and the number of
outstanding shares of Chesapeake Common Stock, it is estimated that Chesapeake
shareholders will own approximately 60% and Southwestern shareholders will own
approximately 40% of the issued and outstanding shares of Chesapeake Common
Stock immediately following the Effective Time (in each case based on fully
diluted shares outstanding of each company).
Board of Directors and Management of Chesapeake After Completion of the Merger
(See page 144)
The Chesapeake Board at the Effective Time is expected to be composed of (i)
seven directors selected by Chesapeake and (ii) four directors selected by
Southwestern (Catherine A. Kehr, John D. Gass, Shameek Konar and Anne Taylor),
each of whom were members of the Southwestern Board as of January 10, 2024.
The management of Chesapeake following the completion of the Merger will
include Domenic J. Dell'Osso, Jr. as President and Chief Executive Officer,
Mohit Singh as Executive Vice President and Chief Financial Officer, Joshua J.
Viets as Executive Vice President and Chief Operation Officer and Chris Lacy
as Executive Vice President, General Counsel and Corporate Secretary. For
additional information regarding the Chesapeake Board and the management of
Chesapeake following the completion of the Merger, please see "
The Merger Agreement - Organizational Documents; Directors and Officers
."
Conditions to the Completion of the Merger (See page 188)
Mutual Conditions
The respective obligations of each of the parties to the Merger Agreement to
consummate the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which may be waived
jointly by the parties, in whole or in part, to the extent permitted by
applicable law:
.
Shareholder Approvals
. The Merger Proposal and the Stock Issuance Proposal must have been
approved in accordance with applicable law, stock exchange rule and the
Southwestern and Chesapeake organizational documents, as applicable.
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.
Regulatory Approval
. All waiting periods (and any extensions thereof) applicable to the
transactions contemplated by the Merger Agreement under the HSR Act, and any
commitment to, or agreement (including any timing agreement) with, any
governmental entity to delay the consummation of, or not to consummate before
a certain date, the transactions must have expired or been terminated.
.
No Injunctions or Restraints
. No law shall be in effect restraining, enjoining, making illegal or
unlawful, or otherwise prohibiting the consummation of the transactions (it
being understood for avoidance of doubt that an HSR Reservation Notice (as
defined in the Merger Agreement) shall not constitute such a law).
.
Effectiveness of the Registration Statement
. The registration statement, of which this joint proxy statement/prospectus
forms a part, must have been declared effective by the SEC under the
Securities Act and must not be the subject of any stop order or proceedings
seeking a stop order.
.
Nasdaq Listing
. The shares of Chesapeake Common Stock issuable to holders of Southwestern
Common Stock pursuant to the Merger Agreement must have been approved for
listing on Nasdaq, subject to official notice of issuance.
Additional Conditions to the Obligations of Chesapeake, Merger Sub Inc and
Merger Sub LLC
The obligations of Chesapeake, Merger Sub Inc and Merger Sub LLC to consummate
the Merger are subject to the satisfaction at or prior to the Effective Time
of the following conditions, any or all of which may be waived exclusively by
Chesapeake, in whole or in part, to the extent permitted by applicable law:
.
certain representations and warranties of Southwestern set forth in the Merger
Agreement regarding organization, standing and power, capital structure,
authority, no violations and consents and approvals, absence of certain
changes or events and brokers must have been true and correct as of January
10, 2024 and must be true and correct as of the closing date, as though made
on and as of the closing date (except, with respect to certain representations
and warranties regarding capital stock, for any de minimis inaccuracies)
(except that representations and warranties that speak as of a specified date
or period of time must have been true and correct only as of such date or
period of time);
.
certain other representations and warranties of Southwestern set forth in the
Merger Agreement relating to capital structure must have been true and correct
in all material respects as of January 10, 2024 and must be true and correct
in all material respects as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct in all
material respects only as of such date or period of time);
.
all other representations and warranties of Southwestern set forth in the
Merger Agreement must have been true and correct as of January 10, 2024 and
must be true and correct as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct only as of
such date or period of time), except where the failure of such representations
and warranties to be so true and correct (without regard to qualification or
exceptions contained therein as to "materiality," "in all material respects"
or "Southwestern material adverse effect") would not reasonably be expected to
have, individually or in the aggregate, a Southwestern material adverse effect;
.
Southwestern must have performed, or complied with, in all material respects,
all agreements and covenants required to be performed or complied with by it
under the Merger Agreement at or prior to the Effective Time; and
.
Chesapeake must have received a certificate of Southwestern signed by an
executive officer of Southwestern, dated as of the closing date, confirming
that the conditions in the four bullets above have been satisfied.
Additional Conditions to the Obligations of Southwestern
The obligation of Southwestern to consummate the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived exclusively by Southwestern, in whole or in
part, to the extent permitted by applicable law:
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.
certain representations and warranties of Chesapeake, Merger Sub Inc and
Merger Sub LLC set forth in the Merger Agreement regarding organization,
standing and power, capital structure, authority, no violations and consents
and approvals, absence of certain changes or events and brokers must have been
true and correct as of January 10, 2024 and must be true and correct as of the
closing date, as though made on and as of the closing date (except, with
respect to certain representations and warranties regarding capital stock, for
any de minimis inaccuracies) (except that representations and warranties that
speak as of a specified date or period of time must have been true and correct
only as of such date or period of time);
.
certain other representations and warranties of Chesapeake set forth in the
Merger Agreement relating to capital structure must have been true and correct
in all material respects as of January 10, 2024 and must be true and correct
in all material respects as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct in all
material respects only as of such date or period of time);
.
all other representations and warranties of Chesapeake, Merger Sub Inc and
Merger Sub LLC set forth in the Merger Agreement must have been true and
correct as of January 10, 2024 and must be true and correct as of the closing
date, as though made on and as of the closing date (except that representations
and warranties that speak as of a specified date or period of time must have
been true and correct only as of such date or period of time), except where
the failure of such representations and warranties to be so true and correct
(without regard to qualification or exceptions contained therein as to
"materiality," "in all material respects" or "Chesapeake material adverse
effect") would not reasonably be expected to have, individually or in the
aggregate, a Chesapeake material adverse effect;
.
Chesapeake, Merger Sub Inc, and Merger Sub LLC each must have performed, or
complied with, in all material respects, all agreements and covenants required
to be performed or complied with by them under the Merger Agreement at or
prior to the Effective Time;
.
Southwestern must have received a certificate of Chesapeake signed by an
executive officer of Chesapeake, dated as of the closing date, confirming that
the conditions in the four bullets above have been satisfied; and
.
Southwestern must have received an opinion from Kirkland & Ellis LLP (or other
legal counsel selected by Southwestern and reasonably satisfactory to
Chesapeake), in form and substance reasonably satisfactory to Southwestern,
dated as of the closing date, to the effect that, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion, the
Integrated Mergers, taken together, will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code. In rendering the opinion described
in Section 7.3(d) of the Merger Agreement, Kirkland & Ellis LLP (or other
applicable legal counsel) shall have received and may rely upon the Parent Tax
Certificate and the Company Tax Certificate and such other information
reasonably requested by and provided to it by Southwestern or Chesapeake for
purposes of rendering such opinion.
No Solicitation of Acquisition Proposals by Southwestern (See page 164)
Southwestern has agreed that, from and after January 10, 2024, and until the
earlier of the Effective Time and termination of the Merger Agreement pursuant
to the terms of the Merger Agreement, Southwestern and its officers and
directors will and will cause Southwestern's subsidiaries and its and their
controlled affiliates and respective officers and directors to, and will use
their reasonable best efforts to cause their respective representatives to
immediately cease, and cause to be terminated, any solicitation of, discussion
or negotiations with any person conducted prior to January 10, 2024 by
Southwestern or any of its subsidiaries, their respective controlled
affiliates or representatives with respect to any inquiry, proposal or offer
that relates to, constitutes, or could reasonably be expected to lead to, a
Southwestern Competing Proposal (as defined below). Southwestern will,
promptly following the execution and delivery of the Merger Agreement,
terminate any physical or electronic data room relating to any potential
Southwestern Competing Proposal.
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Southwestern has also agreed that, from and after January 10, 2024, and until
the earlier of the Effective Time and termination of the Merger Agreement
pursuant to the terms of the Merger Agreement, Southwestern and its officers
and directors will not, and will cause Southwestern's subsidiaries and its and
their respective controlled affiliates and respective officers and directors
to, and will use their reasonable best efforts to cause their respective
representatives not to, directly or indirectly:
.
initiate, solicit, seek, propose, endorse, knowingly encourage, or knowingly
facilitate (including by way of furnishing non-public information) any inquiry
regarding the making, submission or announcement by any person (other than
Chesapeake or its subsidiaries) of any inquiry, proposal or offer, including
any proposal or offer to Southwestern's stockholders that constitutes, or
could reasonably be expected to lead to, a Southwestern Competing Proposal;
.
engage in, continue or otherwise participate in any discussions or
negotiations with any person with respect to, relating to, or in furtherance
of a Southwestern Competing Proposal or any inquiry, proposal or offer that
could reasonably be expected to lead to a Southwestern Competing Proposal;
.
furnish or afford access to any material non-public information regarding
Southwestern or its subsidiaries to any person (other than Chesapeake and its
subsidiaries) in connection with, for the purpose of soliciting, initiating,
knowingly encouraging or knowingly facilitating, or in response to any
Southwestern Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Southwestern Competing Proposal;
.
approve, adopt, recommend, agree to enter into, or propose to approve, adopt,
recommend, agree to or enter into, any inquiry, proposal or offer that
constitutes, or could reasonably be expected to lead to a Southwestern
Alternative Acquisition Agreement (as defined below);
.
enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a Southwestern Competing Proposal or that would require, or would
reasonably be expected to require, Southwestern to abandon, terminate or fail
to consummate the Integrated Mergers or any other transaction contemplated by
the Merger Agreement;
.
waive or release any person from, forebear in the enforcement of, or amend or
terminate any standstill agreement or any standstill provisions of any other
contract; provided that if Southwestern (acting under the direction of the
Southwestern Board) determines in good faith after consultation with
Southwestern's outside legal counsel that the failure to waive a particular
standstill provision would be inconsistent with the relevant directors'
fiduciary duties under applicable law, then Southwestern may waive such
standstill provision, solely to the extent necessary to permit a third party
to make and pursue a non-public Southwestern Competing Proposal that
Southwestern reasonably believes is likely to lead to a Southwestern Superior
Proposal (as defined below);
.
submit any competing proposal to the vote of Southwestern stockholders; or
.
resolve or agree to take any of the actions described above.
From and after January 10, 2024, Southwestern has agreed to promptly (and in
any event within twenty-four hours) notify Chesapeake in writing of the
receipt by Southwestern of any Southwestern Competing Proposal or any proposal
or offer with respect to (or that could reasonably be expected to lead to) a
Southwestern Competing Proposal made on or after January 10, 2024, any request
for information or data relating to Southwestern or any of its subsidiaries
made by any person in connection with (or that could reasonably be expected to
lead to) a Southwestern Competing Proposal or any request for discussions or
negotiations with Southwestern or a representative of Southwestern relating to
(or that could reasonably be expected to lead to) a Southwestern Competing
Proposal, and Southwestern will notify Chesapeake of the identity of the
person making or submitting such request, inquiry, proposal or offer and
provide to Chesapeake (i) a copy of any such request, inquiry, proposal or
offer made in writing provided to Southwestern or any of its subsidiaries or
any of its and their respective representatives or (ii) if any such request,
inquiry, proposal or offer is not made in writing, a written summary of such
request, proposal or offer (including the material terms and conditions
thereof), in each case together with copies of any proposed transaction
agreements. Thereafter Southwestern has agreed to keep Chesapeake reasonably
informed in writing on a
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current basis (and in any event within twenty-four hours) regarding material
changes to the status of any such requests, inquiries, proposals or offers
(including any amendments or changes thereto, which, for the avoidance of
doubt, shall include (among other things) any changes to the form or amount of
consideration) and will reasonably apprise Chesapeake of the status of any
such negotiations to the extent the status changes in any material respect.
Without limiting the foregoing, Southwestern has agreed to notify Chesapeake
if Southwestern determines to engage in discussions or negotiations concerning
a Southwestern Competing Proposal.
No Solicitation Exceptions
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, Southwestern and its representatives may (i) provide information
in response to a request therefor by a person who has made an unsolicited bona
fide written Southwestern Competing Proposal or any inquiry, proposal or offer
with respect to (or that could reasonably be expected to lead to) a written
Southwestern Competing Proposal after January 10, 2024 that did not result
from a breach of Southwestern's non-solicitation obligations if Southwestern
receives from the person so requesting such information an executed
confidentiality agreement on terms not less restrictive to the other party
than those contained in the confidentiality agreement between Chesapeake and
Southwestern (an "Acceptable Confidentiality Agreement"), it being understood
that such Acceptable Confidentiality Agreement need not prohibit the making,
or amendment, of a competing proposal and shall not prohibit compliance by
Southwestern with the terms of the Merger Agreement, and Southwestern will
promptly (and, in any event, within twenty-four hours) disclose and provide
copies of such Acceptable Confidentiality Agreement any such information
provided to such person to Chesapeake to the extent not previously provided to
Chesapeake; or (ii) engage or participate in any discussions or negotiations
with any person who has made such an unsolicited bona fide written competing
proposal after January 10, 2024 that did not result from a breach of
Southwestern's non-solicitation obligations if and only to the extent that:
.
prior to taking any action described in clause (i) or (ii) above, the
Southwestern Board determines in good faith after consultation with its
outside legal counsel that failure to take such action in light of the
competing proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Southwestern Board's fiduciary duties under
applicable law; and
.
in each such case referred to in clause (i) or (ii) above, the Southwestern
Board has determined in good faith based on the information then available and
after consultation with its financial advisor and outside legal counsel that
such Southwestern Competing Proposal either constitutes a Southwestern
Superior Proposal or is reasonably likely to result in a Southwestern Superior
Proposal, provided that, notwithstanding anything to the contrary in the terms
of the Merger Agreement, if Southwestern receives any competing proposal or
any inquiry, proposal or offer with respect to (or that could reasonably be
expected to lead to) a Southwestern Competing Proposal, Southwestern may seek
clarification of the terms and conditions thereof so as to determine whether
such competing proposal or any inquiry, proposal or offer with respect to (or
that could reasonably be expected to lead to) a Southwestern Competing
Proposal constitutes a Southwestern Superior Proposal or is reasonably likely
to result in a Southwestern Superior Proposal.
No Solicitation of Acquisition Proposals by Chesapeake (See page 165)
Chesapeake has agreed that, from and after January 10, 2024, and until the
earlier of the Effective Time and termination of the Merger Agreement pursuant
to the terms of the Merger Agreement, Chesapeake and its officers and
directors will and will cause Chesapeake's subsidiaries and its and their
controlled affiliates and respective officers and directors to, and will use
their reasonable best efforts to cause their respective representatives to
immediately cease, and cause to be terminated, any solicitation of, discussion
or negotiations with any person conducted prior to January 10, 2024 by
Chesapeake or any of its subsidiaries, their respective controlled affiliates
or representatives with respect to any inquiry, proposal or offer that relates
to, constitutes, or could reasonably be expected to lead to, a Chesapeake
Competing Proposal (as defined below). Chesapeake will, promptly following the
execution and delivery of the Merger Agreement, terminate any access to any
physical or electronic data room relating to any potential Chesapeake
Competing Proposal.
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Chesapeake has also agreed that, from and after January 10, 2024, and until
the earlier of the Effective Time and termination of the Merger Agreement
pursuant to the terms of the Merger Agreement, Chesapeake and its officers and
directors will not, and will cause Chesapeake's subsidiaries and its and their
respective controlled affiliates and respective officers and directors to, and
will use their reasonable best efforts to cause their respective representatives
not to, directly or indirectly:
.
initiate, solicit, seek, propose, endorse, knowingly encourage, or knowingly
facilitate (including by way of furnishing non-public information) any inquiry
regarding the making, submission or announcement by any person (other than
Southwestern or its subsidiaries) of any inquiry, proposal or offer, including
any proposal or offer to Chesapeake's shareholders that constitutes, or could
reasonably be expected to lead to, a Chesapeake Competing Proposal;
.
engage in, continue or otherwise participate in any discussions or
negotiations with any person with respect to, relating to, or in furtherance
of a competing proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Chesapeake Competing Proposal;
.
furnish or afford access to any material non-public information regarding
Chesapeake or its subsidiaries to any person (other than Chesapeake and its
subsidiaries) in connection with, for the purpose of soliciting, initiating,
knowingly encouraging or knowingly facilitating, or in response to any
Chesapeake Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a competing proposal;
.
approve, adopt, recommend, agree to enter into, or propose to approve, adopt,
recommend, agree to or enter into, any inquiry, proposal or offer that
constitutes, or could reasonably be expected to lead to a "Chesapeake
Alternative Acquisition Agreement" (as defined below);
.
enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a "Chesapeake Competing Proposal" (as defined in the Merger Agreement) or
that would require, or would reasonably be expected to require, Chesapeake to
abandon, terminate or fail to consummate the Integrated Mergers or any other
transaction contemplated by the Merger Agreement;
.
waive or release any person from, forebear in the enforcement of, or amend or
terminate any standstill agreement or any standstill provisions of any other
contract; provided that if Chesapeake (acting under the direction of the
Chesapeake Board) determines in good faith after consultation with
Chesapeake's outside legal counsel that the failure to waive a particular
standstill provision would be inconsistent with the relevant directors'
fiduciary duties under applicable law, then Chesapeake may waive such
standstill provision, solely to the extent necessary to permit a third party
to make and pursue a non-public Chesapeake Competing Proposal that Chesapeake
reasonably believes is likely to lead to a "Chesapeake Superior Proposal" (as
defined below);
.
submit any competing proposal to the vote of Chesapeake shareholders; or
.
resolve or agree to take any of the actions described above.
From and after January 10, 2024, Chesapeake has agreed to promptly (and in any
event within twenty-four hours) notify Southwestern in writing of the receipt
by Chesapeake of any competing proposal or any proposal or offer with respect
to (or that could reasonably be expected to lead to) a Chesapeake Competing
Proposal made on or after January 10, 2024, any request for information or
data relating to Chesapeake or any of its subsidiaries made by any person in
connection with (or that could reasonably be expected to lead to) a Chesapeake
Competing Proposal or any request for discussions or negotiations with
Chesapeake or a representative of Chesapeake relating to (or that could
reasonably be expected to lead to) a competing proposal, and Chesapeake will
notify Southwestern of the identity of the person making or submitting such
request, inquiry, proposal or offer and provide to Chesapeake (i) a copy of
any such request, inquiry, proposal or offer made in writing provided to
Chesapeake or any of its subsidiaries or any of its and their respective
representatives or (ii) if any such request, inquiry, proposal or offer is not
made in writing, a written summary of such request, proposal or offer
(including the material terms and conditions thereof), in each case together
with copies of any proposed transaction agreements. Thereafter, Chesapeake has
agreed to keep Southwestern reasonably informed in writing on a current basis
(and in any event within twenty-four
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hours) regarding material changes to the status of any such requests,
inquiries, proposals or offers (including any amendments or changes thereto,
which, for the avoidance of doubt, shall include (among other things) any
changes to the form or amount of consideration) and will reasonably apprise
Southwestern of the status of any such negotiations to the extent the status
changes in any material respect. Without limiting the foregoing, Chesapeake
has agreed to notify Southwestern if Chesapeake determines to engage in
discussions or negotiations concerning a Chesapeake Competing Proposal.
No Solicitation Exceptions
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, Chesapeake and its representatives may (i) provide information
in response to a request therefor by a person who has made an unsolicited bona
fide written competing proposal or any inquiry, proposal or offer with respect
to (or that could reasonably be expected to lead to) a written competing
proposal after January 10, 2024 that did not result from a breach of
Chesapeake's non-solicitation obligations if Chesapeake receives from the
person so requesting such information an Acceptable Confidentiality Agreement,
it being understood that such Acceptable Confidentiality Agreement need not
prohibit the making, or amendment, of a competing proposal and shall not
prohibit compliance by Chesapeake with the terms of the Merger Agreement, and
Chesapeake will promptly (and, in any event, within twenty-four hours)
disclose and provide copies of such Acceptable Confidentiality Agreement and
any such information provided to such person to Southwestern to the extent not
previously provided to Southwestern; or (ii) engage or participate in any
discussions or negotiations with any person who has made such an unsolicited
bona fide written competing proposal after January 10, 2024 that did not
result from a breach of Chesapeake's non-solicitation obligations if and only
to the extent that:
.
prior to taking any action described in clause (i) or (ii) above, the
Chesapeake Board determines in good faith after consultation with its outside
legal counsel that failure to take such action in light of the Chesapeake
Competing Proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Chesapeake Board's fiduciary duties under
applicable law; and
.
in each such case referred to in clause (i) or (ii) above, the Chesapeake
Board has determined in good faith based on the information then available and
after consultation with its financial advisor and outside legal counsel that
such competing proposal either constitutes a Chesapeake Superior Proposal or
is reasonably likely to result in a Chesapeake Superior Proposal, provided
that, notwithstanding anything to the contrary in the terms of the Merger
Agreement, if Chesapeake receives any competing proposal or any inquiry,
proposal or offer with respect to (or that could reasonably be expected to
lead to) a Chesapeake Competing Proposal, Chesapeake may seek clarification of
the terms and conditions thereof so as to determine whether such competing
proposal or any inquiry, proposal or offer with respect to (or that could
reasonably be expected to lead to) a Chesapeake Competing Proposal constitutes
a superior proposal or is reasonably likely to result in a Chesapeake Superior
Proposal.
No Change of Recommendation by Southwestern (See page 167)
Restrictions on Change of Recommendation
Subject to certain exceptions described below, the Southwestern Board,
including any committee of the Southwestern Board, may not:
.
withhold, withdraw, qualify or modify, or publicly propose or announce any
intention to withhold, withdraw, qualify or modify, in a manner adverse to
Chesapeake or Merger Sub Inc, its recommendation that Southwestern
stockholders approve the Merger Proposal;
.
fail to include its recommendation that Southwestern stockholders approve the
Merger Proposal in this joint proxy statement/prospectus;
.
fail to publicly announce, within ten business days after a tender offer or
exchange offer relating to the equity securities of Southwestern shall have
been commenced by any third party other than Chesapeake and its affiliates
(and in no event later than one business day prior to the date of the
Southwestern Special Meeting, as it may be postponed or adjourned in
accordance with the terms of
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the Merger Agreement), a statement disclosing that the Southwestern Board
recommends rejection of such tender or exchange offer (for the avoidance of
doubt, the taking of no position or a neutral position by the Southwestern
Board in respect of the acceptance of any such tender offer or exchange offer
as of the end of such period shall constitute a failure to publicly announce
that the Southwestern Board recommends rejection of such tender or exchange
offer);
.
if requested by Chesapeake, fail to issue, within five business days after a
Southwestern Competing Proposal is publicly announced (and in no event later
than one business day prior to the date of the Southwestern Special Meeting,
as it may be postponed or adjourned in accordance with the terms of the Merger
Agreement), a press release reaffirming its recommendation that Southwestern
stockholders approve the Merger Proposal, which request may not be made more
than two times in respect of any specific competing proposal;
.
approve, recommend or declare advisable (or publicly propose to do so) any
Southwestern Competing Proposal;
.
approve, adopt, recommend, agree to or enter into, or propose or resolve to
approve, adopt, recommend, agree to or enter into, any alternative acquisition
agreement.
.
cause or permit Southwestern to enter into a Southwestern Alternative
Acquisition Agreement; or
.
publicly propose to take any of the actions described above.
Permitted Recommendation Change in Connection with a Superior Proposal
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, in response to a bona fide written competing proposal from a
third party that has not been withdrawn, was received after January 10, 2024,
was not solicited at any time following the execution of the Merger Agreement
and did not result from a breach of Southwestern's non-solicitation
obligations, the Southwestern Board may effect a change of recommendation or
terminate the Merger Agreement pursuant to the terms of the Merger Agreement
in response to a Southwestern Superior Proposal; provided, however, that such
change of recommendation or termination of the Merger Agreement, as applicable
may not be made unless and until:
.
the Southwestern Board determines in good faith after consultation with its
financial advisors and outside legal counsel that such Southwestern Competing
Proposal is a Southwestern Superior Proposal;
.
the Southwestern Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Southwestern Superior Proposal would be
inconsistent with the fiduciary duties owed by the Southwestern Board to the
stockholders of Southwestern under applicable law;
.
Southwestern provides Chesapeake written notice of such proposed action four
business days in advance, which notice will set forth in writing that the
Southwestern Board intends to take such action and will include the identity
of the person making such Southwestern Competing Proposal and will contain a
copy of such proposal and a draft of the definitive agreement to be entered
into in connection therewith (or, if not in writing, a written summary of the
material terms and conditions thereof);
.
during the four business day period commencing on the date of Chesapeake's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Southwestern negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Chesapeake (to the extent
Chesapeake wishes to negotiate) to permit Chesapeake to make such adjustments,
amendments or revisions to the terms of the Merger Agreement so that the
Southwestern Competing Proposal that is the subject of such notice ceases to
be a Southwestern Superior Proposal;
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Southwestern Board takes into account any
binding irrevocable adjustments, amendments or revisions to the terms of the
Merger Agreement proposed by Chesapeake in writing and any other information
offered by Chesapeake in response to the notice specified in the third bullet
point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the Southwestern Competing
Proposal remains a Southwestern Superior Proposal and that the
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failure to effect a change of recommendation in response to such Southwestern
Superior Proposal would continue to be inconsistent with the fiduciary duties
of the directors under applicable law; provided that if there is any material
development with respect to such Southwestern Competing Proposal, Southwestern
shall, in each case, be required to deliver to Chesapeake an additional notice
consistent with that described in the third bullet point above and a new
negotiation period under the fourth bullet point above shall commence (except
that the original four business day notice period referred to in the fourth
bullet point above shall instead be equal to the longer of (1) two business
days and (2) the period remaining under the first and original four business
day notice period above, during which time Southwestern shall be required to
comply with the requirements of the fourth bullet point above and this bullet
point anew with respect to such additional notice (but substituting the time
periods therein with the foregoing extended period)); and
.
in the case of Southwestern terminating the Merger Agreement to enter into a
definitive agreement with respect to a Southwestern Superior Proposal,
Southwestern shall have, prior to or contemporaneously with such termination,
paid, or cause the payment of, the termination fee.
Permitted Recommendation Change in Connection with Intervening Events
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, in response to a Southwestern Intervening Event (as defined
below) that occurs or arises after January 10, 2024 and that did not arise
from or in connection with a material breach of the Merger Agreement by
Southwestern, the Southwestern Board may effect a change of recommendation;
provided, however, that such change of recommendation may not be made unless
and until:
.
the Southwestern Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that a Southwestern Intervening
Event has occurred;
.
the Southwestern Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Southwestern Intervening Event would be
inconsistent with the fiduciary duties of the directors of the Southwestern
Board under applicable law;
.
Southwestern provides Chesapeake written notice of such proposed action and
the basis of such proposed action four business days in advance, which notice
will set forth in writing that the Southwestern Board intends to take such
action and includes the reasons therefor and a reasonable description of the
facts and circumstances of the Southwestern Intervening Event and the reasons
for the Southwestern Board's determination;
.
during the four business day period commencing on the date of Chesapeake's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Southwestern negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Chesapeake (to the extent
Chesapeake wishes to negotiate) to make such adjustments, amendments or
revisions to the terms of the Merger Agreement as would permit the
Southwestern Board not to effect a change of recommendation in response
thereto; and
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Southwestern Board takes into account any
binding irrevocable adjustments, amendments or revisions to the terms of the
Merger Agreement proposed by Chesapeake in writing and any other information
offered by Chesapeake in response to the notice specified in the third bullet
point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the failure to effect a
change of recommendation in response to such intervening event would continue
to be inconsistent with the fiduciary duties of the directors under applicable
law if such adjustments, amendments or revisions irrevocably offered in
writing by Chesapeake were to be given effect; provided that if there is any
material development with respect to such Southwestern Intervening Event,
Southwestern shall, in each case, be required to deliver to Chesapeake an
additional notice consistent with that described in the third bullet point
above and a new negotiation period under the fourth bullet point above shall
commence (except that the original four business day notice period referred to
in the third bullet point above shall instead be equal to the longer of (1) two
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business days and (2) the period remaining under the first and original four
business day notice period of the third bullet point above, during which time
Southwestern shall be required to comply with the requirements of the fourth
bullet point above and this bullet point anew with respect to such additional
notice (but substituting the time periods therein with the foregoing extended
period)).
No Change of Recommendation by Chesapeake (See page 168)
Restrictions on Change of Recommendation
Subject to certain exceptions described below, the Chesapeake Board, including
any committee of the Chesapeake Board, may not:
.
withhold, withdraw, qualify or modify, or publicly propose or announce any
intention to withhold, withdraw, qualify or modify, in a manner adverse to
Southwestern, its recommendation that Chesapeake shareholders approve the
Stock Issuance Proposal;
.
fail to include its recommendation that Chesapeake shareholders approve the
Stock Issuance Proposal in this joint proxy statement/prospectus;
.
fail to publicly announce, within ten business days after a tender offer or
exchange offer relating to the equity securities of Chesapeake shall have been
commenced by any third party other than Southwestern and its affiliates (and
in no event later than one business day prior to the date of the Chesapeake
Special Meeting, as it may be postponed or adjourned in accordance with the
terms of the Merger Agreement), a statement disclosing that the Chesapeake
Board recommends rejection of such tender or exchange offer (for the avoidance
of doubt, the taking of no position or a neutral position by the Chesapeake
Board in respect of the acceptance of any such tender offer or exchange offer
as of the end of such period shall constitute a failure to publicly announce
that the Chesapeake Board recommends rejection of such tender or exchange
offer);
.
if requested by Southwestern, fail to issue, within five business days after a
Chesapeake Competing Proposal is publicly announced (and in no event later
than one business day prior to the date of the Chesapeake Special Meeting, as
it may be postponed or adjourned in accordance with the terms of the Merger
Agreement), a press release reaffirming its recommendation that Chesapeake
shareholders approve the Stock Issuance Proposal, which request may not be
made more than two times in respect of any specific Chesapeake Competing
Proposal;
.
approve, recommend or declare advisable (or publicly propose to do so) any
Chesapeake Competing Proposal;
.
approve, adopt, recommend, agree to or enter into, or propose or resolve to
approve, adopt, recommend, agree to or enter into, any Chesapeake Alternative
Acquisition Agreement.
.
cause or permit Chesapeake to enter into a Chesapeake Alternative Acquisition
Agreement; or
.
publicly propose to take any of the actions described above.
Permitted Recommendation Change in Connection with a Superior Proposal
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, in response to a bona fide written competing proposal from a
third party that has not been withdrawn, was received after January 10, 2024,
was not solicited at any time following the execution of the Merger Agreement
and did not result from a breach of Chesapeake's non-solicitation obligations,
the Chesapeake Board may effect a change of recommendation or terminate the
Merger Agreement pursuant to the terms of the Merger Agreement in response to
a Chesapeake Superior Proposal; provided, however, that such change of
recommendation or termination of the Merger Agreement, as applicable may not
be made unless and until:
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors, and outside legal counsel that such Chesapeake Competing
Proposal is a Chesapeake Superior Proposal;
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Chesapeake
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Superior Proposal would be inconsistent with the fiduciary duties owed by the
Chesapeake Board to the shareholders of Chesapeake under applicable law;
.
Chesapeake provides Southwestern written notice of such proposed action four
business days in advance, which notice will set forth in writing that the
Chesapeake Board intends to take such action and will include the identity of
the person making such Chesapeake Competing Proposal and will contain a copy
of such proposal and a draft of the definitive agreement to be entered into in
connection therewith (or, if not in writing, a written summary of the material
terms and conditions thereof);
.
during the four business day period commencing on the date of Southwestern's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Chesapeake negotiates (and causes its
officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Southwestern (to the extent
Southwestern wishes to negotiate) to permit Southwestern to make such
adjustments, amendments or revisions to the terms of the Merger Agreement so
that the Chesapeake Competing Proposal that is the subject of such notice
ceases to be a Chesapeake Superior Proposal;
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Chesapeake Board takes into account any binding
irrevocable adjustments, amendments or revisions to the terms of the Merger
Agreement proposed by Southwestern in writing and any other information
offered by Southwestern in response to the notice specified in the third
bullet point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the Chesapeake Competing
Proposal remains a Chesapeake Superior Proposal and that the failure to effect
a change of recommendation in response to such Chesapeake Superior Proposal
would continue to be inconsistent with the fiduciary duties of the directors
under applicable law; provided that if there is any material development with
respect to such Chesapeake Competing Proposal, Chesapeake shall, in each case,
be required to deliver to Southwestern an additional notice consistent with
that described in the third bullet above and a new negotiation period under
the fourth bullet point above shall commence (except that the original four
business day notice period referred to in the fourth bullet point above shall
instead be equal to the longer of (1) two business days and (2) the period
remaining under the first and original four business day notice period above,
during which time Chesapeake shall be required to comply with the requirements
of the fourth bullet point above and this bullet point anew with respect to
such additional notice (but substituting the time periods therein with the
foregoing extended period)); and
.
in the case of Chesapeake terminating the Merger Agreement to enter into a
definitive agreement with respect to a Chesapeake Superior Proposal,
Chesapeake shall have, prior to or contemporaneously with such termination,
paid, or cause the payment of, the termination fee.
Permitted Recommendation Change in Connection with Intervening Events
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, in response to a Chesapeake Intervening Event (as defined below)
that occurs or arises after January 10, 2024 and that did not arise from or in
connection with a material breach of the Merger Agreement by Chesapeake, the
Chesapeake Board may effect a change of recommendation; provided, however,
that such change of recommendation may not be made unless and until:
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that a Chesapeake Intervening
Event has occurred;
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Chesapeake Intervening Event would be
inconsistent with the fiduciary duties of the directors of the Chesapeake
Board under applicable law;
.
Chesapeake provides Southwestern written notice of such proposed action and
the basis of such proposed action four business days in advance which notice
will set forth in writing that the Chesapeake Board intends to take such
action and includes the reasons therefor and a reasonable description of the
facts and circumstances of the Chesapeake Intervening Event and the reasons
for the Chesapeake Board's determination;
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.
during the four business day period commencing on the date of Southwestern's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Chesapeake negotiates (and causes its
officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Southwestern (to the extent
Southwestern wishes to negotiate) to make such adjustments, amendments or
revisions to the terms of the Merger Agreement as would permit the Chesapeake
Board not to effect a change of recommendation in response thereto; and
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Chesapeake Board takes into account any binding
irrevocable adjustments, amendments or revisions to the terms of the Merger
Agreement proposed by Southwestern in writing and any other information
offered by Southwestern in response to the notice specified in the third
bullet point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the failure to effect a
change of recommendation in response to such intervening event would continue
to be inconsistent with the fiduciary duties of the directors under applicable
law if such adjustments, amendments or revisions irrevocably offered in
writing by Southwestern were to be given effect; provided that if there is any
material development with respect to such Chesapeake Intervening Event,
Chesapeake shall, in each case, be required to deliver to Southwestern an
additional notice consistent with that described in the third bullet point
above and a new negotiation period under the fourth bullet point above shall
commence (except that the original four business day notice period referred to
in the third bullet point above shall instead be equal to the longer of (1)
two business days and (2) the period remaining under the first and original
four business day notice period of the third bullet point above, during which
time Chesapeake shall be required to comply with the requirements of the
fourth bullet point above and this bullet point anew with respect to such
additional notice (but substituting the time periods therein with the
foregoing extended period)).
Termination of the Merger Agreement (See page 190)
The Merger Agreement can be terminated in the following circumstances:
.
Mutual Agreement
. Mutual Agreement of Chesapeake and Southwestern.
.
Final Law
. Termination by either party if any law has been enacted permanently
prohibiting or making illegal the Merger.
.
End Date
. Termination by either party if the Merger has not been consummated on or
before 5:00 p.m. Central Time on January 10, 2025, which may be automatically
extended to January 10, 2026 in certain circumstances.
.
Breach of Representations or Covenants
. Termination by either party, if the other party has breached its
representations or covenants in a way that causes a closing condition to fail.
.
Shareholder Rejection
. Termination by either party if the Southwestern stockholders fail to
approve the Merger Proposal at the Southwestern Special Meeting or if the
Chesapeake shareholders do not approve the Stock Issuance Proposal at the
Chesapeake Special Meeting.
.
Change in Recommendation
. Termination by Chesapeake prior to Southwestern shareholder approval of
the Merger Proposal, if the Southwestern Board changes its recommendation to
the Southwestern shareholders to vote for the Merger.
.
Change in Recommendation
. Termination by Southwestern prior to Chesapeake shareholder approval of
the Stock Issuance Proposal, if the Chesapeake Board changes its recommendation
to the Chesapeake shareholders to vote for the issuance of shares of
Chesapeake Common Stock to the Southwestern shareholders in connection with
the Merger.
.
Chesapeake Superior Proposal
. Termination by Chesapeake prior to the Chesapeake shareholder approval, in
order to enter into a definitive agreement with respect to a Chesapeake
Superior Proposal, in which case Chesapeake must pay to Southwestern the $389
million termination fee described below.
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.
Southwestern Superior Proposal
. Termination by Southwestern prior to the Southwestern shareholder
approval, in order to enter into a definitive agreement with respect to a
Southwestern Superior Proposal, in which case Southwestern must pay to
Chesapeake the $260 million termination fee described below.
Payment of Expenses (See page 192)
The Merger Agreement requires Southwestern to pay Chesapeake $55.6 million in
respect of Chesapeake's costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement if
Southwestern or Chesapeake terminates the Merger Agreement due to a failure to
obtain Southwestern stockholder approval.
The Merger Agreement requires Chesapeake to pay Southwestern $37.25 million in
respect of Southwestern's costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement if
Chesapeake or Southwestern terminates the Merger Agreement due to a failure to
obtain Chesapeake shareholder approval.
Except as otherwise provided in the Merger Agreement, whether or not the
Merger is completed, all costs and expenses incurred in connection with the
Merger Agreement, the Merger and the other transactions contemplated by the
Merger Agreement will be paid by the party incurring the expense.
Notwithstanding the foregoing, Chesapeake and Southwestern have agreed to each
be responsible for the payment of 50% of the HSR filing fee applicable to the
Merger.
Termination Fee (See page 191)
Termination Fee Payable by Southwestern
The Merger Agreement requires Southwestern to pay Chesapeake a termination fee
of $260 million if:
.
Chesapeake terminates the Merger Agreement due to a Southwestern change of
recommendation or Southwestern's willful and material breach of its
non-solicitation obligations;
.
Chesapeake or Southwestern terminates the Merger Agreement due to a failure to
consummate the Merger before the applicable Outside Date or due to failure to
obtain Southwestern stockholder approval at a time when Chesapeake would have
been entitled to terminate the Merger Agreement due to a Southwestern change
of recommendation;
.
Southwestern terminates the Merger Agreement to enter into a definitive
agreement with respect to a Southwestern Superior Proposal; or
.
(i) (A) Chesapeake or Southwestern terminates the Merger Agreement due to the
failure to obtain Southwestern stockholder approval or failure to consummate
the Merger before the applicable Outside Date at a time when the Merger
Agreement could have been terminated due to the failure to obtain Southwestern
stockholder approval, and on or before the date of any such termination a
competing proposal was publicly announced or publicly disclosed and not
publicly withdrawn without qualification at least seven business days prior to
the Southwestern Special Meeting or (B) Southwestern terminates the Merger
Agreement due to a failure to consummate the Merger by the applicable Outside
Date at a time when Chesapeake would be permitted to terminate the Merger
Agreement due to a Southwestern terminable breach or Chesapeake terminates the
Merger Agreement due to a Southwestern terminable breach and following the
execution of the Merger Agreement and on or before the date of any such
termination a competing proposal has been announced, disclosed or otherwise
communicated to the Southwestern Board and not withdrawn without qualification
at least seven business days prior to the date of such termination and (ii)
within twelve months of the date of such termination, Southwestern enters into
a definitive agreement with respect to a competing proposal (or publicly
approves or recommends to the Southwestern stockholders or otherwise does not
oppose, in the case of a tender or exchange offer, a competing proposal) or
consummates a competing proposal. For purposes of this paragraph, any
reference in the definition of competing proposal to "20% or more" will be
deemed to be a reference to "more than 50%."
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Termination Fee Payable by Chesapeake
The Merger Agreement requires Chesapeake to pay Southwestern a termination fee
of $389 million if:
.
Southwestern terminates the Merger Agreement due to a Chesapeake change of
recommendation or Chesapeake's willful and material breach of its
non-solicitation obligations;
.
Chesapeake or Southwestern terminates the Merger Agreement due to a failure to
consummate the Merger before the applicable Outside Date or due to failure to
obtain Chesapeake shareholder approval at a time when Southwestern would have
been entitled to terminate the Merger Agreement due to a Chesapeake change of
recommendation;
.
Chesapeake terminates the Merger Agreement to enter into a definitive
agreement with respect to a Chesapeake Superior Proposal;
.
(i) (A) Chesapeake or Southwestern terminates the Merger Agreement due to the
failure to obtain Chesapeake shareholder approval or failure to consummate the
Merger before the applicable Outside Date at a time when the Merger Agreement
could have been terminated due to the failure to obtain Chesapeake shareholder
approval, and on or before the date of any such termination a competing
proposal was publicly announced or publicly disclosed and not publicly
withdrawn without qualification at least seven business days prior to the
Chesapeake Special Meeting or (B) Chesapeake terminates the Merger Agreement
due to a failure to consummate the Merger by the applicable Outside Date at a
time when Southwestern would be permitted to terminate the Merger Agreement
due to a Chesapeake terminable breach or Southwestern terminates the Merger
Agreement due to a Chesapeake terminable breach and following the execution of
the Merger Agreement and on or before the date of any such termination a
competing proposal has been announced, disclosed or otherwise communicated to
the Chesapeake Board and not withdrawn without qualification at least seven
business days prior to the date of such termination and (ii) within twelve
months of the date of such termination, Chesapeake enters into a definitive
agreement with respect to a competing proposal (or publicly approves or
recommends to the Chesapeake shareholders or otherwise does not oppose, in the
case of a tender or exchange offer, a competing proposal) or consummates a
competing proposal. For purposes of this paragraph, any reference in the
definition of competing proposal to "20% or more" will be deemed to be a
reference to "more than 50%."
Certain Limitations and Other Agreements related to Termination Fee
In connection with the provisions of the Merger Agreement regarding the
termination fee payable by Southwestern or Chesapeake, Southwestern and
Chesapeake have agreed that (i) in no event will Chesapeake or Southwestern be
entitled to receive more than one payment of the termination fee or expenses,
as applicable. Notwithstanding anything in the Merger Agreement to the
contrary, the payment of expenses shall not relieve the other party of any
subsequent obligation to pay the termination fee, as applicable; provided that
a party may credit any prior expenses paid against the amount of any
termination fee required to be paid and (ii) the termination fees are not
intended to be a penalty but rather is liquidated damages in a reasonable
amount that will compensate Chesapeake or Southwestern, as applicable, in the
circumstances in which such termination fee is due and payable and which do
not involve fraud or willful and material breach, for the efforts and
resources expended and opportunities forgone while negotiating the Merger
Agreement and in reliance on the agreement and on the expectation of the
consummation of the transactions contemplated by the Merger Agreement, which
amount would otherwise be impossible to calculate with precision.
Accounting Treatment (See page 145)
In accordance with accounting principles generally accepted in the United
States and in accordance with FASB's ASC 805 - Business Combinations,
Chesapeake will account for the Merger as an acquisition of a business.
Material U.S. Federal Income Tax Consequences (See page 209)
Assuming that the Integrated Mergers are completed as currently contemplated,
Chesapeake and Southwestern intend for the Integrated Mergers, taken together,
to qualify as a "reorganization" within the
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meaning of Section 368(a) of the Code. It is a condition to Southwestern's
obligation to complete the Merger that it receive an opinion from Kirkland &
Ellis LLP, or other legal counsel selected by Southwestern and reasonably
satisfactory to Chesapeake, dated as of the closing date, to the effect that
the Integrated Mergers, taken together, will qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. Provided that the Integrated
Mergers, taken together, qualify as a "reorganization" within the meaning of
Section 368(a) of the Code, a U.S. holder (as defined in "
Material U.S. Federal Income Tax Consequences
") generally will not recognize any gain or loss for U.S. federal income tax
purposes upon the exchange of Southwestern Common Stock for shares of
Chesapeake Common Stock pursuant to the Merger, except with respect to any
cash received in lieu of fractional shares of Chesapeake Common Stock.
Please see "
Material U.S. Federal Income Tax Consequences
" for a more detailed discussion of the U.S. federal income tax consequences
of the Integrated Mergers to U.S. holders. Each Southwestern shareholder is
strongly urged to consult with a tax advisor to determine the particular U.S.
federal, state or local or non-U.S. income or other tax consequences of the
Integrated Mergers.
Exchange of Shares (See page 151)
Prior to the closing date, Chesapeake and Southwestern will enter into an
agreement (the "Exchange Agent Agreement") with either party's transfer agent,
to act as Exchange Agent in the Merger. On the Closing Date and prior to the
Effective Time, Chesapeake will deposit with the Exchange Agent all of the
shares of Chesapeake Common Stock necessary to pay the aggregate Merger
Consideration pursuant to the Merger Agreement and sufficient cash to make
payments in lieu of fractional shares pursuant to the terms of the Merger
Agreement. The shares of Chesapeake Common Stock so deposited with the
Exchange Agent, together with (i) any dividends or distributions received by
the Exchange Agent with respect to such shares and (ii) cash to be paid in
lieu of any fractional shares of Chesapeake Common Stock, are referred to
collectively as the "Exchange Fund." The Exchange Agent will determine the
portion of the Exchange Fund to which each former Southwestern shareholder is
entitled pursuant to the terms of the Merger Agreement and the Exchange Agent
Agreement. See "
The Merger Agreement - Payment for Securities; Exchange
."
Comparison of Rights of Southwestern Shareholders and Chesapeake Shareholders
(See page 212)
Upon the completion of the Merger, Southwestern shareholders receiving shares
of Chesapeake Common Stock will become shareholders of Chesapeake, and their
rights will be governed by Oklahoma law and the governing corporate documents
of Chesapeake in effect at the Effective Time. Southwestern shareholders will
have different rights once they become shareholders of Chesapeake due to
differences in applicable law and differences between the governing corporate
documents of Southwestern and Chesapeake, as further described in "
Comparison of Rights of Southwestern Shareholders and Chesapeake Shareholders
."
Listing of Chesapeake Common Stock; Delisting of Southwestern Common Stock
(See page 147)
Prior to the Effective Time, Chesapeake has agreed to take all action
necessary to cause the shares of Chesapeake Common Stock to be issued in the
Merger to be approved for listing on Nasdaq, subject to official notice of
issuance. If the Merger is completed, Southwestern Common Stock will cease to
be listed on the NYSE and will be deregistered under the Exchange Act.
Regulatory Approvals (See page 145)
The completion of the Merger is subject to antitrust review in the United
States. Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be completed unless certain
waiting periods have expired or been terminated. The HSR Act provides that
each party must file a notification and report form ("HSR notification") with
the United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "DOJ"). A transaction
notifiable under the HSR Act may not be completed until the expiration of a
30-day waiting period following the parties' filings of their respective HSR
notifications or the early termination of that waiting period.
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Each of Chesapeake and Southwestern submitted the required HSR notifications
to the FTC and the DOJ on February 1, 2024. Chesapeake pulled its HSR filing
and refiled it on March 5, 2024. On April 4, 2024, Chesapeake and Southwestern
each received a request for additional information and documentary materials
(the "Second Request") from the FTC in connection with the FTC's review of the
Merger. Issuance of the Second Request extends the waiting period imposed by
the HSR Act until 30 days after Chesapeake and Southwestern have each
substantially complied with the Second Request, unless that period is extended
voluntarily by the parties or terminated sooner by the FTC. Chesapeake and
Southwestern will continue to work cooperatively with the FTC in its review of
the Merger, and now expect that the Merger will be completed in the second
half of 2024, subject to the fulfillment of the other closing conditions,
including approvals of Chesapeake and Southwestern shareholders. The
expiration or early termination of any HSR Act waiting period would not
preclude the DOJ or the FTC from challenging the Merger on antitrust grounds
or from seeking to preliminarily or permanently enjoin the proposed Merger.
Chesapeake and Southwestern have agreed in the Merger Agreement to use their
respective reasonable best efforts, subject to certain limitations, to make
any filings required under the HSR Act in connection with the Merger and to
obtain the expiration or termination of any waiting period under the HSR Act
applicable to the Merger. Chesapeake and Southwestern have agreed to use
reasonable best efforts to obtain regulatory approvals required to complete
the Merger, including agreeing to:
.
propose, negotiate, agree to, and effect the sale, leasing, licensing,
divestiture or other disposition of any assets, operations, businesses or
interests of Chesapeake or Southwestern and their respective subsidiaries and
affiliates;
.
terminate existing relationships, contractual rights or obligations of
Chesapeake or Southwestern and their respective subsidiaries and affiliates;
.
terminate any venture or other arrangement of Chesapeake or Southwestern and
their respective subsidiaries and affiliates;
.
create any relationship, contractual rights or obligations binding on
Chesapeake or Southwestern and their respective subsidiaries and affiliates;
.
effectuate any other change or restructuring of Chesapeake or Southwestern and
their respective subsidiaries and affiliates; or
.
agree to restrictions or actions that after the Closing would limit
Chesapeake's or its subsidiaries' freedom of action or operation;
provided, however, that Chesapeake is not required to take any of the actions
described in the bullets above, that would, or that would reasonably be
expected to, either individually or in the aggregate, have a material adverse
effect on the financial condition, business, assets, or results of operations
of Chesapeake, Southwestern and their respective subsidiaries, taken as a
whole; provided, however, that for this purpose, Chesapeake, Southwestern and
their respective subsidiaries, taken as a whole, will be deemed a consolidated
group of entities of the size and scale of a hypothetical company that is 100%
of the size of Southwestern and its subsidiaries, taken as a whole, taking
into account the terms of any divestiture or other disposition of assets, as
of the date of the Merger Agreement.
In addition, subject to the bullets above, if a proceeding is instituted by
any governmental authority challenging the validity or legality or seeking to
restrain the consummation of the Merger, Chesapeake and Southwestern have
agreed to use their reasonable best efforts to resist, resolve, or if
necessary, defend against such proceeding.
Although Chesapeake and Southwestern currently believe they should be able to
obtain all required regulatory approvals in a timely manner, the parties
cannot be certain when or if they will obtain them or, if obtained, whether
the approvals will contain terms, conditions or restrictions not currently
contemplated that will be detrimental to Chesapeake after the completion of
the Merger.
The approval of an application for regulatory approval means only that the
regulatory criteria for approval have been satisfied or waived. It does not
mean that the approving regulatory authority has determined that the Merger
Consideration to be received by holders of Southwestern Common Stock and/or
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the Merger is fair to Southwestern shareholders. Regulatory approval does not
constitute an endorsement or recommendation of the Merger by any regulatory
authority.
At any time before or after the expiration or termination of the applicable
waiting period, or any extension thereof, under the HSR Act, or before or
after the Merger is completed, the DOJ or the FTC may take action under the
antitrust laws in opposition to the Merger, including seeking to enjoin
completion of the Merger, to rescind the Merger or to conditionally permit
completion of the Merger subject to concessions or conditions. In addition,
U.S. state attorneys general could take action under the antitrust laws as
they deem necessary or desirable in the public interest, including, without
limitation, seeking to enjoin the completion of the Merger or permitting
completion subject to concessions or conditions. Private parties may also seek
to take legal action under the antitrust laws under some circumstances.
Although neither Chesapeake nor Southwestern believes that the Merger will
violate the antitrust laws, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
that it would not be successful.
No Appraisal Rights (See page 147)
Under the OGCA (with respect to the Chesapeake shareholders) and the DGCL
(with respect to the Southwestern shareholders), neither Chesapeake
shareholders nor Southwestern shareholders are entitled to appraisal rights or
dissenters' rights in connection with the Merger or the issuance of shares of
Chesapeake Common Stock in the Merger.
Risk Factors Summary (See page 49)
The transactions contemplated by the Merger Agreement, including the Merger,
involve risks. In considering the Merger, including whether to vote for the
Stock Issuance Proposal, the Advisory Chesapeake Compensation Proposal, the
Chesapeake Adjournment Proposal, the Merger Proposal, the Advisory
Southwestern Compensation Proposal and the Southwestern Adjournment Proposal,
you should carefully consider the information about these risks set forth
under the section entitled "
Risk Factors
" on page 49, a summary of which is set forth below, together with the other
information included or incorporated by reference in this proxy statement/prospe
ctus.
.
Because the market price of Chesapeake Common Stock will fluctuate prior to
the consummation of the Merger, Southwestern shareholders cannot be sure of
the market value of Chesapeake Common Stock that they will receive in the
Merger. In addition, because the Exchange Ratio is fixed (subject to
adjustments in accordance with the terms of the Merger Agreement), the number
of shares of Chesapeake Common Stock to be received by Southwestern
shareholders in the Merger will not change to reflect changes in the trading
prices of Chesapeake Common Stock or Southwestern Common Stock.
.
Chesapeake and Southwestern must obtain certain regulatory approvals and
clearances to consummate the Merger, which, if delayed, not granted or granted
with unacceptable conditions, could prevent, substantially delay or impair
consummation of the Merger, result in additional expenditures of money and
resources or reduce the anticipated benefits of the Merger.
.
The Merger is subject to various closing conditions, and any delay in
completing the Merger may reduce or eliminate the benefits expected and delay
the payment of the Merger Consideration.
.
The Merger Agreement limits Chesapeake's and Southwestern's respective ability
to pursue alternatives to the Merger, which may discourage other companies
from making a favorable alternative transaction proposal and, in specified
circumstances, could require Chesapeake or Southwestern to pay the other party
a termination fee.
.
The market price for Chesapeake Common Stock following the closing may be
affected by factors different from those that historically have affected or
currently affect Chesapeake Common Stock and Southwestern Common Stock.
.
Chesapeake shareholders and Southwestern shareholders will have reduced
ownership and voting interest in the combined company and will exercise less
influence over the combined company's management.
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.
Chesapeake Common Stock to be received by Southwestern shareholders as a
result of the Merger will have different rights from Southwestern Common Stock.
.
Completion of the Merger may trigger change in control or other provisions in
certain agreements to which Chesapeake, Southwestern or any of their
respective subsidiaries or joint ventures is a party.
.
Chesapeake and Southwestern are expected to incur significant transaction
costs in connection with the Merger, which may be in excess of those
anticipated by them.
.
If the Merger Agreement is terminated, under certain circumstances,
Southwestern or Chesapeake may be obligated to reimburse the other party for
costs incurred related to the Merger or pay a breakup fee to the other party.
These costs could require the terminating party to seek loans or use its
available cash.
.
The failure to successfully combine the businesses of Chesapeake and
Southwestern in the expected time frame may adversely affect Chesapeake's
future results, which may adversely affect the value of the Chesapeake Common
Stock that Southwestern shareholders would receive in the Merger.
.
The Merger Agreement subjects Chesapeake and Southwestern to restrictions on
their respective business activities prior to the Effective Time.
.
Uncertainties associated with the Merger may cause a loss of management
personnel and other key employees of Chesapeake and Southwestern, which could
adversely affect the future business and operations of the combined company
following the Merger.
.
The Merger may not be completed and the Merger Agreement may be terminated in
accordance with its terms. Failure to complete the Merger could negatively
impact Chesapeake's stock and Southwestern's share price and have a material
adverse effect on their results of operations, cash flows and financial
position.
.
Chesapeake directors and executive officers have interests in the Merger that
may be different from, or in addition to, the interests of the Chesapeake
shareholders generally.
.
Southwestern directors and executive officers have interests in the Merger
that may be different from, or in addition to, the interests of the
Southwestern shareholders generally.
.
Litigation relating to the Merger could result in an injunction preventing
completion of the Merger, substantial costs to Chesapeake and Southwestern
and/or may adversely affect the combined company's business, financial
condition or results of operations following the Merger.
.
Chesapeake shareholders and Southwestern shareholders will not be entitled to
appraisal rights in the Merger.
.
The combined company may be unable to integrate the businesses of Chesapeake
and Southwestern successfully or realize the anticipated benefits of the
Merger.
.
Declaration, payment and amounts of dividends, if any, distributed to
shareholders of the combined company will be uncertain.
.
The trading price and volume of the combined company common stock may be
volatile following the Merger.
.
The unaudited pro forma combined financial statements and the unaudited
forecasted financial information prepared by Chesapeake and Southwestern
included in this joint proxy statement/
prospectus are based on a number of preliminary estimates and assumptions and
the actual results of operations, cash flows and financial position of the
combined company after the Merger may differ materially.
.
The financial forecasts are based on various assumptions that may not be
realized.
.
The synergies attributable to the Merger may vary from expectations.
.
The future results of the combined company following the Merger will suffer if
the combined company does not effectively manage its expanded operations.
.
The Merger may result in a loss of customers, suppliers, vendors, landlords,
joint venture partners and other business partners and may result in the
termination of existing contracts.
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.
The combined company shareholders may experience dilution in the future.
.
The combined company will have a significant amount of indebtedness, which
will limit its liquidity and financial flexibility, and any downgrade of its
credit rating could adversely impact the combined company. The combined
company may also incur additional indebtedness in the future.
.
If the Integrated Mergers, taken together, do not qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, Southwestern shareholders
may be required to pay substantial taxes.
.
There are limitations on the utilization of the historic U.S. net operating
loss carryforwards of Chesapeake and Southwestern.
Chesapeake Summary Historical Consolidated Financial Data
The following table shows Chesapeake's summary historical consolidated
financial data for the years ended December 31, 2023 and 2022 and the three
months ended March 31, 2024 and 2023, and are derived from Chesapeake's
consolidated financial statements.
You should read the historical financial data in connection with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
audited consolidated financial statements and the related notes thereto set
forth in Chesapeake's Annual Report on Form 10-K for the years ended
December 31, 2023
and
2022
, and the unaudited interim consolidated financial statements and the related
notes thereto contained in Chesapeake's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2024
, which are incorporated by reference into this document. See "
Where You Can Find More Information
."
Three Months Years Ended
Ended March 31, December 31,
2024 2023 2023 2022
(millions of dollars)
Financial Review
Operating Revenues:
Natural gas, oil and NGL $ 589 $ 1,453 $ 3,547 $ 9,892
Marketing 312 652 2,500 4,231
Natural gas and oil derivatives 172 930 1,728 (2,680
)
Gains on sales of assets 8 335 946 300
1,081 3,370 8,721 11,743
Operating expenses:
Production 59 131 356 475
Gathering, processing and transportation 173 264 853 1,059
Severance and ad valorem taxes 29 69 167 242
Exploration 2 7 27 23
Marketing 323 651 2,499 4,215
General and administrative 47 35 127 142
Separation and other termination costs - - 5 5
Depreciation, depletion and amortization 399 390 1,527 1,753
Other operating expense, net 17 3 18 49
1,049 1,550 5,579 7,963
Income from operations 32 1,820 3,142 3,780
Other expense
Interest expense (19 (37 (104 (160
) ) ) )
Losses on purchases, exchanges or extinguishments of debt - - - (5
)
Other income 20 10 79 36
1 (27 (25 (129
) ) )
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Three Months Years Ended
Ended March 31, December 31,
2024 2023 2023 2022
(millions of dollars)
Net income 26 1,389 2,419 4,936
Deemed dividend on warrants - - - (67
)
Net income available to common stockholders 26 1,389 $ 2,419 $ 4,869
Net cash provided by operating activities $ 552 889 $ 2,380 $ 4,125
Net cash provided by (used in) investing activities $ (374 395 $ 473 $ (3,401
) )
Net cash used in financing activities $ (77 (1,279 $ (1,892 $ (1,446
) ) ) )
Total liabilities $ 3,336 4,308 $ 3,647 $ 6,344
Total equity 10,682 10,283 10,729 9,124
Total liabilities and stockholder's equity $ 14,018 14,591 $ 14,376 $ 15,468
Total assets $ 14,018 14,591 $ 14,376 $ 15,468
Southwestern Summary Historical Consolidated Financial Data
The following table shows Southwestern's summary historical consolidated
financial data for the years ended December 31, 2023 and 2022 and the three
months ended March 31, 2024 and 2023, and are derived from Southwestern's
consolidated financial statements.
You should read the historical financial data in connection with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the related notes thereto
set forth in Southwestern's Annual Report on Form 10-K for the years ended
December 31, 2023
and
2022
, and the unaudited interim consolidated financial statements and the related
notes thereto contained in
Southwestern's Quarterly Report on Form 10-Q for the quarter ended March 31,
2024
, which are incorporated by reference into this document. See "
Where You Can Find More Information
."
Three Months Years Ended
Ended March 31, December 31,
2024 2023 2023 2022
(millions of dollars)
Financial Review
Operating Revenues:
Gas sales $ 584 $ 1,145 $ 3,089 $ 9,101
Oil sales 82 95 379 439
NGL sales 174 201 702 1,046
Marketing 579 679 2,355 4,419
Other (2 (2 (3 (3
) ) ) )
1,417 2,118 6,522 15,002
Operating costs and expenses:
Marketing purchases 588 667 2,331 4,392
Operating expenses 417 418 1,717 1,616
General and administrative expenses 56 46 187 170
Merger-related expenses 9 - - 27
Depreciation, depletion and amortization 262 313 1,307 1,174
Impairments 2,093 - 1,710 -
Taxes, other than income taxes 49 68 244 269
3,474 1,512 7,496 7,648
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Three Months Years Ended
Ended March 31, December 31,
2024 2023 2023 2022
(millions of dollars)
Operating income (loss) (2,057 606 (974 7,354
) )
Interest expense, net 35 36 142 184
Gain (loss) on derivatives 126 1,401 2,433 (5,259
)
Loss on early extinguishment of debt - (19 (19 (14
) ) )
Other income (loss), net 1 (1 2 3
)
Income (loss) before income taxes (1,965 1,951 1,300 1,900
)
Provision (benefit) for income taxes:
Current - - (5 51
)
Deferred (430 12 (252 -
) )
(430 12 (257 51
) )
Net income $ (1,535 $ 1,939 $ 1,557 $ 1,849
)
Net cash provided by operating activities $ 496 $ 1,137 $ 2,516 $ 3,154
Net cash used in investing activities $ (521 $ (670 $ (2,047 $ (2,043
) ) ) )
Net cash used in financing activities $ 33 $ (514 $ (498 $ (1,089
) ) )
Total liabilities $ 6,032 $ 6,683 $ 6,103 $ 8,602
Total equity 4,366 6,254 5,888 4,324
Total liabilities and equity $ 10,398 $ 12,937 $ 11,991 $ 12,926
Total assets $ 10,398 $ 12,937 $ 11,991 $ 12,926
Unaudited Summary Pro Forma Combined Financial Statements
The following unaudited pro forma condensed combined balance sheet (the "pro
forma balance sheet") and unaudited pro forma condensed combined statement of
operations (the "pro forma statement of operations" and together with the pro
forma balance sheet the "pro forma condensed combined financial statements")
are derived from the historical consolidated financial statements of
Chesapeake and Southwestern and have been adjusted to give effect to the
Merger and the divestitures of Chesapeake's Eagle Ford assets (the "Eagle Ford
Divestitures") which were completed on March 20, 2023, April 28, 2023 and
November 30, 2023. The unaudited pro forma balance sheet as of March 31, 2024
combines the historical balance sheets of Chesapeake and Southwestern as of
March 31, 2024, and gives effect to the Merger as if it had been completed on
March 31, 2024. The pro forma balance sheet is not adjusted for the Eagle Ford
Divestitures as those had been completed and reflected in Chesapeake's
historical balance sheet as of March 31, 2024. The unaudited pro forma
statement of operations for the three months ended March 31, 2024 and the year
ended December 31, 2023, combine the historical consolidated statements of
operations of Chesapeake (giving effect to the Eagle Ford Divestitures) and
Southwestern, with the effects of the Merger as if each transaction had been
completed on January 1, 2023.
This summary unaudited pro forma combined financial information has been
prepared for illustrative purposes only and is not necessarily indicative of
what the combined company's financial position or results of operations
actually would have been had the Merger occurred as of the date indicated. In
addition, the unaudited pro forma combined financial information does not
purport to project the future financial position or operating results of the
combined company. Future results may vary significantly from the results
reflected because of various factors, including those discussed in the section
entitled "
Risk Factors
" beginning on page 49. The following summary unaudited pro forma combined
financial statements should be read in conjunction with the section titled "
Unaudited Pro Forma Combined Financial Statements
" beginning on page 195 and the related notes.
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As of March 31,
2024
($ in millions)
Pro Forma Combined Balance Sheet Data
Cash and cash equivalents 938
Total assets 28,358
Long-term debt 5,182
Total equity 19,316
Three Months Year Ended
Ended December 31,
March 31, 2024 2023
($ in millions, except per
share amounts)
Pro Forma Combined Statement of Operations Data
Total revenues and other 2,626 14,247
Income from operations 59 4,121
Basic earnings per common share 0.03 15.33
Diluted earnings per common share 0.03 14.69
Summary Pro Forma Combined Proved Reserves and Production Data
The following tables present the estimated pro forma combined net proved
developed and undeveloped reserves as of December 31, 2023, giving effect to
the Merger as if it had been completed on December 31, 2023. The pro forma
production data set forth below gives effect to the Merger as if it had been
completed on January 1, 2023.
The following summary pro forma reserve and production information has been
prepared for illustrative purposes only and is not intended to be a projection
of future results of the combined company. Future results may vary
significantly from the results reflected because of various factors, including
those discussed in "
Risk Factors
" beginning on page 49. The summary pro forma reserve and production
information should be read in conjunction with "
Unaudited Pro Forma Combined Financial Statements
" and the related notes thereto included in this joint proxy statement/prospectu
s. For additional information, see the section entitled "
Where You Can Find More Information
" beginning on page 247.
As of December 31, 2023
Chesapeake Southwestern Pro Forma
Energy Historical Historical Combined
Proved reserves:
Natural gas (Bcf) 9,688 15,191 24,879
Oil (MMBbls) - 78.1 78.1
NGLs (MMBbls) - 666.8 666.8
Total (Bcfe) 9,688 19,660 29,348
(1)
Proved developed reserves:
Natural gas (Bcf) 6,363 9,196 15,559
Oil (MMBbls) - 38.6 38.6
NGLs (MMBbls) - 363 363
Total (Bcfe) 6,363 11,605 17,968
(1)
Proved undeveloped reserves:
Natural gas (Bcf) 3,325 5,995 9,320
Oil (MMBbls) - 39.5 39.5
NGLs (MMBbls) - 303.8 303.8
Total (Bcfe) 3,325 8,055 11,380
(1)
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(1)
Oil and NGLs are converted to one billion cubic feet of natural gas
equivalent. Natural gas equivalent determined using the ratio of one barrel of
oil or natural gas liquids to six thousand cubic feet of natural gas.
For the Year Ended December 31, 2023
Chesapeake Southwestern Pro Forma
Energy Historical Historical Combined
Production:
Natural gas (Bcf) 1,266 1,438 2,704
Oil (MMBbls) 7.7 5.6 13.3
NGLs (MMBbls) 3.8 32.9 36.7
Total (Bcfe) 1,335 1,669 3,004
(1)
(1)
Oil and NGLs are converted to one billion cubic feet of natural gas
equivalent. Natural gas equivalent determined using the ratio of one barrel of
oil or natural gas liquids to six thousand cubic feet of natural gas.
Unaudited Comparative Per Share Information of Chesapeake and Southwestern
The following table sets forth the closing sales prices per share of
Chesapeake and Southwestern, on Nasdaq and the NYSE, respectively, on January
10, 2024, the last trading day prior to the public announcement of the Merger,
and on May 16, 2024, the last practicable trading day prior to the mailing of
this joint proxy statement/prospectus. The table also shows the estimated
implied value of the Merger Consideration proposed for each share of
Southwestern Common Stock as of the same two dates. The implied value for
Merger Consideration was calculated by multiplying the closing sales price of
a share of Chesapeake Common Stock on the relevant date by the Exchange Ratio
of 0.0867 shares of Chesapeake Common Stock for each share of Southwestern
Common Stock.
You should read this information in conjunction with (i) the summary
historical consolidated financial data included elsewhere in this document and
(ii) the historical consolidated financial statements of Chesapeake and
Southwestern and related notes thereto that are incorporated by reference into
this document. The unaudited pro forma per share information does not purport
to represent what the actual results of operations of Chesapeake and
Southwestern would have been had the Merger been completed in another period
or to project Chesapeake's and Southwestern's results of operations that may
be achieved if the Merger is completed.
Chesapeake Southwestern Implied Per
Common Stock Common Stock Share Value
January 10, 2024 $ 77.18 $ 6.89 $ 6.69
May 16, 2024 $ 91.11 $ 7.52 $ 7.90
Shares of Chesapeake Common Stock are currently listed on Nasdaq under the
ticker symbol "CHK." Shares of Southwestern Common Stock are currently listed
on the NYSE under the ticker symbol "SWN."
Although the Exchange Ratio is fixed (subject to adjustments in accordance
with the terms of the Merger Agreement), the market prices of Chesapeake
Common Stock and Southwestern Common Stock will fluctuate before the Merger is
completed and the market value of the Merger Consideration ultimately received
by Southwestern shareholders will depend on the closing price of Chesapeake
Common Stock on the day the Merger is consummated. Thus, Southwestern
shareholders will not know the exact value of the Merger Consideration they
will receive until the closing of the Merger. We urge you to obtain current
market quotations for Chesapeake Common Stock and Southwestern Common Stock
and to review carefully the other information contained in this joint proxy
statement /prospectus. Please see "
Risk Factors - Risk Factors Related to the Merger - Because the market price
of Chesapeake Common Stock will fluctuate prior to the consummation of the
Merger, Southwestern shareholders cannot be sure of the market value of
Chesapeake Common Stock that they will receive in the Merger. In addition,
because the Exchange Ratio is fixed (subject to adjustments in accordance with
the terms of the Merger Agreement), the number of shares of Chesapeake
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Common Stock to be received by Southwestern shareholders in the Merger will
not change to reflect changes in the trading prices of Chesapeake Common Stock
or Southwestern Common Stock
."
Dividend Information
The table below summarizes the dividends Chesapeake paid on the Chesapeake
Common Stock and dividends Southwestern paid on the Southwestern Common Stock
during the periods indicated:
Chesapeake Southwestern
Dividends Dividends
per share per share
Year Ended 2024:
First quarter $ 0.575 $ -
Total year-to-date $ 0.575 $ -
Year Ended 2023:
First quarter $ 1.29 $ -
Second quarter 1.18 -
Third quarter 0.575 -
Fourth quarter 0.575 -
Total year-to-date $ 3.62 $ -
Year Ended 2022:
First quarter $ 1.7675 $ -
Second quarter 2.34 -
Third quarter 2.32 -
Fourth quarter 3.16 -
Total year-to-date $ 9.5875 $ -
Year Ended 2021:
First quarter $ - $ -
Second quarter 0.34375 -
Third quarter 0.34375 -
Fourth quarter 0.4375 -
Total year-to-date $ 1.125 $ -
Year Ended 2020:
First quarter $ - $ -
Second quarter - -
Third quarter - -
Fourth quarter - -
Total year-to-date $ - -
The terms of the Merger Agreement limit (i) the ability of Chesapeake to
declare or pay additional dividends, except for regular quarterly cash
dividends payable by Chesapeake in the ordinary course and dividends and
distributions by a direct or indirect wholly owned subsidiary of Chesapeake to
Chesapeake or another direct or indirect wholly owned subsidiary of
Chesapeake, prior to the completion of the Merger and (ii) the ability of
Southwestern to declare or pay additional distributions, except for dividends
and distributions by a direct or indirect wholly owned subsidiary of
Southwestern to Southwestern or another direct or indirect wholly owned
subsidiary of Southwestern.
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Litigation Relating to the Merger (see page 147)
As of May 17, 2024, one complaint has been filed by a purported Chesapeake
stockholder against Chesapeake and the members of the Chesapeake Board
alleging, among other things, that the defendants caused to be filed a
materially misleading and incomplete registration statement on February 29,
2024 in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule
14a-9 promulgated thereunder and seeking to enjoin the merger and obtain other
relief:
Gerald Joseph Lovoi v. Chesapeake Energy Corp., et al
., No. 1:24-cv-01896 (S.D.N.Y Mar. 13, 2024). Chesapeake believes that the
claims in the complaint are without merit and intends to vigorously defend
against them. Southwestern has received one demand for books and records under
Section 220 of the DGCL seeking review of certain Southwestern books and
records related to the Transactions and also requesting that Chesapeake and
Southwestern disclose additional Merger-related information.
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RISK FACTORS
In deciding how to vote, Chesapeake shareholders and Southwestern
shareholders, respectively, should carefully consider the following risk
factors, all of the information contained in or incorporated by reference
herein, including but not limited to, the matters addressed in the section
titled "Cautionary Statement Regarding Forward-Looking Statements" and the
risks associated with each of the businesses of
Chesapeake
and
Southwestern
included in their respective Annual Reports on Form 10-K for the year ended
December 31, 2023, as updated by subsequent Quarterly Reports on Form 10-Q,
all of which are filed with the SEC and incorporated by reference into this
proxy statement/prospectus. Realization of any of the risks described below,
any of the events described under "Cautionary Statement Regarding
Forward-Looking Statements" or any of the risks or events described in the
documents incorporated by reference could have a material adverse effect on
Chesapeake's, Southwestern's or the combined company's business, financial
condition, cash flows and results of operations and could result in a decline
in the trading prices of their respective common stock.
Risks Factors Related to the Merger
Because the market price of Chesapeake Common Stock will fluctuate prior to
the consummation of the Merger, Southwestern shareholders cannot be sure of
the market value of Chesapeake Common Stock that they will receive in the
Merger. In addition, because the Exchange Ratio is fixed, the number of shares
of Chesapeake Common Stock to be received by Southwestern shareholders in
connection with the Merger will not change between now and the time the Merger
is completed to reflect changes in the trading prices of Chesapeake Common
Stock or Southwestern Common Stock.
At the time the Merger is completed, Southwestern shareholders will receive,
for each share of Southwestern Common Stock they own as of immediately prior
to the Merger, 0.0867 shares of Chesapeake Common Stock. The Exchange Ratio is
fixed (subject to adjustments in accordance with the terms of the Merger
Agreement), which means that it will not change between now and the closing
date, regardless of whether the market price of either Chesapeake Common Stock
or Southwestern Common Stock changes. Therefore, the value of the Merger
Consideration will depend on the market price of Chesapeake Common Stock at
the Effective Time. The respective market prices of both Chesapeake Common
Stock and Southwestern Common Stock have fluctuated since the date of the
announcement of the parties' entry into the Merger Agreement and will continue
to fluctuate from the date of this joint proxy statement/
prospectus to the date of the Southwestern Special Meeting and the Chesapeake
Special Meeting, the date the Merger is completed and thereafter. The market
price of Chesapeake Common Stock, when received by Southwestern shareholders
after the Merger is completed, could be greater than, less than or the same as
the market price of Chesapeake Common Stock on the date of this joint proxy
statement/prospectus or at the time of the Southwestern Special Meeting.
Accordingly, holders of Chesapeake Common Stock and holders of Southwestern
Common Stock are advised to obtain current stock price quotations for
Chesapeake Common Stock and Southwestern Common Stock before deciding how to
vote or abstain from voting on any of the proposals described in this joint
proxy statement/prospectus.
Chesapeake and Southwestern must obtain certain regulatory approvals and
clearances to consummate the Merger, which, if delayed, not granted or granted
with unacceptable conditions, could prevent, substantially delay or impair
consummation of the Merger, result in additional expenditures of money and
resources or reduce the anticipated benefits of the Merger.
At any time before or after consummation of the Merger, the DOJ or the FTC, or
any state attorney general, could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including but not
limited to seeking to enjoin the completion of the Merger, seeking divestiture
of substantial assets of the parties or requiring the parties to license, or
hold separate, assets or terminate existing relationships and contractual
rights. Private parties may also seek to take legal action under the antitrust
laws under certain circumstances. Such conditions or changes and the process
of obtaining regulatory approvals could have the effect of delaying or
impeding consummation of the Merger or of imposing additional costs or
limitations on Chesapeake or Southwestern following completion of the Merger,
any of which might have an adverse effect on Chesapeake or Southwestern
following completion of the Merger and may diminish the anticipated benefits
of the Merger. For additional information about the regulatory approvals
process see "
The Merger Agreement - HSR and Other Regulatory Approvals
."
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The Merger is subject to various closing conditions, and any delay in
completing the Merger may reduce or eliminate the benefits expected and delay
the payment of the Merger Consideration to Southwestern's shareholders.
The Merger is subject to the satisfaction of a number of other conditions
beyond the parties' control that may prevent, delay or otherwise materially
adversely affect the completion of the Merger. These conditions include, among
other things, Southwestern shareholder approval of the Merger Agreement,
Chesapeake shareholder approval of the issuance of Chesapeake Common Stock in
connection with the Merger and the expiration or termination of all applicable
waiting periods (and any extensions thereof) under the HSR Act and any
commitment to, or agreement (including any timing agreement) with, any
governmental entity to delay the consummation of, or not to consummate before
a certain date, the Merger. Chesapeake and Southwestern cannot predict with
certainty whether and when any of these conditions will be satisfied. Any
delay in completing the Merger could cause the combined company not to
realize, or delay the realization, of some or all of the benefits that the
companies expect to achieve from the Merger. In such context, the date on
which Southwestern's shareholders will receive the Merger Consideration is
also uncertain.
Chesapeake or Southwestern may waive one or more of the closing conditions
without re-soliciting shareholder approval.
Chesapeake or Southwestern may determine to waive, in whole or part, one or
more of the conditions to closing the Merger prior to Chesapeake or
Southwestern, as the case may be, being obligated to consummate the Merger.
Each of Chesapeake and Southwestern currently expects to evaluate the
materiality of any waiver and its effect on its respective shareholders in
light of the facts and circumstances at the time, to determine whether any
amendment of this joint proxy statement/prospectus or any re-solicitation of
proxies would be required in light of such waiver. Any determination of
whether to waive any condition to the Merger or to re-solicit shareholder
approval of or amend or supplement this joint proxy statement/
prospectus as a result of a waiver will be made by Chesapeake or Southwestern
at the time of such waiver based on the facts and circumstances as they exist
at that time.
The Merger Agreement limits Chesapeake's and Southwestern's respective ability
to pursue alternatives to the Merger, which may discourage other companies
from making a favorable alternative transaction proposal and, in specified
circumstances, could require Chesapeake or Southwestern to pay the other party
a termination fee.
The Merger Agreement contains certain provisions that restrict each of
Chesapeake's and Southwestern's ability to directly or indirectly solicit
competing acquisition proposals or to enter into discussions concerning, or
provide confidential information in connection with, any proposal or offer
that constitutes, or would reasonably be expected to lead to, a Chesapeake
Competing Proposal or a Southwestern Competing Proposal, each as described in "
The Merger Agreement - Covenants - No Solicitation; Change of Recommendation
," as applicable, and Chesapeake and Southwestern have each agreed to certain
terms and conditions relating to their ability to engage in, continue or
otherwise participate in any discussions with respect to, provide a third
party confidential information with respect to or enter into any an
acquisition agreement with respect to certain unsolicited proposals that
constitute or are reasonably likely to lead to a competing proposal. Further,
even if the Chesapeake Board or the Southwestern Board changes, withdraws,
modifies, or qualifies its recommendation with respect to the Stock Issuance
Proposal or the Merger Proposal, as applicable, unless the Merger Agreement
has been terminated in accordance with its terms, both parties will still be
required to submit the Stock Issuance Proposal and the Merger Proposal, as
applicable, to a vote at their respective special meetings. In addition,
Chesapeake and Southwestern generally have an opportunity to offer to modify
the terms of the Merger Agreement in response to a competing acquisition
proposal or intervening event before the Southwestern Board or Chesapeake
Board, respectively, may withdraw or qualify their respective recommendations.
For more information, see the section entitled "
The Merger Agreement - No Solicitation; Change of Recommendation
." The Merger Agreement further provides that, under specified circumstances,
including in the event that either Southwestern or Chesapeake terminates the
Merger Agreement to enter into a definitive agreement with respect to an
acquisition proposal from a third party that their respective board of
directors determines constitutes a Southwestern superior offer or Chesapeake
superior offer, as applicable, Southwestern or Chesapeake, as applicable, may
be required to pay the other party a termination fee equal to $260.0 million
or $389.0 million, as applicable, less any
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expenses previously paid. Further, under specified circumstances, Chesapeake
and Southwestern may be required to pay the other party $37.25 million and
$55.6 million, respectively, in respect of such other party's costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement. See "
The Merger Agreement - Termination
" for additional details.
These provisions could discourage a potential third-party acquirer or other
strategic transaction partner that might have an interest in Chesapeake or
Southwestern from considering or pursuing an alternative transaction with
either party or proposing such a transaction, even if it were prepared, in
Southwestern's case, to pay consideration with a higher per share value than
the total value proposed to be paid or received in the Merger. These
provisions might also result in a potential third-party acquirer or other
strategic transaction partner proposing to pay a lower price than it might
otherwise have proposed to pay because of the added expense of the termination
fee that may become payable in certain circumstances.
The market price for Chesapeake Common Stock following the closing may be
affected by factors different from those that historically have affected or
currently affect Chesapeake Common Stock and Southwestern Common Stock.
Upon completion of the Merger, Southwestern shareholders who receive
Chesapeake Common Stock will become shareholders of Chesapeake. Chesapeake's
financial position may differ from its financial position before the
completion of the Merger, and the results of operations of the combined
company may be affected by some factors that are different from those
currently affecting the results of operations of Chesapeake and those
currently affecting the results of operations of Southwestern. Accordingly,
the market price and performance of Chesapeake Common Stock is likely to be
different from the performance of Southwestern Common Stock, or Chesapeake
Common Stock in the absence of the Merger. In addition, general fluctuations
in stock markets could have a material adverse effect on the market for, or
liquidity of, Chesapeake Common Stock, regardless of Chesapeake's actual
operating performance. For a discussion of the businesses of Chesapeake and
Southwestern, and important factors to consider in connection with those
businesses, see the documents attached hereto or incorporated by reference and
referred to in "
Where You Can Find More Information
."
Current Chesapeake shareholders and current Southwestern shareholders will
have reduced ownership and voting interest in the combined company and will
exercise less influence over the combined company's management.
As of the date of this joint proxy statement/prospectus, based on the Exchange
Ratio, the number of outstanding Southwestern Common Stock and the number of
outstanding shares of Chesapeake Common Stock, it is expected that immediately
following the Effective Time, Chesapeake shareholders will own approximately
60% and Southwestern shareholders will own approximately 40% of the issued and
outstanding shares of the combined company, in each case on a fully diluted
basis. As a result, Chesapeake's shareholders and Southwestern's shareholders
will have less influence on the policies of the combined company than they
currently have on the policies of Chesapeake and Southwestern, respectively.
Chesapeake Common Stock to be received by Southwestern shareholders as a
result of the Merger will have different rights from Southwestern Common Stock.
Following completion of the Merger, Southwestern shareholders will no longer
hold Southwestern Common Stock but will instead be shareholders of Chesapeake.
There are important differences between the rights of Southwestern
shareholders and the rights of Chesapeake shareholders. See "Comparison of
Rights of Southwestern Shareholders and Chesapeake Shareholders" for a
discussion of the different rights associated with Southwestern Common Stock
and Chesapeake Common Stock.
Completion of the Merger may trigger change in control or other provisions in
certain agreements to which Chesapeake, Southwestern or any of their
respective subsidiaries or joint ventures is a party.
The completion of the Merger may trigger change in control or other provisions
in certain agreements to which Chesapeake, Southwestern or any of their
respective subsidiaries or joint ventures is a party. If Chesapeake or
Southwestern are unable to negotiate waivers of those provisions, the
counterparties may exercise their rights and remedies under such agreements,
potentially terminate such agreements, or seek
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monetary damages. Even if Chesapeake or Southwestern are able to negotiate
waivers, the counterparties may require a fee for such waivers or seek to
renegotiate such agreements on terms less favorable to Chesapeake,
Southwestern or the applicable subsidiary or joint venture.
Chesapeake and Southwestern are expected to incur significant transaction
costs in connection with the Merger, which may be in excess of those
anticipated by them.
Chesapeake and Southwestern have incurred and are expected to continue to
incur a number of non-recurring costs associated with negotiating and
completing the Merger, combining the operations of the two companies and
achieving desired synergies. These costs have been, and will continue to be,
substantial and, in many cases, will be borne by Chesapeake and Southwestern
whether or not the Merger is completed. A substantial majority of
non-recurring expenses will consist of transaction costs and include, among
others, fees paid to financial, legal, accounting and other advisors, employee
retention, severance and benefit costs, and filing fees. Chesapeake will also
incur costs related to formulating and implementing integration plans,
including facilities and systems consolidation costs and other employment-relate
d costs. Chesapeake and Southwestern will continue to assess the magnitude of
these costs, and additional unanticipated costs may be incurred in connection
with the Merger and the integration of the two companies' businesses. While
Chesapeake and Southwestern have assumed that a certain level of expenses
would be incurred, there are many factors beyond their control that could
affect the total amount or the timing of the expenses. The elimination of
duplicative costs, as well as the realization of other efficiencies related to
the integration of the businesses, may not offset integration-related costs
and achieve a net benefit in the near term, or at all. The costs described
above and any unanticipated costs and expenses, many of which will be borne by
Chesapeake or Southwestern even if the Merger is not completed, could have an
adverse effect on Chesapeake's or Southwestern's financial condition and
operating results.
If the Merger Agreement is terminated, under certain circumstances,
Southwestern or Chesapeake may be obligated to reimburse the other party for
costs incurred related to the Merger or pay a breakup fee to the other party.
These costs could require the terminating party to seek loans or use its
available cash that would have otherwise been available for operations,
dividends or other general corporate purposes.
Upon termination of the Merger Agreement under certain circumstances,
Southwestern may be required to pay Chesapeake $55.6 million in respect of
Chesapeake's expenses incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement or pay Chesapeake a
termination fee equal to $260.0 million, less the reimbursement of expenses
previously paid, if any. Further, Chesapeake may be required to pay
Southwestern $37.25 million in respect of Southwestern's expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement or pay Southwestern a termination fee equal to $389.0
million, less the reimbursement of expenses previously paid, if any. If the
Merger Agreement is terminated, the breakup fee required to be paid, if any,
by the terminating party under the Merger Agreement may require the
terminating party to seek loans or borrow amounts to enable it to pay these
amounts to the non-terminating party. In either case, payment of these amounts
would reduce the cash the terminating party has available for operations,
dividends or other general corporate purposes. See "
The Merger Agreement - Termination
."
The failure to successfully combine the businesses of Chesapeake and
Southwestern in the expected time frame may adversely affect Chesapeake's
future results, which may adversely affect the value of the Chesapeake Common
Stock that Southwestern shareholders would receive in the Merger.
The success of the Merger will depend, in part, on the ability of Chesapeake
to realize the anticipated benefits from combining the businesses of
Chesapeake and Southwestern. To realize these anticipated benefits,
Chesapeake's and Southwestern's businesses must be successfully combined. If
the combined company is not able to achieve these objectives, the anticipated
benefits of the Merger may not be realized fully or at all or may take longer
to realize than expected. In addition, the actual integration may result in
additional and unforeseen expenses, which could reduce the anticipated
benefits of the Merger.
Chesapeake and Southwestern, including their respective subsidiaries, have
operated and, until the completion of the Merger, will continue to operate
independently. It is possible that the integration process could result in the
loss of key employees, as well as the disruption of each company's ongoing
businesses or
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inconsistencies in their standards, controls, procedures and policies. Any or
all of those occurrences could adversely affect the combined company's ability
to maintain relationships with customers and employees after the Merger or to
achieve the anticipated benefits of the Merger. Integration efforts between
the two companies will also divert management attention and resources. These
integration matters could have an adverse effect on each of Chesapeake,
Southwestern and the combined company for an undetermined period of time
following the completion of the Merger.
The Merger Agreement subjects Chesapeake and Southwestern to restrictions on
their respective business activities prior to the Effective Time.
The Merger Agreement subjects Chesapeake and Southwestern to restrictions on
their respective business activities prior to the Effective Time. The Merger
Agreement obligates each of Chesapeake and Southwestern to use its reasonably
best efforts to conduct its businesses in the ordinary course until the
Effective Time, including preserving substantially intact its present business
organization, goodwill and assets, keeping available the services of its
current officers and employees and preserving its existing relationships with
governmental entities and its significant customers, suppliers, licensors,
licensees, distributors, lessors and others having significant business
dealings with it. These restrictions could prevent Chesapeake and Southwestern
from pursuing certain business opportunities that arise prior to the Effective
Time and are outside the ordinary course of business. See "
The Merger Agreement - Interim Operations of Southwestern and Chesapeake
Pending the Merger
" for additional details.
Uncertainties associated with the Merger may cause a loss of management
personnel and other key employees of Chesapeake and Southwestern, which could
adversely affect the future business and operations of the combined company
following the Merger.
Chesapeake and Southwestern are dependent on the experience and industry
knowledge of their respective officers and other key employees to execute
their business plans. The combined company's success after the Merger will
depend in part upon its ability to retain key management personnel and other
key employees of both Chesapeake and Southwestern. Current and prospective
employees of Chesapeake and Southwestern may experience uncertainty about
their roles within the combined company following the Merger or other concerns
regarding the timing and completion of the Merger or the operations of the
combined company following the Merger, any of which may have an adverse effect
on the ability of Chesapeake and Southwestern to retain or attract key
management and other key personnel. If Chesapeake and Southwestern are unable
to retain personnel, including key management, who are critical to the future
operations of the companies, Chesapeake and Southwestern could face
disruptions in their operations, loss of existing customers, loss of key
information, expertise or know-how and unanticipated additional recruitment
and training costs. In addition, the loss of key personnel could diminish the
anticipated benefits of the Merger. No assurance can be given that the
combined company, following the Merger, will be able to retain or attract key
management personnel and other key employees to the same extent that
Chesapeake and Southwestern have previously been able to retain or attract
their own employees.
The Merger may not be completed and the Merger Agreement may be terminated in
accordance with its terms. Failure to complete the Merger could negatively
impact Chesapeake's and Southwestern's stock prices and have a material
adverse effect on their results of operations, cash flows and financial
position.
Chesapeake or Southwestern may elect to terminate the Merger Agreement in
accordance with its terms in certain circumstances as further detailed in the
section entitled "
The Merger Agreement - Termination
." If the Merger is not completed for any reason, including as a result of
failure to obtain all requisite regulatory approvals or if the Chesapeake
shareholders or Southwestern shareholders fail to approve the applicable
proposals, the ongoing businesses of Chesapeake and Southwestern may be
materially adversely affected and, without realizing any of the benefits of
having completed the Merger, Chesapeake and Southwestern would be subject to a
number of risks, including the following:
.
Chesapeake and Southwestern may experience negative reactions from the
financial markets, including negative impacts on their respective stock prices;
.
Chesapeake and Southwestern and their respective subsidiaries may experience
negative reactions from their respective customers, suppliers, vendors,
landlords, joint venture partners and other business partners;
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.
Chesapeake and Southwestern will still be required to pay certain significant
costs relating to the Merger, such as legal, accounting, financial advisor and
printing fees;
.
Chesapeake or Southwestern may be required to pay a termination fee as
required by the Merger Agreement;
.
the Merger Agreement places certain restrictions on the conduct of the
respective businesses pursuant to the terms of the Merger Agreement, which may
delay or prevent the respective companies from undertaking business
opportunities that, absent the Merger Agreement, may have been pursued;
.
matters relating to the Merger (including integration planning) require
substantial commitments of time and resources by each company's management,
which may have resulted in the distraction of each company's management from
ongoing business operations and pursuing other opportunities that could have
been beneficial to the companies; and
.
litigation related to any failure to complete the Merger or related to any
enforcement proceeding commenced against Chesapeake or Southwestern to perform
their respective obligations pursuant to the Merger Agreement.
If the Merger is not completed, the risks described above may materialize and
they may have a material adverse effect on Chesapeake's or Southwestern's
results of operations, cash flows, financial position and stock prices.
Chesapeake directors and executive officers have interests in the Merger that
may be different from, or in addition to, the interests of the Chesapeake
shareholders generally.
In considering the recommendation of the Chesapeake Board that Chesapeake
shareholders vote in favor of the Stock Issuance Proposal, the Advisory
Chesapeake Compensation Proposal and the Chesapeake Adjournment Proposal,
Chesapeake shareholders should be aware of and take into account the fact that
certain Chesapeake directors and executive officers have interests in the
Merger that may be different from, or in addition to, the interests of
Chesapeake shareholders generally. These interests include, among others, the
expectation that certain directors and executive officers may continue as
directors and executive officers of Chesapeake following consummation of the
Merger, rights to receive cash severance payments, accelerated vesting of
equity-based awards and other payments and benefits if their employment is
terminated under certain circumstances in connection with the Merger and
rights to continuing indemnification and directors' and officers' liability
insurance. See "
The Merger - Interests of Certain Chesapeake Directors and Executive Officers
in the Merger
" for a more detailed description of these interests. The Chesapeake Board was
aware of and carefully considered these interests, among other matters, in
evaluating the terms and structure, and overseeing the negotiation, of the
Merger, in approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that the Chesapeake shareholders vote for the
Stock Issuance Proposal, the Advisory Chesapeake Compensation Proposal and the
Chesapeake Adjournment Proposal.
Southwestern directors and executive officers have interests in the Merger
that may be different from, or in addition to, the interests of the
Southwestern shareholders generally.
In considering the recommendation of the Southwestern Board that Southwestern
shareholders vote in favor of the Merger Proposal, the Advisory Southwestern
Compensation Proposal and the Southwestern Adjournment Proposal, Southwestern
shareholders should be aware of and take into account the fact that, aside
from their interests as Southwestern shareholders, certain Southwestern
directors and executive officers have interests in the Merger that may be
different from, or in addition to, the interests of Southwestern shareholders
generally. These interests include, among others, rights to receive cash
severance payments, accelerated vesting of long-term incentive awards and
other payments or benefits upon completion of the Merger if their employment
is terminated under certain circumstances in connection with the Merger and
rights to continuing indemnification and directors' and officers' liability
insurance. Additionally, Catherine A. Kehr, John D. Gass, Shameek Konar and
Anne Taylor will each be designated to the Chesapeake Board upon closing. See "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger
" for a more detailed description of these interests. The Southwestern Board
was aware of and
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considered these potential interests, among other matters, in evaluating and
negotiating the Merger Agreement and the transactions contemplated therein, in
approving the Merger and in recommending that Southwestern shareholders
approve the Merger Proposal, the Advisory Southwestern Compensation Proposal
and the Southwestern Adjournment Proposal.
Litigation relating to the Merger could result in an injunction preventing
completion of the Merger, substantial costs to Chesapeake and Southwestern
and/or may adversely affect the combined company's business, financial
condition or results of operations following the Merger.
Securities class action lawsuits and derivative lawsuits are often brought
against public companies that have entered into acquisition, merger or other
business combination agreements. Even if such a lawsuit is without merit,
defending against these claims can result in substantial costs and divert
management time and resources. An adverse judgment could result in monetary
damages, which could have a negative impact on Chesapeake's and Southwestern's
respective liquidity and financial condition.
Lawsuits that may be brought against Chesapeake, Southwestern or their
respective directors could also seek, among other things, injunctive relief or
other equitable relief, including a request to rescind parts of the Merger
Agreement already implemented and to otherwise enjoin the parties from
consummating the Merger. One of the conditions to the closing of the Merger is
that no injunction by any court or other tribunal of competent jurisdiction
has been entered and continues to be in effect and no law has been adopted or
is effective, in either case that prohibits or makes illegal the closing of
the Merger. Consequently, if a plaintiff is successful in obtaining an
injunction prohibiting completion of the Merger, that injunction may delay or
prevent the Merger from being completed within the expected timeframe or at
all, which may adversely affect Chesapeake's and Southwestern's respective
businesses, financial position and results of operations.
There can be no assurance that any of the defendants will be successful in the
outcome of any pending or any potential future lawsuits. The defense or
settlement of any lawsuit or claim that remains unresolved at the time the
Merger is completed may adversely affect Chesapeake's and Southwestern's
respective businesses, financial condition, results of operations and cash
flows.
Chesapeake shareholders and Southwestern shareholders will not be entitled to
appraisal rights in the Merger.
Under Oklahoma law, with respect to the Chesapeake shareholders, and under
Delaware law, with respect to the Southwestern shareholders, holders of
Chesapeake Common Stock and Southwestern Common Stock do not have appraisal
rights in connection with the Merger, as more fully described in "
The Merger - No Appraisal Rights
."
The Merger could trigger a number of potential early termination triggers
under Southwestern's current ISDA documentation.
Southwestern is party to several commodity hedging agreements. There are a
number of potential early termination triggers under such documents that could
arise upon closing of the Merger and, if applicable, would give Southwestern's
hedging counterparties the ability to terminate such hedging agreements and
demand payment of any amounts owed by Southwestern. Under the Merger
Agreement, each party agreed to use commercially reasonable efforts to
cooperate with the other as reasonably requested by the other party, in
connection with the development of a post-closing hedging strategy for
Chesapeake and the mechanics for implementing that strategy, including but not
limited to the amendment, assignment, termination or novation of any
derivative transaction (including any commodity hedging arrangement or related
contract) of Southwestern or any of its subsidiaries on terms that are
reasonably requested by Chesapeake and effective at and conditioned upon the
closing. If such efforts are unsuccessful, the Merger could trigger
termination rights for Southwestern's hedging counterparties, and the
Surviving Corporation may owe termination payments to such counterparties.
Risk Factors Relating to the Combined Company Following the Merger
The combined company may be unable to integrate the businesses of Chesapeake
and Southwestern successfully or realize the anticipated benefits of the
Merger.
The Merger involves the combination of two companies that currently operate as
independent public companies. The combination of two independent businesses is
complex, costly and time consuming, and
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each of Chesapeake and Southwestern will be required to devote significant
management attention and resources to integrating the business practices and
operations of Southwestern into Chesapeake. Potential difficulties that
Chesapeake and Southwestern may encounter as part of the integration process
include the following:
.
the inability to successfully combine the business of Chesapeake and
Southwestern in a manner that permits the combined company to achieve, on a
timely basis, or at all, the enhanced revenue opportunities and cost savings
and other benefits anticipated to result from the Merger;
.
complexities associated with managing the combined businesses, including
difficulty addressing possible differences in operational philosophies and the
challenge of integrating complex systems, technology, networks and other
assets of each of the companies in a seamless manner that minimizes any
adverse impact on customers, suppliers, employees and other constituencies;
.
the assumption of contractual obligations with less favorable or more
restrictive terms; and
.
potential unknown liabilities and unforeseen increased expenses or delays
associated with the Merger.
In addition, Chesapeake and Southwestern have operated and, until the
completion of the Merger, will continue to operate, independently. It is
possible that the integration process could result in:
.
diversion of the attention of each company's management; and
.
the disruption of, or the loss of momentum in, each company's ongoing
businesses or inconsistencies in standards, controls, procedures and policies.
Any of these issues could adversely affect each company's ability to maintain
relationships with customers, suppliers, employees and other constituencies or
achieve the anticipated benefits of the Merger or could reduce each company's
earnings or otherwise adversely affect the business and financial results of
the combined company following the Merger.
Declaration, payment and amounts of dividends, if any, distributed to
shareholders of the combined company will be uncertain.
Although Chesapeake has paid cash dividends on Chesapeake Common Stock in the
past, the combined company's board may determine not to declare dividends in
the future or may reduce the amount of dividends paid in the future. Any
payment of future dividends will be at the discretion of the combined
company's board and will depend on the combined company's results of
operations, financial condition, cash requirements, future prospects and other
considerations that the combined company's board deems relevant, including,
but not limited to:
.
the combined company may not have enough cash to pay such dividends or to
repurchase shares due to its cash requirements, capital spending plans, cash
flow or financial position;
.
decisions on whether, when and in which amounts to make any future
distributions will remain at all times entirely at the discretion of the
combined company's board, which could change its dividend practices at any
time and for any reason;
.
the combined company's desire to maintain or improve the credit ratings on its
debt;
.
the amount of dividends that the combined company may distribute to its
shareholders is subject to restrictions under Oklahoma law; and
.
the agreements governing the combined company's indebtedness.
Shareholders should be aware that they have no contractual or other legal
right to dividends that have not been declared.
The trading price and volume of the combined company common stock may be
volatile following the Merger.
The trading price and volume of the combined company common stock may be
volatile following completion of the Merger. The stock markets in general have
experienced extreme volatility that has often
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been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of Chesapeake
Common Stock. As a result, Chesapeake shareholders and Southwestern
shareholders who receive Chesapeake Common Stock may suffer a loss on their
investment. Many factors may impair the market for the combined company common
stock and the ability of investors to sell shares at an attractive price and
could also cause the market price and demand for the combined company common
stock to fluctuate substantially, which may negatively affect the price and
liquidity of the combined company common stock. Many of these factors and
conditions are beyond the control of the combined company or the combined
company shareholders.
Following the consummation of the Merger, the market price of the combined
company common stock may be depressed by the perception that former
Southwestern shareholders may sell the shares of common stock they will
acquire at closing and for other reasons related to the Merger.
Subject to applicable securities laws, former Southwestern shareholders may
seek to sell shares of the combined company common stock held by them
immediately following the consummation of the Merger. The Merger Agreement
contains no restriction on their ability to sell such shares of the combined
company common stock. These sales (or the perception that these sales may
occur), coupled with the increase in the outstanding number of shares of the
combined company common stock, may adversely affect the market for, and the
market price of, shares of the combined company common stock.
The unaudited pro forma combined financial statements and the unaudited
forecasted financial information prepared by Chesapeake and Southwestern
included in this joint proxy statement/prospectus are based on a number of
preliminary estimates and assumptions and the actual results of operations,
cash flows and financial position of the combined company after the Merger may
differ materially.
The unaudited pro forma information and the unaudited forecasted financial
information in this joint proxy statement/prospectus is presented for
illustrative purposes only, has been prepared based on available information
and certain assumptions and estimates that Chesapeake and Southwestern believe
are reasonable, and is not necessarily indicative of what Chesapeake's actual
financial position or results of operations would have been had the pro forma
events been completed on the dates indicated. Further, the combined company's
actual results and financial position after the pro forma events occur may
differ materially and adversely from the unaudited pro forma information
included in this joint proxy statement/prospectus. The unaudited pro forma
combined financial statements have been prepared with Chesapeake as the
accounting acquirer under United States generally accepted accounting
principles ("GAAP") and reflect adjustments based upon preliminary estimates
of the fair value of assets to be acquired and liabilities to be assumed.
The financial forecasts are based on various assumptions that may not be
realized.
The financial estimates set forth in the forecasts included under the sections "
The Merger - Certain Unaudited Forecasted Financial Information
" were based on assumptions of, and information available to, Chesapeake
management and Southwestern management, as applicable, when prepared, and
these estimates and assumptions are subject to uncertainties, many of which
are beyond Chesapeake's and Southwestern's control and may not be realized.
Many factors mentioned in this joint proxy statement/prospectus, including the
risks outlined in this "
Risk Factors
" section and the events or circumstances described under "
Cautionary Statement Regarding Forward-Looking Statements
," will be important in determining the combined company's future results. As
a result of these contingencies, actual future results may vary materially
from Chesapeake's and Southwestern's estimates. In view of these uncertainties,
the inclusion of financial estimates in this joint proxy statement/prospectus
is not and should not be viewed as a representation that the forecasted
results will necessarily reflect actual future results.
Chesapeake's and Southwestern's financial estimates were not prepared with a
view toward public disclosure, and such financial estimates were not prepared
with a view toward compliance with published guidelines of any regulatory or
professional body. Further, any forward-looking statement speaks only as of
the date on which it is made, and neither Chesapeake nor Southwestern
undertakes any obligation, other than as required by applicable law, to update
the financial estimates herein to reflect events or circumstances
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after the date those financial estimates were prepared or to reflect the
occurrence of anticipated or unanticipated events or circumstances.
The prospective financial information included in this document has been
prepared by, and is the responsibility of, Chesapeake's management.
PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor
applied agreed-upon procedures with respect to the accompanying prospective
financial information and, accordingly, PricewaterhouseCoopers LLP does not
express an opinion or any other form of assurance with respect thereto. The
PricewaterhouseCoopers LLP report incorporated by reference in this document
relates to Chesapeake's previously issued financial statements. It does not
extend to the prospective financial information and should not be read to do
so. See "
The Merger - Certain Unaudited Forecasted Financial Information
" for more information.
The opinions of Chesapeake's and Southwestern's respective financial advisors
will not reflect changes in circumstances between the signing of the Merger
Agreement and the completion of the Merger.
Each of Chesapeake and Southwestern has received an opinion from its
respective financial advisor in connection with the signing of the Merger
Agreement but has not obtained any updated opinion from its respective
financial advisor as of the date of this joint proxy statement/prospectus.
Changes in the operations and prospects of Chesapeake or Southwestern, general
market and economic conditions and other factors that may be beyond the
control of Chesapeake or Southwestern, and on which the companies' respective
financial advisors' opinions were based, may significantly alter the value of
Chesapeake or Southwestern or the prices of the shares of Chesapeake Common
Stock or Southwestern Common Stock by the time the Merger is completed. The
opinions do not speak as of the time the Merger will be completed or as of any
date other than the date of such opinions. Because neither Chesapeake nor
Southwestern currently anticipates asking its respective financial advisor to
update its opinion, such opinions will not address the fairness of the Merger
Consideration from a financial point of view at the time the Merger is
completed. The Chesapeake Board's recommendation that Chesapeake shareholders
vote in favor of the Stock Issuance Proposal, the Advisory Chesapeake
Compensation Proposal and the Chesapeake Adjournment Proposal and the
Southwestern Board's recommendation that Southwestern shareholders vote in
favor of the Merger Proposal, the Advisory Southwestern Compensation Proposal
and the Southwestern Adjournment Proposal, however, are made as of the date of
this joint proxy statement/prospectus.
The synergies attributable to the Merger may vary from expectations.
The combined company may fail to realize the anticipated benefits and
synergies expected from the Merger, which could adversely affect the combined
company's business, financial condition and operating results. The success of
the Merger will depend, in significant part, on the combined company's ability
to successfully integrate the acquired business, grow the revenue of the
combined company and realize the anticipated strategic benefits and synergies
from the combination. Chesapeake and Southwestern believe that the combination
of the companies will provide operational and financial scale, increasing free
cash flow, and enhancing the combined company's corporate rate of return.
However, achieving these goals requires, among other things, realization of
the targeted cost and commercial synergies expected from the Merger. This
growth and the anticipated benefits of the transaction may not be realized
fully or at all or may take longer to realize than expected. The Chesapeake
Management Synergies Estimates and the Southwestern Management Synergies
Estimates were prepared independently by Chesapeake's and Southwestern's
management, respectively, and are based on certain assumptions regarding the
types of synergies that may be achieved in connection with the Merger, as well
as the timing to achieve such synergies. Chesapeake's and Southwestern's
management reached separate conclusions about these assumptions and the
Chesapeake Management Synergies Estimates and the Southwestern Management
Synergies Estimates are not the same as a result.
Actual synergies, operating, technological, strategic and revenue
opportunities, if achieved at all, may be less significant than expected or
may take longer to achieve than anticipated. If the combined company is not
able to achieve these objectives and realize the anticipated benefits and
synergies expected from the Merger within the anticipated timing or at all,
the combined company's business, financial condition and operating results may
be adversely affected, the combined company's earnings per share may be
diluted, the accretive effect of the Merger may decrease or be delayed and the
share price of the combined company
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may be negatively impacted. For more information, see "
The Merger - Chesapeake Management Synergies Estimates
" and "
The Merger - Southwestern Management Synergies Estimates
."
The future results of the combined company following the Merger will suffer if
the combined company does not effectively manage its expanded operations.
Following the Merger, the size of the business of the combined company will
increase significantly. The combined company's future success will depend, in
part, upon its ability to manage this expanded business, which will pose
substantial challenges for management, including challenges related to the
management and monitoring of new operations and associated increased costs and
complexity. The combined company may also face increased scrutiny from
governmental authorities as a result of the significant increase in the size
of its business. There can be no assurances that the combined company will be
successful or that it will realize the expected operating efficiencies, cost
savings, revenue enhancements or other benefits currently anticipated from the
Merger.
The Merger may result in a loss of customers, suppliers, vendors, landlords,
joint venture partners and other business partners and may result in the
termination of existing contracts.
Following the Merger, some of the customers, suppliers, vendors, landlords,
joint venture partners and other business partners of Chesapeake or
Southwestern may terminate or scale back their current or prospective business
relationships with the combined company. Some customers may not wish to source
a larger percentage of their needs from a single company or may feel that the
combined company is too closely allied with one of their competitors. In
addition, Chesapeake and Southwestern have contracts with customers,
suppliers, vendors, landlords, joint venture partners and other business
partners that may require Chesapeake or Southwestern to obtain consents from
these other parties in connection with the Merger, which may not be obtained
on favorable terms or at all. If relationships with customers, suppliers,
vendors, landlords, joint venture partners and other business partners are
adversely affected by the Merger, or if the combined company, following the
Merger, loses some or all of the benefits of the contracts of Chesapeake or
Southwestern, the combined company's business and financial performance could
suffer.
Combined company shareholders may experience dilution in the future.
The percentage ownership of combined company shareholders may be diluted in
the future because of equity issuances for acquisitions, capital market
transactions or otherwise, including, without limitation, equity awards that
the combined company may grant to its directors, officers and employees and
pursuant to Chesapeake "at-the-market" offerings of Chesapeake Common Stock.
Such issuances may have a dilutive effect on the combined company's earnings
per share, which could adversely affect the market price of the combined
company.
Certain employees of Southwestern will have rights to purchase or receive
shares of Chesapeake Common Stock after the Merger as a result of the
conversion of their Southwestern equity awards into Chesapeake equity awards.
The conversion of these Southwestern equity awards into Chesapeake equity
awards is described in further detail in the section entitled "
The Merger Agreement - Treatment of Southwestern Long-Term Incentive Awards in
the Merger
." The issuance of shares of Chesapeake Common Stock pursuant to these awards
will dilute the percentage ownership of combined company shareholders. It is
also expected that, from time to time after the closing of the Merger, the
Executive Compensation Committee of the combined company's board will grant
additional equity awards to employees and directors of the combined company
under the combined company's compensation and employee benefit plans. These
additional equity awards will have a dilutive effect on the combined company's
earnings per share, which could adversely affect the market price of the
Chesapeake Common Stock.
In addition, the Second Amended and Restated Certificate of Incorporation of
Chesapeake, as amended (the "Chesapeake Charter") will authorize the combined
company to issue, without the approval of shareholders, one or more classes or
series of preferred stock having such designations, powers, preferences and
relative, participating, optional and other special rights, including
preferences over Chesapeake Common Stock with respect to dividends and
distributions, as the Chesapeake Board generally may determine. The terms of
one or more classes or series of preferred stock could dilute the voting power
or reduce the value of the Chesapeake Common Stock. For example, the
repurchase or redemption rights or
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liquidation preferences that could be assigned to holders of preferred stock
could affect the residual value of the Chesapeake Common Stock. For more
information, see "
Comparison of Rights of Southwestern Shareholders and Chesapeake Shareholders
."
The combined company will have a significant amount of indebtedness, which
will limit its liquidity and financial flexibility, and any downgrade of its
credit rating could adversely impact the combined company. The combined
company may also incur additional indebtedness in the future.
As of March 31, 2024, Chesapeake and Southwestern had total long-term
indebtedness of approximately $2.0 billion and approximately $4.0 billion,
respectively. Accordingly, the combined company will have substantial
indebtedness following completion of the Merger. In addition, subject to the
limits contained in the documents governing such indebtedness, the combined
company may be able to incur substantial additional debt from time to time to
finance working capital, capital expenditures, investments or acquisitions or
for other purposes. The combined company's indebtedness and other financial
commitments have important consequences to its business, including, but not
limited to:
.
making it more difficult for the company to satisfy its obligations with
respect to senior notes and other indebtedness due to the increased
debt-service obligations, which could, in turn, result in an event of default
on such other indebtedness or the senior notes;
.
requiring the company to dedicate a substantial portion of its cash flows from
operations to debt service payments, thereby limiting its ability to fund
working capital, capital expenditures, investments or acquisitions and other
general corporate purposes;
.
increasing the company's vulnerability to general adverse economic and
industry conditions, including low commodity price environments;
.
limiting the company's ability to obtain additional financing due to higher
costs and more restrictive covenants;
.
limiting the company's flexibility in planning for, or reacting to, changes in
its business and the industry in which it operates; and
.
placing the company at a competitive disadvantage compared with its
competitors that have proportionately less debt and fewer guarantee
obligations.
In addition, Chesapeake and Southwestern receive credit ratings from rating
agencies in the U.S. with respect to their indebtedness. Any credit downgrades
resulting from the Merger or otherwise could adversely impact the combined
company's ability to access financing and trade credit, require the combined
company to provide additional letters of credit or other assurances under
contractual arrangements and increase the combined company's interest rate
under any credit facility borrowing as well as the cost of any other future
debt.
The combined company may record goodwill and other intangible assets that
could become impaired and result in material non-cash charges to the results
of operations of the combined company in the future.
The combined company will account for the Merger as an acquisition of a
business in accordance with GAAP. Under the acquisition method of accounting,
the assets and liabilities of Southwestern and its subsidiaries will be
recorded, as of completion, at their respective fair values and added to
Chesapeake's. The combined company's reported financial condition and results
of operations for periods after completion of the Merger will reflect
Southwestern's balances and results after completion of the Merger but will
not be restated retroactively to reflect the historical financial position or
results of operations of Southwestern and its subsidiaries for periods prior
to the Merger.
Under the acquisition method of accounting, the total purchase price is
allocated to Southwestern's identifiable tangible and intangible assets
acquired and liabilities assumed based on their respective fair market values
as of the date of completion of the Merger, with any excess purchase price
allocated to goodwill. To the extent the value of goodwill or intangibles, if
any, becomes impaired in the future, the combined company may be required to
incur material non-cash charges relating to such impairment. The
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combined company's operating results may be significantly impacted from both
the impairment and the underlying trends in the business that triggered the
impairment.
The combined company may fail to protect confidential information and/or
experience data security incidents, resulting in damage to its brand and
reputation, material financial penalties, and legal liability, which could
adversely affect its future business and operations.
Like Chesapeake and Southwestern, the combined company will rely on computer
systems, hardware, software, technology infrastructure and online sites and
networks for both internal and external operations that will be critical to
its businesses (collectively, "
IT Systems
"), which may be owned and/or managed by third parties. The combined company
and certain of its third-party providers will also collect, maintain and
process data about customers, employees, business partners and others, as well
as proprietary information belonging to its businesses (collectively,
"Confidential Information").
The combined company may face numerous and evolving cybersecurity risks that
threaten the confidentiality, integrity and availability of its IT Systems and
Confidential Information, including from diverse threat actors, such as
state-sponsored organizations, opportunistic hackers and hacktivists, as well
as through diverse attack vectors, such as social engineering/phishing,
malware (including ransomware), malfeasance by insiders, human or
technological error, and as a result of malicious code embedded in open-source
software, or misconfigurations, "bugs" or other vulnerabilities in commercial
software that is integrated into its (or its suppliers' or service providers')
IT Systems, products or services. Cyberattacks are expected to accelerate on a
global basis in frequency and magnitude as threat actors are becoming
increasingly sophisticated in using techniques and tools - including
artificial intelligence - that circumvent security controls, evade detection
and remove forensic evidence. As a result, the combined company may be unable
to detect, investigate, remediate or recover from future attacks or incidents,
or to avoid a material adverse impact to its IT Systems, Confidential
Information or business.
Chesapeake and Southwestern could also face challenges in merging their
respective cybersecurity risk management programs, which could result in a
temporary increase in cybersecurity risk for the combined company. There can
also be no assurance that the combined company's cybersecurity risk management
program and processes, including its policies, controls or procedures, will be
fully implemented, complied with or effective in protecting its IT Systems and
Confidential Information. Any adverse impact to the availability, integrity or
confidentiality of its IT Systems or Confidential Information can result in
legal claims or proceedings (such as class actions), regulatory investigations
and enforcement actions, fines and penalties, negative reputational impacts
that could cause the combined company to lose existing or future customers,
and/or significant incident response, system restoration or remediation and
future compliance costs. Any or all of the foregoing could materially
adversely affect the combined company's business, results of operations, and
financial condition. Finally, there is no guarantee that any costs and
liabilities incurred in relation to an attack or incident will be covered by
the combined company's insurance policies or that applicable insurance will be
available to the combined company in the future on economically reasonable
terms or at all.
Compliance with new federal position limits could have an adverse effect on
the combined company's financial condition, results of operations, and ability
to hedge risks associated with its business.
The CFTC has recently finalized position limits for certain futures and option
contracts in the major energy markets and for swaps that are their economic
equivalents, although certain bona fide hedging transactions would be exempt
from these position limits provided that various conditions are satisfied. The
CFTC has also finalized a related aggregation rule that requires market
participants to aggregate their positions with certain other persons under
common ownership and control, unless an exemption applies, for purposes of
determining whether the position limits have been exceeded. The new position
limits and rules on aggregation may have an impact on the combined company's
ability to hedge exposure to price fluctuation of certain commodities. In
addition to the CFTC federal position limit regime, designated contract
markets also have established position limit and accountability regimes. The
combined company may have to modify trading decisions or liquidate positions
to avoid exceeding such limits or at the direction of the exchange to comply
with accountability levels. Further, any such position limit regime, whether
imposed at the federal-level or at the designated contract market
("DCM")-level may impose added operating
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costs to monitor compliance with such position limit levels, addressing
accountability level concerns and maintaining appropriate exemptions, if
applicable.
Other Risk Factors Relating to Chesapeake and Southwestern
As a result of entering into the Merger Agreement, Chesapeake's and
Southwestern's businesses are and will be subject to the risks described
above. In addition, Chesapeake and Southwestern are, and following completion
of the Merger, the combined company will be, subject to the risks described in
Chesapeake's and Southwestern's most recent Annual Report on Form 10-K as
updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, which are filed with the SEC and incorporated by reference into this
joint proxy statement/prospectus. See "
Where You Can Find More Information
" for the location of information incorporated by reference into this joint
proxy statement/prospectus.
Tax Risks Related to the Merger and the Ownership of Chesapeake Common Stock
Received in the Merger
In addition to reading the following risk factors, you are strongly urged to
read "
Material U.S. Federal Income Tax Consequences
" for a more complete discussion of the expected U.S. federal income tax
consequences of the Merger and owning and disposing of shares of Chesapeake
Common Stock received in the Merger.
If the Integrated Mergers, taken together, do not qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, Southwestern shareholders
may be required to pay substantial taxes.
Assuming that the Integrated Mergers are completed as currently contemplated,
Chesapeake and Southwestern intend for the Integrated Mergers, taken together,
to qualify as a "reorganization" within the meaning of Section 368(a) of the
Code. It is a condition to Southwestern's obligation to complete the Merger
that it receive an opinion from Kirkland & Ellis LLP, or other legal counsel
selected by Southwestern and reasonably satisfactory to Chesapeake, dated as
of the closing date, to the effect that the Integrated Mergers, taken
together, will qualify as a "reorganization" within the meaning of Section
368(a) of the Code. The opinion will be based on representations from each of
Chesapeake and Southwestern and on customary factual assumptions, as well as
certain covenants and undertakings by Chesapeake and Southwestern. If any of
such representations, assumptions, covenants or undertakings is or becomes
incorrect, incomplete or inaccurate or is violated, the validity of the
opinion described above may be affected and the U.S. federal income tax
consequences of the Integrated Mergers could differ materially from those
described herein. An opinion of counsel represents such counsel's best legal
judgment but is not binding on the U.S. Internal Revenue Service (the "IRS")
or any court, so there can be no certainty that the IRS will not challenge the
conclusion reflected in the opinion or that a court will not sustain such a
challenge. Neither Chesapeake nor Southwestern intend to obtain a ruling from
the IRS with respect to the tax consequences of the Integrated Mergers as a
"reorganization" within the meaning of Section 368(a) of the Code. If a court
determines that the Integrated Mergers, taken together, are not treated as a
"reorganization" within the meaning of Section 368(a) of the Code, a U.S.
holder generally would recognize taxable gain or loss upon the exchange of
Southwestern Common Stock for Chesapeake Common Stock pursuant to the Merger.
There are limitations on the utilization of the historic U.S. net operating
loss carryforwards of Chesapeake and Southwestern.
Chesapeake's ability to utilize U.S. net operating loss carryforwards
(including any historic loss carryforwards of Southwestern) to reduce future
taxable income following the consummation of the Merger is subject to various
limitations under the Code.
In general, Section 382 of the Code imposes such a limitation upon the
occurrence of ownership changes resulting from issuances of a company's stock
or the sale or exchange of such company's stock by certain shareholders if, as
a result, there is an aggregate change of more than 50% in the beneficial
ownership of such company's stock by such shareholders during any three-year
period. The limitation (a "Section 382 limitation") with respect to the loss
carryforwards of a company that has undergone such an ownership change
generally is equal to (i) the fair market value of such company's equity
multiplied by (ii) a percentage approximately equivalent to the yield on
long-term tax-exempt bonds during the month in which the ownership change
occurs. In addition, the Section 382 limitation is increased if there are
recognized built-in gains during the five-year post-change period, but only to
the extent of any net unrealized built-in gain
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existing on the date of the ownership change. If a corporation that is already
subject to a Section 382 limitation as a result of an ownership change
undergoes a second ownership change, net operating losses attributable to the
period preceding the earlier ownership change are treated as pre-change losses
with respect to both ownership changes. The second ownership change may result
in a lesser, but never a greater, Section 382 limitation following such
ownership change.
Each of Chesapeake and Southwestern is subject to a Section 382 limitation as
a result of an earlier ownership change. Moreover, Chesapeake and Southwestern
believe that the transactions in connection with the Merger, if consummated,
will result in a subsequent ownership change with respect to each of
Chesapeake and Southwestern. As a result, Chesapeake will continue to be
subject to a preexisting Section 382 limitation on the use of each of
Chesapeake and Southwestern's loss carryforwards that existed on the date of
its respective earlier ownership change, and could be subject to an additional
(and more restrictive) limitation on those that exist on the closing date of
the Merger (including each company's pre-change losses with respect to its
earlier ownership change).
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this document may constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements, other than
statements of historical fact, included in this document that address
activities, events or developments that Chesapeake or Southwestern expects,
believes or anticipates will or may occur in the future are forward-looking
statements. Words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "potential," "create," "intend," "could," "would,"
"may," "plan," "will," "guidance," "look," "goal," "future," "build," "focus,"
"continue," "strive," "allow" or the negative of such terms or other
variations thereof and words and terms of similar substance used in connection
with any discussion of future plans, actions, or events identify forward-looking
statements. However, the absence of these words does not mean that the
statements are not forward-looking. These forward-looking statements include,
but are not limited to, statements regarding the Merger, the expected closing
of the Merger and the timing thereof and as adjusted descriptions of the
post-Merger company and its operations, strategies and plans, integration,
debt levels and leverage ratio, capital expenditures, cash flows and
anticipated uses thereof, synergies, opportunities and anticipated future
performance, including maintaining current Chesapeake management, enhancements
to investment-grade credit profile, an expected accretion to earnings and free
cash flow, dividend payments and potential share repurchases, increase in
value of tax attributes and expected impact on EBITDA. Information adjusted
for the Merger should not be considered a forecast of future results. There
are a number of risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements included in this
document. These include the risk that Chesapeake's and Southwestern's
businesses will not be integrated successfully; the risk that cost savings,
synergies and growth from the Merger may not be fully realized or may take
longer to realize than expected; the risk that the credit ratings of the
combined company or its subsidiaries may be different from what the companies
expect; the possibility that shareholders of Chesapeake may not approve the
issuance of Chesapeake Common Stock in connection with the Merger or that
Southwestern shareholders may not approve the Merger; the risk that a
condition to closing of the Merger may not be satisfied, that either party may
terminate the Merger Agreement or that the closing of the Merger might be
delayed or not occur at all; potential adverse reactions or changes to
business or employee relationships, including those resulting from the
announcement or completion of the Merger; the risk the parties do not receive
regulatory approval of the Merger; the occurrence of any other event, change
or other circumstances that could give rise to the termination of the Merger
Agreement; the risk that changes in Chesapeake's capital structure and
governance could have adverse effects on the market value of its securities;
the ability of Chesapeake and Southwestern to retain customers and retain and
hire key personnel and maintain relationships with their suppliers and
customers and on Chesapeake's and Southwestern's operating results and
business generally; the risk that the Merger could distract management from
ongoing business operations or cause Chesapeake and/or Southwestern to incur
substantial costs; the risk of any litigation relating to the Merger; the risk
that Chesapeake may be unable to reduce expenses or access financing or
liquidity; the risk of changes in governmental regulations or enforcement
practices, especially with respect to environmental, health and safety
matters; and other important factors that could cause actual results to differ
materially from those projected. All such factors are difficult to predict and
are beyond Chesapeake's or Southwestern's control, including those detailed in
Chesapeake's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that are available on Chesapeake's website at
www.chk.com and on the website of the SEC at www.sec.gov, and those detailed
in Southwestern's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K that are available on Southwestern's website
at www.southwestern.com and on the website of the SEC. All forward-looking
statements are based on assumptions that Chesapeake and Southwestern believe
to be reasonable but that may not prove to be accurate. Any forward-looking
statement speaks only as of the date on which such statement is made, and
neither Chesapeake nor Southwestern undertakes any obligation to correct or
update any forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by applicable law. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
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PARTIES TO THE MERGER
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
(405) 848-8000
Chesapeake is an independent exploration and production company engaged in the
acquisition, exploration and development of properties to produce natural gas,
oil and NGLs from underground reservoirs. Chesapeake owns a large portfolio of
onshore U.S. unconventional natural gas assets, including interests in
approximately 5,000 gross natural gas wells. Chesapeake's natural gas resource
plays are the Marcellus Shale in the northern Appalachian Basin in
Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana.
Chesapeake's corporate headquarters are located in Oklahoma City, Oklahoma and
Chesapeake Common Stock trades on Nasdaq under the ticker symbol "CHK."
For more information about Chesapeake, please visit Chesapeake's website at
www.chk.com. The information contained on Chesapeake's website or accessible
through it does not constitute a part of this document.
Southwestern Energy Company
10000 Energy Drive
Spring, Texas 77389
(832) 796-1000
Southwestern is an independent energy company primarily engaged in the
production and development of natural gas, NGLs and crude oil within the
nation's most prolific shale gas basins. Southwestern is principally focused
on production and exploration within the Marcellus and Utica Shales in
Pennsylvania, Ohio and West Virginia as well as the Haynesville and Bossier
formations found in Louisiana. Southwestern markets and transports natural
gas, NGLs and oil through various transportation assets while also negotiating
optimal pricing and valuations. Southwestern's corporate headquarters are
located in Spring, Texas, and Southwestern Common Stock trades on the NYSE
under the ticker symbol "SWN."
For more information about Southwestern, please visit Southwestern's website
at www.swn.com. The information contained on Southwestern's website or
accessible through it does not constitute a part of this document.
Hulk Merger Sub, Inc.
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
(405) 848-8000
Merger Sub Inc is a Delaware corporation and wholly owned subsidiary of
Chesapeake. Merger Sub Inc has not carried on any activities to date, other
than activities incidental to its formation or undertaken in connection with
the transactions contemplated by the Merger Agreement.
Hulk LLC Sub, LLC
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
(405) 848-8000
Merger Sub LLC is a Delaware limited liability company and wholly owned
subsidiary of Chesapeake. Merger Sub LLC has not carried on any activities to
date, other than activities incidental to its formation or undertaken in
connection with the transactions contemplated by the Merger Agreement.
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SPECIAL MEETING OF CHESAPEAKE SHAREHOLDERS
General
This document is first being mailed on or about May 17, 2024 and constitutes
notice of the Chesapeake Special Meeting in conformity with the requirements
of the OGCA and the second amended and restated bylaws of Chesapeake (the
"Chesapeake Bylaws").
This document is being provided to Chesapeake shareholders as part of a
solicitation of proxies by the Chesapeake Board for use at the Chesapeake
Special Meeting and at any adjournment or postponement of the Chesapeake
Special Meeting. Chesapeake shareholders are encouraged to read the entire
document carefully, including the annexes to this document, for more detailed
information regarding the Merger Agreement and the transactions contemplated
by the Merger Agreement.
Date, Time and Place
The Chesapeake Special Meeting will be held virtually at www.virtualshareholderm
eeting.com/CHK2024SM, on June 18, 2024, at 10:00 a.m., Central Time. The
Chesapeake Special Meeting can be accessed by visiting www.virtualshareholdermee
ting.com/CHK2024SM, where Chesapeake shareholders will be able to participate
and vote online. This document is first being furnished to Chesapeake's
shareholders on or about May 17, 2024.
Purpose of the Chesapeake Special Meeting
The Chesapeake Special Meeting has been called for the following purposes:
1.
To consider and vote on the Stock Issuance Proposal to approve the issuance of
shares of Chesapeake Common Stock, pursuant to the Merger Agreement, a copy of
which is attached as
Annex A
to the joint proxy statement/prospectus;
2.
To consider and vote on the Advisory Chesapeake Compensation Proposal to
approve, by non-binding, advisory vote, certain compensation arrangements for
Chesapeake's named executive officers in connection with the Merger; and
3.
To consider and vote on the Chesapeake Adjournment Proposal to approve, if
necessary or appropriate, to solicit additional votes from shareholders if
there are not sufficient votes to adopt the Stock Issuance Proposal.
Chesapeake will transact no other business at the Chesapeake Special Meeting
or any adjournment or postponement thereof, except such business as may
properly be brought before the Chesapeake Special Meeting by or at the
direction of the Chesapeake Board in accordance with the Chesapeake Bylaws.
This joint proxy statement/prospectus, including the Merger Agreement attached
thereto as
Annex A
, contains further information with respect to these matters.
Recommendation of the Chesapeake Board
The Chesapeake Board has determined that the Stock Issuance Proposal and the
transactions contemplated by the Merger Agreement, including the Merger, are
advisable and fair to, and in the best interests of, Chesapeake and its
shareholders and has adopted, approved and declared advisable the Stock
Issuance Proposal. A description of factors considered by the Chesapeake Board
in reaching its decision to approve and declare advisable the Stock Issuance
Proposal can be found in "
The Merger - Recommendation of the Chesapeake Board and its Reasons for the
Merger
" beginning on page 101.
The Chesapeake Board recommends that Chesapeake shareholders vote "FOR" the
Stock Issuance Proposal, "FOR" the Advisory Chesapeake Compensation Proposal
and "FOR" the Chesapeake Adjournment Proposal
Chesapeake shareholders' approval of the Stock Issuance Proposal is a
condition for the Merger to occur. If Chesapeake shareholders fail to approve
the Stock Issuance Proposal by the requisite vote, the Merger will not occur.
As an advisory vote, the Advisory Chesapeake Compensation Proposal is not a
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condition to the completion of the Merger and is a vote separate and apart
from the vote to approve the Stock Issuance Proposal. Chesapeake does not
intend to call a vote on the Chesapeake Adjournment Proposal if the Stock
Issuance Proposal is approved at the Chesapeake Special Meeting.
Record Date; Shareholders Entitled to Vote
Only holders of Chesapeake Common Stock at the close of business on April 22,
2024, the record date for the Chesapeake Special Meeting, will be entitled to
notice of, and to vote at, the Chesapeake Special Meeting or any adjournment
or postponement of the Chesapeake Special Meeting. At the close of business on
the Chesapeake Record Date, 130,794,770 shares of Chesapeake Common Stock were
issued and outstanding.
Holders of Chesapeake Common Stock are entitled to one vote for each share of
Chesapeake Common Stock they own at the close of business on the Chesapeake
Record Date.
A complete list of shareholders entitled to vote at the Chesapeake Special
Meeting will be available for a period of at least ten days prior to the
Chesapeake Special Meeting. If you would like to inspect the list of
Chesapeake shareholders of record, please contact the Corporate Secretary of
Chesapeake to schedule an appointment or request access. A certified list of
eligible Chesapeake shareholders will be available for inspection during the
Chesapeake Special Meeting at www.virtualshareholdermeeting.com/CHK2024SM by
entering the control number provided on your proxy card, voting instruction
form or notice.
Quorum; Adjournment
There must be a quorum for business to be conducted at the Chesapeake Special
Meeting. The presence at the Chesapeake Special Meeting of the holders of a
majority of the outstanding shares of Chesapeake Common Stock entitled to vote
at the meeting, represented in person or by proxy, will constitute a quorum.
As a result, there must be 65,536,114 shares represented by proxy or by
shareholders present and entitled to vote at the Chesapeake Special Meeting in
order to have a quorum. Virtual attendance at the special meeting will
constitute presence in person for the purpose of determining the presence of a
quorum for the transaction of business at the Chesapeake Special Meeting.
The chair of the meeting or the shareholders, by the affirmative vote of a
majority of the voting power of the shares so represented, may adjourn the
meeting from time to time, whether or not there is such a quorum. Failure of a
quorum to be represented at the Chesapeake Special Meeting will result in an
adjournment of the Chesapeake Special Meeting and may subject Chesapeake to
additional expense. Even if a quorum is present, the Chesapeake Special
Meeting may also be adjourned in order to provide more time to solicit
additional proxies in favor of approval of the Stock Issuance Proposal if the
chair of the meeting so moves.
Notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken unless
the adjournment is for more than thirty days, in which case a notice of the
adjourned meeting will be given to each Chesapeake shareholder of record
entitled to vote at the meeting. If after the adjournment a new record date
for the shareholders entitled to vote is fixed for the adjourned meeting, the
Chesapeake Board must fix a record date for the adjourned meeting in
accordance with the OGCA and the Chesapeake Bylaws and provide a new notice of
the adjourned meeting to each shareholder of record entitled to vote at the
meeting. In addition, the Chesapeake Special Meeting could be postponed before
it commences.
If the Chesapeake Special Meeting is adjourned or postponed for the purpose of
soliciting additional votes, shareholders who have already submitted their
proxies will be able to revoke them at any time prior to the final vote on the
proposals. If you submit your proxy over the Internet or by telephone or
submit a properly executed proxy card, even if you abstain from voting, your
shares will be counted as present for purposes of determining whether a quorum
exists at the Chesapeake Special Meeting.
Required Vote
Assuming a quorum is present, approval of the Stock Issuance Proposal and the
Advisory Chesapeake Compensation Proposal each requires the affirmative vote
of holders of a majority of the shares of
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Chesapeake Common Stock cast at the Chesapeake Special Meeting. Assuming a
quorum is present, approval of the Chesapeake Adjournment Proposal requires
the affirmative vote of holders of a majority of the shares of Chesapeake
Common Stock present in person or represented by proxy at the Chesapeake
Special Meeting. Virtual attendance at the Chesapeake Special Meeting
constitutes presence in person for purposes of determining the presence of a
quorum for the transaction of business at the Chesapeake Special Meeting.
Accordingly, with respect to a Chesapeake shareholder who is present in person
or represented by proxy at the Chesapeake Special Meeting, such shareholder's
abstention from voting or the failure of a Chesapeake shareholder to vote will
have no effect on the outcome of the Stock Issuance Proposal, the Advisory
Chesapeake Compensation Proposal and the Chesapeake Adjournment Proposal. The
failure of a Chesapeake shareholder who holds shares in "street name" through
a bank, broker or other nominee to give voting instructions to the bank,
broker or other nominee will have no effect on the outcome of the Stock
Issuance Proposal, the Advisory Chesapeake Compensation Proposal and the
Chesapeake Adjournment Proposal.
Abstentions and Broker Non-Votes
An abstention occurs when a shareholder attends a meeting, either in person or
by proxy, but abstains from voting. At the Chesapeake Special Meeting,
abstentions will be counted as present for purposes of determining whether a
quorum exists.
Abstaining from voting will have no effect on the outcome of the Stock
Issuance Proposal, the Advisory Chesapeake Compensation Proposal and the
Chesapeake Adjournment Proposal.
If no instruction as to how to vote is given (including no instruction to
abstain from voting) in an executed, duly returned and not revoked proxy, the
proxy will be voted "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal.
Broker non-votes occur when (i) a bank, broker or other nominee has
discretionary authority to vote on one or more proposals to be voted on at a
meeting of shareholders, but is not permitted to vote on other proposals
without instructions from the beneficial owner of the shares and (ii) the
beneficial owner fails to provide the bank, broker or other nominee with such
instructions. Under Nasdaq rules, banks, brokers and other nominees holding
shares in "street name" do not have discretionary voting authority with
respect to any of the Chesapeake proposals described in this joint proxy
statement/prospectus. Accordingly, if a beneficial owner of shares of
Chesapeake Common Stock held in "street name" does not give voting
instructions to the bank, broker or other nominee, then those shares will not
be counted as present in person or by proxy at the Chesapeake Special Meeting.
Accordingly, the effect of a Chesapeake shareholder not instructing its, his
or her bank, broker or other nominee how such shareholder wishes to vote its,
his or her shares will have no effect on the outcome of the Stock Issuance
Proposal, the Advisory Chesapeake Compensation Proposal or the Chesapeake
Adjournment Proposal. Regardless of the outcome of the Chesapeake Adjournment
Proposal, in accordance with Section 1.5 of the Chesapeake Bylaws, the chair
of the Chesapeake Special Meeting may adjourn the Chesapeake Special Meeting
from time to time, whether or not there is a quorum. Chesapeake does not
intend to call a vote on the Chesapeake Adjournment Proposal if the Stock
Issuance Proposal is approved at the Chesapeake Special Meeting.
Virtual attendance at the special meeting constitutes presence in person for
purposes of determining the presence of a quorum for the transaction of
business at the Chesapeake Special Meeting.
Failure to Vote
If you are a shareholder of record and you do not sign and return your proxy
card or vote over the Internet, by telephone or at the Chesapeake Special
Meeting, your shares will not be voted at the Chesapeake Special Meeting, will
not be counted as present in person or by proxy at the Chesapeake Special
Meeting and will not be counted as present for purposes of determining whether
a quorum exists.
For purposes of the Stock Issuance Proposal, provided a quorum is present, a
failure to vote, or a failure to instruct your bank, broker, trust or other
nominee to vote, will have no effect on the outcome of a vote on the Stock
Issuance Proposal. For purposes of the Advisory Chesapeake Compensation
Proposal, a failure to vote, or a failure to instruct your bank, broker, trust
or other nominee to vote, will have no effect
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on the outcome of a vote on the Chesapeake Adjournment Proposal. For purposes
of the Chesapeake Adjournment Proposal, a failure to vote, or a failure to
instruct your bank, broker, trust or other nominee to vote, will have no
effect on the outcome of a vote on the Chesapeake Adjournment Proposal.
Virtual attendance at the special meeting constitutes presence in person for
purposes of determining the presence of a quorum for the transaction of
business at the Chesapeake Special Meeting.
Voting by Chesapeake's Directors and Executive Officers
At the close of business on May 17, 2024, directors and executive officers of
Chesapeake were entitled to vote 99,692 shares of Chesapeake Common Stock, or
less than 1% of the shares of Chesapeake Common Stock issued and outstanding
on that date. Directors and executive officers of Chesapeake have informed
Chesapeake that they intend to vote their shares in favor of the Stock
Issuance Proposal, although none of the directors and executive officers are
obligated to do so.
Voting at the Chesapeake Special Meeting
The Chesapeake Special Meeting will be a completely virtual meeting. There
will be no physical meeting location and the meeting will only be conducted
via live webcast. The virtual Chesapeake Special Meeting will be held on June
18, 2024 at 10:00 a.m., Central Time. To participate in the Chesapeake Special
Meeting and submit questions during the special meeting, visit www.virtualshareh
oldermeeting.com/CHK2024SM and enter the control number on the proxy card,
voting instruction form or notice you received. Online check-in will begin at
9:45 a.m., Central Time. Please allow time for online check-in procedures.
The virtual shareholder meeting format uses technology designed to increase
shareholder access, save Chesapeake and Chesapeake shareholders time and
money, and provide Chesapeake shareholders rights and opportunities to
participate in the meeting similar to what they would have at an in-person
meeting. In addition to online attendance, Chesapeake provides shareholders
with an opportunity to hear all portions of the official meeting, submit
written questions and comments during the meeting, and vote online during the
open poll portion of the meeting.
Although Chesapeake offers four different voting methods, Chesapeake
encourages you to submit a proxy to vote either over the Internet or by
telephone to ensure that your shares are represented and voted at the
Chesapeake Special Meeting.
.
To Submit a Proxy to Vote over the Internet:
To submit a proxy to vote over the Internet, go to www.proxyvote.com and
follow the steps outlined on the secured website. You will need the number
included on your proxy card to obtain your records and to create an electronic
voting instruction form. If you submit your proxy to vote over the Internet,
you do not have to mail in a proxy card. If you choose to submit your vote via
proxy over the Internet, you must do so prior to 10:59 p.m., Central Time, on
June 17, 2024.
.
To Submit a Proxy by Telephone:
To submit a proxy to vote by telephone, call toll-free 1-800-690-6903 within
the U.S., U.S. territories and Canada on a touch-tone telephone. Please have
your proxy card available for reference because you will need the validation
details that are located on your proxy card in order to submit your vote by
proxy by telephone. If you submit your proxy to vote by telephone, you do not
have to mail in a proxy card. If you choose to submit your vote via proxy by
telephone, you must do so prior to 10:59 p.m., Central Time, on June 17, 2024.
.
To Submit a Proxy by Mail:
To submit a proxy to vote by mail, complete, sign and date the proxy card and
return it promptly to the address indicated on the proxy card in the postage
paid envelope provided. If you sign and return your proxy card without
indicating how you want your shares of Chesapeake Common Stock to be voted
with regard to a particular proposal, your shares of Chesapeake Common Stock
will be voted in favor of such proposal. If you return your proxy card without
a signature, your shares will not be counted as present at the Chesapeake
Special Meeting and cannot be voted.
.
Voting Virtually at the Chesapeake Special Meeting:
To vote virtually at the Chesapeake Special Meeting, shareholders must
register online at www.virtualshareholdermeeting.com/CHK2024SM.
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If your shares are held by your bank, broker or other nominee, you are
considered the beneficial owner of shares held in "street name" and you will
receive a vote instruction form from your bank, broker or other nominee
seeking instruction from you as to how your shares should be voted.
If you sign your proxy, but do not indicate how you wish to vote, your shares
will be voted "
FOR
" the Stock Issuance Proposal, "
FOR
" the Advisory Chesapeake Compensation Proposal and "
FOR
" the Chesapeake Adjournment Proposal.
Revocation of Proxies
You can change or revoke your proxy at any time before the final vote at the
Chesapeake Special Meeting. If you are the shareholder of record of your
shares, you may revoke your proxy by:
.
submitting another proxy over the Internet or by telephone prior to 10:59
p.m., Central Time, on June 17, 2024;
.
timely delivering a written notice that you are revoking your proxy to
Chesapeake's Corporate Secretary;
.
timely delivering a valid, later-dated proxy;
.
attending the Chesapeake Special Meeting and voting. Your attendance at the
Chesapeake Special Meeting will not revoke your proxy unless you give written
notice of revocation to Chesapeake's Corporate Secretary before your proxy is
exercised or unless you vote your shares in person at the Chesapeake Special
Meeting; or
.
if you are the beneficial owner of shares held in "street name," you should
contact your bank, broker or other nominee with questions about how to change
or revoke your voting instructions.
Solicitation of Proxies
The Chesapeake Board is soliciting your proxy in connection with the
Chesapeake Special Meeting, and Chesapeake will bear the cost of soliciting
such proxies, including the costs of printing and mailing this joint proxy
statement/prospectus. Chesapeake has retained Alliance Advisors as proxy
solicitor to assist with the solicitation of proxies in connection with the
Chesapeake Special Meeting. Chesapeake agreed to pay Alliance Advisors a fee
of $35,000. Chesapeake will also reimburse Alliance Advisors for reasonable
out-of-pocket expenses. Solicitation initially will be made by mail. Forms of
proxies and proxy materials may also be distributed through banks, brokers and
other nominees to the beneficial owners of shares of Chesapeake Common Stock,
in which case these parties will be reimbursed for their reasonable
out-of-pocket expenses. Proxies may also be solicited in person or by
telephone, facsimile, electronic mail, or other electronic medium by certain
of Chesapeake's directors, officers and employees, for no additional
compensation.
Tabulation of Votes
Broadridge Financial Solutions will tabulate the votes at the Chesapeake
Special Meeting.
No Appraisal Rights
Chesapeake shareholders are not entitled to appraisal or dissenters' rights in
connection with the Merger. For additional information, please see "
The Merger - No Appraisal Rights
."
Householding of Chesapeake Special Meeting Materials
Each registered Chesapeake shareholder will receive one copy of this joint
proxy statement/prospectus per account, regardless of whether you have the
same address as another shareholder of record. SEC rules permit companies and
intermediaries such as brokers to satisfy delivery requirements for proxy
statements and notices with respect to two or more shareholders sharing the
same address by delivering a single proxy statement or a single notice
addressed to those shareholders. This process, commonly called "householding,"
provides cost savings for companies. Some brokers household proxy materials,
delivering a
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single proxy statement or notice to multiple shareholders sharing an address
unless contrary instructions have been received from the affected
shareholders. For more details, see "
Householding of Proxy Materials
."
Questions
If you have more questions about the Merger or how to submit your proxy, or if
you need additional copies of this joint proxy statement/prospectus or the
enclosed proxy card or voting instructions, please contact the Corporate
Secretary, at Chesapeake's principal executive offices, 6100 North Western
Avenue, Oklahoma City, Oklahoma 73118.
Assistance
If you need assistance voting or in completing your proxy card or have
questions regarding the Chesapeake Special Meeting, please contact the
Chesapeake Solicitation Agent:
Alliance Advisors LLC
200 Broadacres Dr., 3rd Floor
Bloomfield, NJ 07003
Shareholders may call toll free: 833-795-8496
Banks and Brokers may call collect: 973-873-7700
Email: CHK@allianceadvisors.com
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PROPOSAL 1 - CHESAPEAKE STOCK ISSUANCE PROPOSAL
This joint proxy statement/prospectus is being furnished to Chesapeake
shareholders as part of the solicitation of proxies by the Chesapeake Board
for use at the Chesapeake Special Meeting to consider and vote upon the Stock
Issuance Proposal pursuant to the Merger Agreement, which is attached as
Annex A
to this joint proxy statement/prospectus. Under the Nasdaq rules, a company
listed on the Nasdaq is required to obtain stockholder approval prior to the
issuance of common stock in any business combination if the number of shares
of common stock to be issued in such transaction is equal to or in excess of
20% of the number of shares of common stock outstanding before the issuance of
the common stock. If the Merger is completed, it is currently estimated that
Chesapeake will issue approximately 96,394,817 shares of Chesapeake Common
Stock in the Merger, which will exceed 20% of the shares of Chesapeake Common
Stock outstanding before such issuance and for this reason Chesapeake must
obtain the approval of Chesapeake shareholders for that issuance.
In the event the Stock Issuance Proposal is approved by the Chesapeake
shareholders, but the Merger Agreement is terminated (without the Merger being
completed) prior to the issuance of shares of Chesapeake Common Stock pursuant
to the Merger Agreement, Chesapeake will not issue any shares of Chesapeake
Common Stock as a result of the approval of the Stock Issuance Proposal.
The Chesapeake Board, after due and careful discussion and consideration, (i)
determined that it is in the best interests of Chesapeake and its shareholders
and advisable for Chesapeake to enter into the Merger Agreement and (ii)
authorized and approved the Merger Agreement and the transactions contemplated
by the Merger Agreement, including the Merger and the issuance of shares of
Chesapeake Common Stock in the Merger.
Required Vote of Shareholders
The Chesapeake Board accordingly recommends that Chesapeake shareholders vote "
FOR
" the Stock Issuance Proposal.
Approval of the Stock Issuance Proposal is a condition to completion of the
Merger.
The vote on the Stock Issuance Proposal is a vote separate and apart from the
vote to approve the Advisory Chesapeake Compensation Proposal and the
Chesapeake Adjournment Proposal. Accordingly, a Chesapeake shareholder may
vote to approve the Advisory Chesapeake Compensation Proposal and/or the
Chesapeake Adjournment Proposal and vote not to approve the Stock Issuance
Proposal, and vice versa.
Assuming a quorum is present, approval of the Stock Issuance Proposal requires
the affirmative vote of the holders of shares of Chesapeake Common Stock
representing a majority of votes properly cast in person or represented by
proxy on the Stock Issuance Proposal at the Chesapeake Special Meeting.
Virtual attendance at the Chesapeake Special Meeting constitutes presence in
person for purposes of determining the presence of a quorum for the
transaction of business at the Chesapeake Special Meeting.
THE CHESAPEAKE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE STOCK
ISSUANCE PROPOSAL.
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PROPOSAL 2 - ADVISORY CHESAPEAKE COMPENSATION PROPOSAL
As required by Section 14A of the Exchange Act and the applicable SEC rules
issued thereunder, we are requesting the Chesapeake shareholders' approval, on
a non-binding, advisory basis, of specified compensation that may be payable
to Chesapeake's named executive officers in connection with the Merger and
therefore are asking shareholders to adopt the following resolution:
"RESOLVED, that the compensation that may be paid or become payable to
Chesapeake's named executive officers in connection with the Merger, as
disclosed in the table in the section of the joint proxy statement/prospectus
entitled "
Interests of Chesapeake's Directors and Executive Officers in the
Merger - Golden Parachute Compensation
," including the associated narrative discussion, and the agreements pursuant
to which such compensation may be paid or become payable, are hereby APPROVED
on an advisory basis."
The section of this joint proxy statement/prospectus entitled "
Interests of Chesapeake's Directors and Executive Officers in the
Merger - Golden Parachute Compensation
" sets forth the information required by Item 402(t) of the SEC's Regulation
S-K regarding compensation that is based on, or otherwise relates to, the
Merger for each "named executive officer" of Chesapeake. The named executive
officers of Chesapeake are: Domenic J. Dell'Osso Jr., President and Chief
Executive Officer; Mohit Singh, Executive Vice President and Chief Financial
Officer; Joshua J. Viets, Executive Vice President and Chief Operations
Officer; and Benjamin E. Russ, Executive Vice President-General Counsel and
Corporate Secretary.
Required Vote of Shareholders
The Chesapeake Board accordingly recommends that Chesapeake shareholders vote "
FOR
" the Advisory Chesapeake Compensation Proposal.
The vote on the Advisory Chesapeake Compensation Proposal is a vote separate
and apart from the vote to approve the Stock Issuance Proposal and the
Chesapeake Adjournment Proposal. Accordingly, a Chesapeake shareholder may
vote to approve the Stock Issuance Proposal and/or the Chesapeake Adjournment
Proposal and vote not to approve the Advisory Chesapeake Compensation
Proposal, and vice versa. Because the vote is advisory in nature only, it will
not be binding on Chesapeake. Accordingly, to the extent that Chesapeake is
contractually obligated to pay the compensation, the compensation will be
payable to the named executive officers, subject only to the conditions
applicable thereto, if the Merger is completed, regardless of the outcome of
the advisory vote.
Assuming a quorum is present, approval of the Advisory Chesapeake Compensation
Proposal requires the affirmative vote of the holders of shares of Chesapeake
Common Stock representing a majority of votes properly cast in person or
represented by proxy on the Advisory Chesapeake Compensation Proposal at the
Chesapeake Special Meeting. Virtual attendance at the Chesapeake Special
Meeting constitutes presence in person for purposes of determining the
presence of a quorum for the transaction of business at the Chesapeake Special
Meeting.
THE CHESAPEAKE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADVISORY
CHESAPEAKE COMPENSATION PROPOSAL.
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PROPOSAL 3 - CHESAPEAKE ADJOURNMENT PROPOSAL
The Chesapeake Special Meeting may be adjourned to another time and place,
including, if necessary to permit solicitation of additional proxies if there
are not sufficient votes to approve the Stock Issuance Proposal or to ensure
that any supplement or amendment to this joint proxy statement/prospectus is
timely provided to Chesapeake shareholders.
Chesapeake is asking its shareholders to authorize the holder of any proxy
solicited by the Chesapeake Board to vote in favor of any adjournment of the
Chesapeake Special Meeting to solicit additional proxies if there are not
sufficient votes to approve the Stock Issuance Proposal or to ensure that any
supplement or amendment to this joint proxy statement/prospectus is timely
provided to Chesapeake shareholders.
Required Vote of Shareholders
The Chesapeake Board accordingly recommends that Chesapeake shareholders vote "
FOR
" the Chesapeake Adjournment Proposal, if necessary.
The vote on the Chesapeake Adjournment Proposal is a vote separate and apart
from the vote to approve the Stock Issuance Proposal and the Advisory
Chesapeake Compensation Proposal. Accordingly, a Chesapeake shareholder may
vote to approve the Stock Issuance Proposal and/or the Advisory Chesapeake
Compensation Proposal and vote not to approve the Chesapeake Adjournment
Proposal, and vice versa.
Assuming a quorum is present, approval of the Chesapeake Adjournment Proposal
requires the affirmative vote of holders of a majority of the shares of
Chesapeake Common Stock present in person or represented by proxy at the
Chesapeake Special Meeting. Virtual attendance at the Chesapeake Special
Meeting constitutes presence in person for purposes of determining the
presence of a quorum for the transaction of business at the Chesapeake Special
Meeting.
Regardless of the outcome of the Chesapeake Adjournment Proposal, in
accordance with Section 1.5 of the Chesapeake Bylaws, the chair of the
Chesapeake Special Meeting may adjourn the Chesapeake Special Meeting from
time to time, whether or not there is a quorum. Chesapeake does not intend to
call a vote on the Chesapeake Adjournment Proposal if the Stock Issuance
Proposal is approved at the Chesapeake Special Meeting.
THE CHESAPEAKE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADVISORY
CHESAPEAKE ADJOURNMENT PROPOSAL.
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SPECIAL MEETING OF SOUTHWESTERN SHAREHOLDERS
General
This joint proxy statement/prospectus is first being mailed on or about May
17, 2024 and constitutes notice of the Southwestern Special Meeting in
conformity with the requirements of the DGCL and the second amended and
restated bylaws of Southwestern (the "Southwestern Bylaws").
This document is being provided to Southwestern shareholders as part of a
solicitation of proxies by the Southwestern Board for use at the Southwestern
Special Meeting and at any adjournment or postponement of the Southwestern
Special Meeting. Southwestern shareholders are encouraged to read the entire
document carefully, including the annexes to this document, for more detailed
information regarding the Merger Agreement and the transactions contemplated
by the Merger Agreement.
Date, Time and Place
The Southwestern Special Meeting will be held virtually at www.virtualshareholde
rmeeting.com/SWN2024SM, on June 18, 2024, at 10:00 a.m., Central Time. The
Southwestern Special Meeting can be accessed by visiting www.virtualshareholderm
eeting.com/SWN2024SM, where Southwestern shareholders will be able to
participate and vote online. This document is first being furnished to
Southwestern's shareholders on or about May 17, 2024.
Purpose of the Southwestern Special Meeting
At the Southwestern Special Meeting, Southwestern shareholders will be asked
to consider and vote on the following:
1.
the Merger Proposal;
2.
the Advisory Southwestern Compensation Proposal; and
3.
the Southwestern Adjournment Proposal.
Southwestern will transact no other business at the Southwestern Special
Meeting or any adjournment or postponement thereof, except such business as
may properly be brought before the Southwestern Special Meeting by or at the
direction of the Southwestern Board in accordance with the Southwestern
Bylaws. This joint proxy statement/prospectus, including the Merger Agreement
attached thereto as
Annex A
, contains further information with respect to these matters.
Recommendation of the Southwestern Board
The Southwestern Board has unanimously (i) determined that it is in the best
interests of Southwestern and its shareholders and advisable for Southwestern
to enter into the Merger Agreement, (ii) authorized and approved Southwestern's
execution, delivery and performance of the Merger Agreement in accordance with
its terms and Southwestern's consummation of the transactions contemplated
thereby, including the Merger, (iii) directed that the approval of the Merger
Proposal be submitted to a vote at a meeting of the Southwestern shareholders
and (iv) recommended that Southwestern shareholders approve the Merger
Proposal. A description of factors considered by the Southwestern Board in
reaching its decision to approve and declare advisable the Merger Proposal can
be found in "
The Merger - Recommendation of the Southwestern Board and its Reasons for the
Merger
" beginning on page 103.
The Southwestern Board unanimously recommends that Southwestern shareholders
vote "FOR" the Merger Proposal, "FOR" the Advisory Southwestern Compensation
Proposal and "FOR" the Southwestern Adjournment Proposal.
Southwestern shareholders' approval of the Merger Proposal is a condition for
the Merger to occur. If Southwestern shareholders fail to approve the Merger
Proposal by the requisite vote, the Merger will not occur. The Advisory
Southwestern Compensation Proposal is not a condition to the consummation of
the Merger.
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Record Date; Shareholders Entitled to Vote
Only holders of Southwestern Common Stock at the close of business on April
22, 2024, the record date for the Southwestern Special Meeting, will be
entitled to notice of, and to vote at, the Southwestern Special Meeting or any
adjournment or postponement of the Southwestern Special Meeting. At the close
of business on the Southwestern Record Date, 1,102,846,071 shares of
Southwestern Common Stock were issued and outstanding.
Holders of Southwestern Common Stock are entitled to one vote for each share
of Southwestern Common Stock they own at the close of business on the
Southwestern Record Date.
A complete list of shareholders entitled to vote at the Southwestern Special
Meeting will be available for a period of at least ten days prior to the
Southwestern Special Meeting. If you would like to inspect the list of
Southwestern shareholders of record, please contact the Secretary of
Southwestern to schedule an appointment or request access. A certified list of
eligible Southwestern shareholders will be available for inspection during the
Southwestern Special Meeting at www.virtualshareholdermeeting.com/SWN2024SM by
entering the control number provided on your proxy card, voting instruction
form or notice.
Quorum; Adjournment
The presence at the Southwestern Special Meeting of the holders of a majority
of the outstanding shares of Southwestern Common Stock entitled to vote at the
meeting as of the close of business on the Southwestern Record Date,
represented in person or by proxy, will constitute a quorum. As a result,
there must be 551,423,036 shares represented by proxy or by shareholders
present and entitled to vote at the Southwestern Special Meeting in order to
have a quorum. Virtual attendance at the special meeting will constitute
presence in person for the purpose of determining the presence of a quorum for
the transaction of business at the Southwestern Special Meeting. There must be
a quorum for business to be conducted at the Southwestern Special Meeting.
The chair of the Southwestern Board, the presiding officer of the meeting, or
the shareholders, by the affirmative vote of a majority of the voting power of
the shares so represented, may adjourn the meeting from time to time, whether
or not there is such a quorum. Failure of a quorum to be represented at the
Southwestern Special Meeting will result in an adjournment of the Southwestern
Special Meeting and may subject Southwestern to additional expense. Even if a
quorum is present, the Southwestern Special Meeting may also be adjourned in
order to provide more time to solicit additional proxies in favor of approval
of the Merger Proposal if the presiding officer of the meeting so determines.
Notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken unless
the adjournment is for more than thirty days, in which case a notice of the
adjourned meeting will be given to each shareholder of record entitled to vote
at the meeting. If after the adjournment a new record date for the
shareholders entitled to vote is fixed for the adjourned meeting, the
Southwestern Board must fix a record date for the adjourned meeting in
accordance with the DGCL and provide a new notice of the adjourned meeting to
each shareholder of record entitled to vote at the meeting. In addition, the
Southwestern Special Meeting could be postponed before it commences.
If the Southwestern Special Meeting is adjourned or postponed for the purpose
of soliciting additional votes, shareholders who have already submitted their
proxies will be able to revoke them at any time prior to the final vote on the
proposals. If you submit your proxy over the Internet or by telephone or
submit a properly executed proxy card, even if you abstain from voting, your
shares will be counted as present for purposes of determining whether a quorum
exists at the Southwestern Special Meeting.
Required Vote
Assuming a quorum is present, approval of the Merger Proposal requires the
affirmative vote of holders of a majority of the outstanding shares of
Southwestern Common Stock entitled to vote thereon. Accordingly, with respect
to a Southwestern shareholder who is present in person or represented by proxy
at the Southwestern Special Meeting, such shareholder's abstention from voting
or the failure of a Southwestern shareholder to vote will have the same effect
as a vote "against" the Merger Proposal. The failure of a Southwestern
shareholder who holds Southwestern Common Stock in "street name" through a
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bank, broker or other nominee to give voting instructions to the bank, broker
or other nominee will have the same effect as a vote "against" the Merger
Proposal.
Approval of the Advisory Southwestern Compensation Proposal requires the
affirmative vote of the holders of a majority of the outstanding shares of
Southwestern Common Stock cast at the Southwestern Special Meeting.
Accordingly, with respect to a Southwestern shareholder who is present in
person or represented by proxy at the Southwestern Special Meeting, such
shareholder's abstention from voting or the failure of a Southwestern
shareholder to vote will have no effect on the Advisory Southwestern
Compensation Proposal. The failure of a Southwestern shareholder who holds
shares in "street name" through a bank, broker or other nominee to give voting
instructions to the bank, broker or other nominee will have no effect on the
Advisory Southwestern Compensation Proposal.
Approval of the Southwestern Adjournment Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of Southwestern
Common Stock cast at the Southwestern Special Meeting. Accordingly, with
respect to a Southwestern shareholder who is present in person or represented
by proxy at the Southwestern Special Meeting, such shareholder's abstention
from voting or the failure of a Southwestern shareholder to vote will have no
effect on the Southwestern Adjournment Proposal. The failure of a Southwestern
shareholder who holds shares in "street name" through a bank, broker or other
nominee to give voting instructions to the bank, broker or other nominee will
have no effect on the Southwestern Adjournment Proposal. Regardless of whether
there is a quorum, the presiding officer of the Southwestern Special Meeting
or the chair of the Southwestern Board may also adjourn the Southwestern
Special Meeting. Southwestern does not intend to call a vote on the
Southwestern Adjournment Proposal if the Merger Proposal is approved at the
Southwestern Special Meeting.
Abstentions and Broker Non-Votes
An abstention occurs when a shareholder attends a meeting, either in person or
by proxy, but abstains from voting. At the Southwestern Special Meeting,
abstentions will be counted as present for purposes of determining whether a
quorum exists.
Abstaining from voting will have the same effect as a vote "against" the
Merger Proposal, but will have no effect on the Advisory Southwestern
Compensation Proposal or the Southwestern Adjournment Proposal.
If no instruction as to how to vote is given (including no instruction to
abstain from voting) in an executed, duly returned and not revoked proxy, the
proxy will be voted "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal.
Broker non-votes occur when (i) a bank, broker or other nominee has
discretionary authority to vote on one or more proposals to be voted on at a
meeting of shareholders, but is not permitted to vote on other proposals
without instructions from the beneficial owner of the shares and (ii) the
beneficial owner fails to provide the bank, broker or other nominee with such
instructions. Under NYSE rules, banks, brokers and other nominees holding
shares in "street name" do not have discretionary voting authority with
respect to any of the Southwestern proposals described in this joint proxy
statement/prospectus. Accordingly, if a beneficial owner of shares of
Southwestern Common Stock held in "street name" does not give voting
instructions to the bank, broker or other nominee, then those shares will not
be counted as present in person or by proxy at the Southwestern Special
Meeting.
Virtual attendance at the special meeting constitutes presence in person for
purposes of the vote required.
Failure to Vote
If you are a shareholder of record and you do not sign and return your proxy
card or vote over the Internet, by telephone or at the Southwestern Special
Meeting, your shares will not be voted at the Southwestern Special Meeting,
will not be counted as present in person or by proxy at the Southwestern
Special Meeting and will not be counted as present for purposes of determining
whether a quorum exists.
For purposes of the Merger Proposal, the Advisory Southwestern Compensation
Proposal and the Southwestern Adjournment Proposal, provided a quorum is
present, a failure to vote, or a failure to
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instruct your bank, broker, trust or other nominee to vote, will have the same
effect as a vote "against" the Merger Proposal, but will have no effect on the
Advisory Southwestern Compensation Proposal or the Southwestern Adjournment
Proposal.
An abstention from voting will have the same effect as a vote "against" the
Merger Proposal, but will have no effect on the Advisory Southwestern
Compensation Proposal or the Southwestern Adjournment Proposal.
If you sign, date and return your proxy card and do not indicate how you want
your shares of Southwestern Common Stock to be voted, then your shares of
Southwestern Common Stock will be voted "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal.
Virtual attendance at the special meeting constitutes presence in person for
purposes of the vote required.
Voting by Southwestern's Directors and Executive Officers
At the close of business on May 16, 2024, directors and executive officers of
Southwestern were entitled to vote 9,250,728 shares of Southwestern Common
Stock, or less than 1% of the shares of Southwestern Common Stock issued and
outstanding on that date. Southwestern currently expects that all of its
directors and executive officers will vote their shares of Southwestern Common
Stock in favor of the Merger Proposal and the Southwestern Adjournment
Proposal, although none of the directors and executive officers are obligated
to do so.
Voting at the Southwestern Special Meeting
The Southwestern Special Meeting will be a completely virtual meeting. There
will be no physical meeting location and the meeting will only be conducted
via live webcast. The virtual Southwestern Special Meeting will be held on
June 18, 2024, at 10:00 a.m., Central Time. To participate in the Southwestern
Special Meeting and submit questions during the special meeting, visit
www.virtualshareholdermeeting.com/
SWN2024SM and enter the control number on the proxy card, voting instruction
form or notice you received. Online check-in will begin at 9:45 a.m., Central
Time. Please allow time for online check-in procedures.
The virtual shareholder meeting format uses technology designed to increase
shareholder access, save Southwestern and Southwestern shareholders time and
money, and provide Southwestern shareholders rights and opportunities to
participate in the meeting similar to what they would have at an in-person
meeting. In addition to online attendance, Southwestern provides shareholders
with an opportunity to hear all portions of the official meeting, submit
written questions and comments during the meeting, and vote online during the
open poll portion of the meeting.
Although Southwestern offers four different methods to submit a proxy,
Southwestern encourages you to submit a proxy either over the Internet or by
telephone to ensure that your shares are represented and voted at the
Southwestern Special Meeting.
.
To Submit a Proxy to Vote over the Internet:
To submit a proxy over the Internet, go to www.virtualshareholdermeeting.com/SWN
2024SM and follow the steps outlined on the secured website. You will need the
number included on your proxy card to obtain your records and to create an
electronic voting instruction form. If you submit your proxy to vote over the
Internet, you do not have to mail in a proxy card. If you choose to submit
your vote via proxy over the Internet, you must do so prior to 10:59 p.m.,
Central Time, on June 17, 2024.
.
To Submit a Proxy by Telephone:
To submit a proxy to vote by telephone, call the number listed on the enclosed
proxy card, which will be toll-free from the U.S. or Canada, on a touch-tone
telephone. Please have your proxy card available for reference because you
will need the validation details that are located on your proxy card in order
to submit your vote by proxy by telephone. If you submit your proxy to vote by
telephone, you do not have to mail in a proxy card. If you choose to submit
your vote via proxy by telephone, you must do so prior to 10:59 p.m., Central
Time, on June 17, 2024.
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.
To Submit a Proxy by Mail:
To submit a proxy to vote by mail, complete, sign and date the proxy card and
return it promptly to the address indicated on the proxy card in the postage
paid envelope provided. If you sign and return your proxy card without
indicating how you want your shares of Southwestern Common Stock to be voted
with regard to a particular proposal, your shares of Southwestern Common Stock
will be voted in favor of such proposal. If you return your proxy card without
a signature, your shares will not be counted as present at the Southwestern
Special Meeting and cannot be voted.
.
Voting Virtually at the Southwestern Special Meeting:
To vote virtually at the Southwestern Special Meeting, follow the instructions
at www.virtualshareholdermeeting.com/SWN2024SM.
If your shares are held by your bank, broker or other nominee, you are
considered the beneficial owner of shares held in "street name" and you will
receive a vote instruction form from your bank, broker or other nominee
seeking instruction from you as to how your shares should be voted.
If you sign your proxy, but do not indicate how you wish to vote, your shares
will be voted "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and "
FOR
" the Southwestern Adjournment Proposal.
Revocation of Proxies
You can change or revoke your proxy at any time before the final vote at the
Southwestern Special Meeting. If you are the shareholder of record of your
shares, you may revoke your proxy by:
.
submitting another proxy over the Internet or by telephone prior to 10:59
p.m., Central Time, on June 17, 2024;
.
timely delivering a written notice that you are revoking your proxy to
Southwestern's Secretary;
.
timely delivering a valid, later-dated proxy; or
.
attending the Southwestern Special Meeting and voting. Your virtual attendance
at the Southwestern Special Meeting will not revoke your proxy unless you give
written notice of revocation to Southwestern's Secretary before your proxy is
exercised or unless you vote your shares in person at the Southwestern Special
Meeting.
If you are the beneficial owner of shares held in "street name," you should
contact your bank, broker or other nominee with questions about how to change
or revoke your voting instructions.
Solicitation of Proxies
The Southwestern Board is soliciting your proxy in connection with the
Southwestern Special Meeting, and Southwestern will bear the cost of
soliciting such proxies, including the costs of printing and filing this joint
proxy statement/prospectus. Southwestern has retained Morrow Sodali as proxy
solicitor to assist with the solicitation of proxies in connection with the
Southwestern Special Meeting. Southwestern has agreed to pay Morrow Sodali a
fee of $50,000, plus additional disbursements, if any, and will reimburse
Morrow Sodali for its reasonable out-of-pocket expenses and indemnify Morrow
Sodali against certain claims, liabilities, losses, damages and expenses.
Solicitation initially will be made by mail. Forms of proxies and proxy
materials may also be distributed through banks, brokers and other nominees to
the beneficial owners of shares of Southwestern Common Stock, in which case
these parties will be reimbursed for their reasonable out-of-pocket expenses.
Proxies may also be solicited in person or by telephone, facsimile, electronic
mail, or other electronic medium by certain of Southwestern's or Southwestern's
directors, officers and employees without additional compensation.
Tabulation of Votes
Broadridge Financial Solutions will tabulate the votes at the Southwestern
Special Meeting.
Inspector of Election
The Southwestern Board has appointed a representative of First Coast Results,
Inc. to act as the inspector of election at the special meeting.
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No Appraisal Rights
Southwestern shareholders are not entitled to appraisal or dissenters' rights
in connection with the Merger. For additional information, please see "
The Merger - No Appraisal Rights
."
Householding of Southwestern Special Meeting Materials
Each registered Southwestern shareholder will receive one copy of this joint
proxy statement/
prospectus per account, regardless of whether you have the same address as
another shareholder of record. SEC rules permit companies and intermediaries
such as brokers to satisfy delivery requirements for proxy statements and
notices with respect to two or more shareholders sharing the same address by
delivering a single proxy statement or a single notice addressed to those
shareholders. This process, commonly called "householding," provides cost
savings for companies. Some brokers household proxy materials, delivering a
single proxy statement or notice to multiple shareholders sharing an address
unless contrary instructions have been received from the affected
shareholders. For more details, see "
Householding of Proxy Materials
."
Questions
If you have more questions about the Merger or how to submit your proxy, or if
you need additional copies of this joint proxy statement/prospectus or the
enclosed proxy card or voting instructions, please contact Southwestern's
Secretary, at Southwestern's principal executive offices at 10000 Energy
Drive, Spring, Texas 77389.
Assistance
If you need assistance voting or in completing your proxy card or have
questions regarding the Southwestern Special Meeting, please contact the
Southwestern Solicitation Agent:
Morrow Sodali, LLC
509 Madison Avenue, Suite 1206
New York, NY 10022
Shareholders may call toll free: (800) 662-5200
Banks and Brokers may call collect: (203) 658-9400
Email: swn@info.morrowsodali.com
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SOUTHWESTERN PROPOSAL 1 - MERGER PROPOSAL
This joint proxy statement/prospectus is being furnished to Southwestern
shareholders as part of the solicitation of proxies by the Southwestern Board
for use at the Southwestern Special Meeting to consider and vote upon a
proposal to approve the Merger Agreement, which is attached as
Annex A
to this joint proxy statement/prospectus.
The Southwestern Board, after due and careful discussion and consideration,
unanimously (i) determined that it is in the best interests of Southwestern
and its shareholders and advisable for Southwestern to enter into the Merger
Agreement and (ii) authorized and approved the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the Merger.
Required Vote of Shareholders
The Southwestern Board accordingly unanimously recommends that Southwestern
shareholders vote "
FOR
" the proposal to approve the Merger Agreement and the Merger, as disclosed in
this joint proxy statement/prospectus, particularly the related narrative
disclosures in the sections of this joint proxy statement/
prospectus entitled "
The Merger
" and "
The Merger Agreement
" and as attached as
Annex A
to this joint proxy statement/prospectus.
Approval of the Merger Proposal is a condition to completion of the Merger.
The vote on the Merger Proposal is a vote separate and apart from the vote to
approve the Advisory Southwestern Compensation Proposal and the Southwestern
Adjournment Proposal. Accordingly, a Southwestern shareholder may vote to
approve the Merger Proposal and vote not to approve the Advisory Southwestern
Compensation Proposal or the Southwestern Adjournment Proposal, and vice versa.
Approval of the Merger Proposal requires the affirmative vote of holders of a
majority of the outstanding shares of Southwestern Common Stock entitled to
vote thereon. A failure to vote, a broker non-vote or an abstention will have
the same effect as a vote "against" the Merger Proposal. Virtual attendance at
the special meeting constitutes presence in person for purposes of the vote
required.
THE SOUTHWESTERN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE MERGER PROPOSAL.
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SOUTHWESTERN PROPOSAL 2 - ADVISORY SOUTHWESTERN COMPENSATION PROPOSAL
Southwestern is asking its shareholders to approve the Advisory Southwestern
Compensation Proposal.
As required by Section 14A of the Exchange Act and the applicable SEC rules
issued thereunder, which were enacted pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Southwestern is required to provide its
shareholders the opportunity to vote to approve, on a non-binding, advisory
basis, certain compensation that may be paid or become payable to
Southwestern's named executive officers that is based on or otherwise relates
to the Merger, as described in the section entitled "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Quantification of Potential Payments and Benefits to
Southwestern's Named Executive Officers
" beginning on page 140. Accordingly, Southwestern shareholders are being
provided the opportunity to cast an advisory vote on such payments.
As an advisory vote, this proposal is not binding upon Southwestern or the
Southwestern Board or Chesapeake or the Chesapeake Board, and approval of this
proposal is not a condition to completion of the Merger and is a vote separate
and apart from the vote to approve the Merger Proposal. Accordingly, a
Southwestern shareholder may vote to approve the Advisory Southwestern
Compensation Proposal and vote not to approve the Merger Proposal, and vice
versa. Because the executive compensation to be paid in connection with the
Merger is based on the terms of the Merger Agreement as well as the
contractual arrangements with Southwestern's named executive officers, such
compensation will be payable, regardless of the outcome of this advisory vote,
only if the Merger Proposal is approved (subject only to the contractual
conditions applicable thereto). However, Southwestern seeks the support of its
shareholders and believes that shareholder support is appropriate because
Southwestern has a comprehensive executive compensation program designed to
link the compensation of the executives of Southwestern with Southwestern's
performance and the interests of Southwestern shareholders.
Accordingly, Southwestern shareholders are being asked to vote on the
following resolution:
RESOLVED, that the shareholders of Southwestern Energy Company approve, on an
advisory, non-binding basis, certain compensation that may be paid or become
payable to the named executive officers of Southwestern Energy Company that is
based on or otherwise relates to the Merger, as disclosed pursuant to Item
402(t) of Regulation S-K under the heading "The Merger - Interests of Certain
Southwestern Directors and Executive Officers in the Merger - Quantification
of Potential Payments and Benefits to Southwestern's Named Executive
Officers," in the proxy statement/prospectus of Southwestern Energy Company
with respect to the special meeting of shareholders to be held on June 18,
2024.
Required Vote of Shareholders
The Southwestern Board unanimously recommends that Southwestern shareholders
vote "
FOR
" the Advisory Southwestern Compensation Proposal.
Approval of the Advisory Southwestern Compensation Proposal requires the
affirmative vote of holders of a majority of the outstanding Southwestern
Common Stock cast at the Southwestern Special Meeting. A failure to vote, a
broker non-vote or an abstention will have no effect on the Advisory
Southwestern Compensation Proposal. Virtual attendance at the special meeting
constitutes presence in person for purposes of the vote required.
THE SOUTHWESTERN BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ADVISORY
SOUTHWESTERN COMPENSATION PROPOSAL.
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SOUTHWESTERN PROPOSAL 3 - SOUTHWESTERN ADJOURNMENT PROPOSAL
The Southwestern Special Meeting may be adjourned to another time and place,
including, if necessary to permit solicitation of additional proxies if there
are not sufficient votes to approve the Merger Proposal or to ensure that any
supplement or amendment to this joint proxy statement/prospectus is timely
provided to Southwestern shareholders.
Southwestern is asking its shareholders to authorize the holder of any proxy
solicited by the Southwestern Board to vote in favor of any adjournment of the
Southwestern Special Meeting to solicit additional proxies if there are not
sufficient votes to approve the Merger Proposal or to ensure that any
supplement or amendment to this joint proxy statement/prospectus is timely
provided to Southwestern shareholders.
Required Vote of Shareholders
The Southwestern Board accordingly unanimously recommends that Southwestern
shareholders vote "
FOR
" the Southwestern Adjournment Proposal, if necessary.
The vote on the Southwestern Adjournment Proposal is a vote separate and apart
from the vote to approve the Merger Proposal and the Advisory Southwestern
Compensation Proposal. Accordingly, a Southwestern shareholder may vote to
approve the Merger Proposal and vote not to approve the Southwestern
Adjournment Proposal or the Advisory Southwestern Compensation Proposal, and
vice versa.
Whether or not a quorum is present, approval of the Southwestern Adjournment
Proposal requires the affirmative vote of holders of a majority of the
outstanding shares of Southwestern Common Stock cast at the Southwestern
Special Meeting. Virtual attendance at the Southwestern Special Meeting
constitutes presence in person for purposes of the vote required.
Regardless of whether there is a quorum, the presiding officer of the
Southwestern Special Meeting or the chair of the Southwestern Board may also
adjourn the Southwestern Special Meeting. Southwestern does not intend to call
a vote on the Southwestern Adjournment Proposal if the Stock Issuance Proposal
is approved at the Southwestern Special Meeting.
THE SOUTHWESTERN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE SOUTHWESTERN ADJOURNMENT PROPOSAL.
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THE MERGER
The following discussion contains certain information about the proposed
Merger. This discussion is subject, and qualified in its entirety by
reference, to the Merger Agreement attached as
Annex A
to this joint proxy statement/prospectus. You are urged to carefully read this
entire joint proxy statement/prospectus, including the Merger Agreement,
before making any investment or voting decision.
Structure of the Merger
Pursuant to the Merger Agreement, at the Effective Time, Merger Sub Inc will
merge with and into Southwestern; the separate existence of Merger Sub Inc
will cease, and Southwestern will continue as the Surviving Corporation in the
Merger as a wholly owned subsidiary of Chesapeake. Following the Merger,
Southwestern Common Stock will be delisted from the NYSE, will be deregistered
under the Exchange Act and will cease to be publicly traded.
Immediately following the Effective Time, the Surviving Corporation will be
merged with and into Merger Sub LLC, with Merger Sub LLC continuing as the
surviving entity and as a wholly owned subsidiary of Chesapeake (together with
the Merger, the "Integrated Mergers").
Background of the Merger
The terms of the Merger Agreement are the result of arm's-length negotiations
between representatives of Southwestern and Chesapeake. The following is a
summary of the material events leading up to the signing of the Merger
Agreement and the key meetings, negotiations, discussions and actions by and
between Southwestern and Chesapeake and their respective advisors that
preceded the public announcement of the transaction; it does not purport to
catalogue every conversation or interaction among representatives of
Southwestern, Chesapeake and other parties.
Following Chesapeake's completion of its restructuring process and emergence
from Chapter 11 bankruptcy in February 2021, Chesapeake focused on
strengthening its balance sheet, reducing costs and optimizing its assets in
order to maximize shareholder value and prioritize return of capital to
shareholders. In that time, the Chesapeake Board and the executive management
team regularly evaluates Chesapeake's operations and strategic goals with a
focus on creating long-term shareholder value. In connection with such
evaluations, the Chesapeake Board and management periodically reviews and
assesses potential strategic transactions, including business combinations and
other acquisitions and divestitures, and has at times engaged in preliminary
discussions with third parties in the upstream E&P industry.
As part of Southwestern's ongoing strategic planning process, the Southwestern
Board, together with its executive management team, regularly reviews and
assesses Southwestern's long-term strategic plans and goals, opportunities,
overall industry trends and peer set, the competitive environment in which
Southwestern operates and Southwestern's short and long-term performance. As
part of these reviews, the Southwestern Board, with the assistance of the
executive management team and Southwestern's advisors, considers whether
various strategic actions, including business combination transactions, would
be in the best interests of Southwestern and would enhance value for
Southwestern shareholders relative to its standalone value potential. As part
of these assessments, from time to time, the Southwestern Board had instructed
Southwestern management to contact potential financial and strategic
counterparties, including Chesapeake in 2022 and 2023 as discussed below.
On May 5, 2022, the chief executive officer of Southwestern, Bill Way, had a
telephone call with the Chair of the Chesapeake Board, Michael A. Wichterich,
to discuss industry consolidation, during which a potential business
combination between Chesapeake and Southwestern was discussed. The discussions
in May 2022 were preliminary in nature and no potential transaction terms were
discussed or proposed by either party.
On May 13, 2022, members of Southwestern's executive management team,
including Chris Lacy, Senior Vice President & General Counsel, contacted
Kirkland & Ellis LLP ("Kirkland") to discuss the engagement of Kirkland on a
potential strategic transaction involving Chesapeake.
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On May 18, 2022, Chesapeake received an unsolicited non-binding proposal
regarding a potential business combination with a public upstream company
("Company X"). The Chesapeake Board, together with Wachtell and Chesapeake's
financial advisors, reviewed the proposal and following deliberation,
including a meeting with the Company X CEO, concluded that the proposal was
not in the best interest of Chesapeake's shareholders, based on a number of
factors including that the proposed consideration undervalued Chesapeake's
intrinsic value, macro-economic conditions and commodity prices, and the fact
that a combination with Company X was not consistent with the Chesapeake
Board's strategic priorities for Chesapeake at the time.
On May 19, 2022, at a regularly scheduled meeting of the Southwestern Board,
members of Southwestern's executive management team (including Mr. Way,
Executive Vice President & Chief Financial Officer Carl Giesler, Executive
Vice President & Chief Operating Officer Clay Carrell, and Mr. Lacy) and the
Board discussed various strategic alternatives, including a potential business
combination with Chesapeake.
Following the May 19, 2022 Southwestern Board meeting, members of
Southwestern's executive management team, including Carl Giesler contacted
representatives of Goldman Sachs & Co. LLC. ("Goldman") to discuss the
engagement of Goldman on a potential strategic transaction. Members of
Southwestern's executive management team also contacted RBC Capital Markets,
LLC ("RBCCM"), and Southwestern subsequently engaged RBCCM to act as a
financial advisor to Southwestern in connection with a potential strategic
transaction. Southwestern's executive management team valued RBCCM's fluency
with industry sector dynamics and technical analytical capability.
On May 27, 2022, at a special meeting of the Southwestern Board, members of
Southwestern's executive management team, including Messrs. Way, Giesler,
Carrell, and Lacy, with the assistance of representatives of Goldman,
presented to the Southwestern Board a strategic framework for evaluating
potential business combinations, including a potential business combination
with Chesapeake and other potential strategic alternatives.
In June 2022, Mr. Way called the chief executive officer of Chesapeake,
Domenic J. Dell'Osso, Jr. and requested an in-person introductory meeting.
On August 10 and 11, 2022, during regularly scheduled Chesapeake Board
meetings, the Chesapeake Board discussed with Mr. Dell'Osso, Executive Vice
President and Chief Financial Officer Mohit Singh, Vice President - Investor
Relations & Treasurer Chris Ayres, Executive Vice President and Chief
Operating Officer Josh J. Viets and Vice President - Corporate & Strategic
Planning Kajsa Greenhoward and representatives from Evercore the merits of
various potential strategic acquisitions, including a combination with
Southwestern.
On August 22, 2022, Mr. Dell'Osso called Mr. Way and requested an "in-person"
meeting to get to know each other.
On September 12, 2022, Messrs. Way and Dell'Osso met for dinner in Oklahoma
City, Oklahoma. During this meeting, Messrs. Way and Dell'Osso discussed
various topics, including industry consolidation and, at a high level, a
potential business combination. Such discussions were preliminary in nature
and no potential transaction terms were discussed or proposed by either party.
Messrs. Way and Dell'Osso spoke again on September 28, 2022, but again, no
potential transaction terms were discussed or proposed by either party.
In September 2022 and in connection with Southwestern's evaluation of
potential strategic alternatives, including a potential transaction with
Chesapeake, at the direction of the Southwestern Board, members of
Southwestern's executive management team, including Messrs. Way, Carrell,
Giesler, and Lacy, discussed with representatives of Goldman, RBCCM and
Kirkland a potential transaction, including (i) next steps if Chesapeake and
Southwestern were to pursue a negotiated transaction, including entering into
a mutual non-disclosure agreement, (ii) potential hostile approaches
Chesapeake might take, and (iii) potential defenses to a hostile transaction
that Southwestern might employ.
Also in September 2022, RBCCM provided the Southwestern Board with certain
information regarding RBCCM's material investment banking relationships with
Southwestern and Chesapeake during the prior two-year period and Southwestern
entered into a customary indemnity letter with RBCCM in advance of its
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formal engagement and participation in discussions relating to a transaction
with Chesapeake. Southwestern requested and received a similar material
relationships disclosure from representatives of Goldman.
On October 18, 2022, Chesapeake's general counsel, Benjamin E. Russ, contacted
Latham & Watkins LLP ("Latham") to discuss the engagement of Latham on a
potential strategic transaction with Southwestern.
On or about October 18, 2022, the Chair of the Southwestern Board, Catherine
A. Kehr, received a telephone call from Mr. Wichterich during which Mr.
Wichterich expressed a desire to meet in order to get to know one another.
Throughout October 2022, Southwestern continued to engage with representatives
of Goldman, RBCCM and Kirkland to discuss potential strategic alternatives,
including at a regularly scheduled meeting of the Southwestern Board, held on
October 24 and 25, 2022, which representatives of Goldman and RBCCM attended
telephonically. At such meeting, after a discussion of the merits and
considerations for a potential business combination with Chesapeake or
potential alternative transactions, the Southwestern Board noted that engaging
in discussion with Chesapeake regarding a potential combination did not appear
warranted at that time, but requested additional information regarding such
potential business combination for further consideration.
On or about October 27, 2022, Ms. Kehr called Mr. Wichterich and conveyed that
meeting in person at this time was not warranted.
On November 9 and 10, 2022, during regularly scheduled meetings of the
Chesapeake Board, the Chesapeake Board discussed potential strategic
transactions, including a combination with Southwestern, with Messrs.
Dell'Osso, Singh, Ayres, and Viets and Ms. Greenhoward, and representatives
from Evercore and Wachtell. Representatives from Evercore provided an overview
of the elements of acquisitions that have the potential to accelerate improved
valuations, including: (i) enhancing free cash flow and return of capital;
(ii) greater scale; (iii) extending high quality inventory runway; and (iv)
expanding the shareholder base by reducing concentrated equity ownership.
Questions were asked and addressed by management, Evercore and Wachtell.
On November 18, 2022, a special meeting of the Southwestern Board, was held
with representatives of Kirkland, Goldman and RBCCM in attendance. At this
meeting, Goldman and RBCCM discussed with the Southwestern Board certain
financial matters relating to Southwestern and a potential transaction with
Chesapeake. Also at such meeting, representatives of Kirkland reviewed with
the Southwestern Board its fiduciary duties in connection with potential
strategic alternatives and M&A transactions, rules of the road for M&A
decision-making and potential hostile approaches and defenses. At such
meeting, the Board determined that, given the current market conditions,
including commodity pricing and other similar economic data, a potential
transaction would likely be more favorable for Southwestern's shareholders in
the future and as commodity prices improved. At such special meeting, the
Southwestern Board determined that continued discussions with Chesapeake were
not warranted at the time.
After the meeting of the Southwestern Board on November 18, 2022, no further
discussions occurred between Southwestern and Chesapeake regarding a potential
business combination until the discussions in late January 2023 described
below.
On January 31, 2023, Messrs. Singh and Giesler, met at Southwestern's offices
in Houston to discuss various matters related to being the CFO of a public
company, but did not discuss anything specifically related to the transaction.
On March 2 and 3, 2023, during regularly scheduled meetings of the Chesapeake
Board, the Chesapeake Board discussed the merits of various strategic
transactions with executive management. Messrs. Dell'Osso, Singh, Ayres, and
Viets, and Ms. Greenhoward provided to the Chesapeake Board its view of
factors to be considered in evaluating potential acquisitions, including the
relevant assets (including location, acreage, scale, oil/gas mix, inventory
quality and duration, SEC reserves, gross undeveloped acres, net production,
type curves, rig and well count, gathering systems/infrastructure, supply
chain synergies/marketing optimization, and saltwater disposal systems) and
financial and operating metrics (including net debt, debt adjusted and
unhedged EBITDAX, current/projected free cash flow, common stock price/cash
flow per share, operating synergies, potential application of technical
expertise to a larger development program, leveraging
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of water infrastructure, synergies and hedging). Discussion ensued in which
questions were asked and answered by management, including regarding relative
valuations, accretion, increasing cash flow, scale, change of control and
other deal considerations.
On March 10, 2023, following a discussion between Ms. Kehr and Mr. Wichterich,
Chesapeake delivered to Southwestern an unsolicited non-binding proposal with
respect to a potential negotiated business combination between Southwestern
and Chesapeake (the "March 10 Letter"). The March 10 Letter contemplated
Chesapeake acquiring all of the issued and outstanding equity of Southwestern
in a stock-for-stock transaction at an exchange ratio of 0.0662x, implying a
value per Southwestern share of $5.07, which represented approximately a 34%
pro forma ownership in the combined company by Southwestern's shareholders.
The proposal letter was preliminary and non-binding and noted, among other
things, that Chesapeake's proposal was based on publicly available information
and was subject to the completion of customary and confirmatory due diligence.
The letter expressed an interest in discussions regarding a potential business
combination between Southwestern and Chesapeake, citing Chesapeake's belief
that the business combination would present substantial benefits to all
stakeholders due to increased scale, greater trading liquidity, lower cost of
capital, and material synergies, requested that Southwestern provide
additional non-public information to Chesapeake and advised that Chesapeake
had engaged legal and financial advisors. Ms. Kehr confirmed receipt of the
March 10 Letter by way of email to Mr. Wichterich.
Upon receipt of the March 10 Letter, executive management of Southwestern,
including Messrs. Way, Carrell, Giesler and Lacy, and the Chair of the
Southwestern Board, Ms. Kehr, with the assistance of representatives of
Goldman, reviewed Chesapeake's proposal. Between March 10, 2023 and March 22,
2023, executive management of Southwestern, including Messrs. Way, Carrell,
Giesler and Lacy, and representatives of Goldman engaged in a number of
internal discussions regarding the proposal, certain preliminary financial
analyses in respect thereof and prospective next steps.
On March 22, 2023, a special meeting of the Southwestern Board was held with
all members other than Shameek Konar (who was not appointed to the
Southwestern Board until June 1, 2023) present with representatives of
Kirkland, Goldman and Joele Frank in attendance. At the request of the
Southwestern Board, representatives of Goldman reviewed the contents of the
March 10 Letter, which, among other things, generally outlined Chesapeake's
view of the merits and structure of the transaction. Representatives of
Goldman and Southwestern's executive management team, including Messrs. Way,
Carrell, Giesler and Lacy, then reviewed preliminary financial analyses of
Southwestern and of a proposed business combination transaction with
Chesapeake, including, among other things, financial metrics, stock price
performance, trading multiples for Southwestern and Chesapeake and the upsides
of Southwestern and Chesapeake's stock prices at different natural gas prices.
The Southwestern Board reviewed materials provided by Southwestern's executive
management and Goldman that contained updates to the financial metrics the
Southwestern Board last considered, together with illustrative financial
summary information reflecting pro forma financial analysis and other analyses
calculated on the basis of various potential commodity pricing scenarios. The
Southwestern Board also discussed Southwestern's prospects on a stand-alone
basis of being included in the S&P 500 and receiving an investment grade
credit rating and the expected impact of inclusion in the S&P 500 index and an
investment grade credit rating. With the assistance of Goldman, RBCCM and
Kirkland and members of Southwestern's executive management team, the
Southwestern Board noted that while Southwestern was progressing along the
path to being rated as investment grade, such a rating had likely been delayed
due to the recent decline in commodity prices and that being included in the
S&P 500 likely would require greater scale than that of Southwestern
standalone. At the request of the Southwestern Board, representatives of
Goldman also identified for the Southwestern Board and led a discussion of
certain potential strategic alternatives for Southwestern. Representatives of
Joele Frank also discussed with the Board a potential response plan in the
event the subject matter of the March 10 Letter was publicly disclosed. After
discussion, the Southwestern Board instructed Southwestern's executive
management team to prepare, with the assistance of Goldman, RBCCM and
Kirkland, a response to the March 10 Letter stating that the consideration
(including the pro forma ownership implied by the proposed exchange ratio) for
Southwestern's shareholders described in the March 10 Letter was insufficient.
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On March 29, 2023, at the direction of the Southwestern Board, Ms. Kehr
delivered Southwestern's written response to the March 10 Letter stating that
the consideration (including the pro forma ownership implied by the proposed
exchange ratio) for Southwestern's shareholders was insufficient to warrant
further engagement at such time.
On March 30, 2023, Mr. Wichterich contacted Ms. Kehr asking to discuss
Southwestern's response of March 29, 2023.
On March 31, 2023, consistent with prior discussions and the prior
authorization of the Southwestern Board, Ms. Kehr responded to Mr. Wichterich
that the consideration (including the pro forma ownership implied by the
proposed exchange ratio) for Southwestern's shareholders in the March 10
Letter was insufficient and that while the insufficiency of such proposed pro
forma ownership was not Southwestern's only concern with Chesapeake's proposal
included in the March 10 Letter, it was a fundamental one. Ms. Kehr noted that
until the parties were more closely aligned on valuation, the Southwestern
Board was not interested in discussing a potential transaction.
On April 3, 2023, Southwestern received a second unsolicited proposal letter
(the "April 3 Letter") from Chesapeake. The April 3 Letter contemplated
Chesapeake acquiring all of the outstanding equity of Southwestern in a
stock-for-stock transaction at an exchange ratio of 0.0718x, implying a value
per Southwestern share of $5.46 based on the prior close, representing a 10%
premium to the 10-day VWAP exchange ratio of Southwestern's and Chesaepeake's
stock price at the time, and representing approximately a 36% pro forma
ownership in the combined company by Southwestern's shareholders. The letter
reiterated Chesapeake's belief that the business combination would present
substantial benefits to all stakeholders from increased scale, greater trading
liquidity, lower cost of capital, and material expected potential synergies,
and requested an in-person meeting between representatives of Chesapeake and
representatives of Southwestern.
In early April 2023, Southwestern entered into a customary indemnity letter
with Goldman in advance of its formal engagement and ongoing participation in
discussions relating to a transaction with Chesapeake.
On April 10, 2023, a special meeting of the Southwestern Board, with all
members other than Mr. Konar present, was held, with representatives of
Kirkland and Goldman in attendance. At the request of the Southwestern Board,
representatives of Goldman reviewed the updated proposal contained in the
April 3 Letter, which, among other things, provided details regarding
Chesapeake's view of the merits and structure of the transaction.
Representatives of Goldman then reviewed Goldman's and Southwestern's
executive management's, including Messrs. Way, Carrell, Giesler, and Lacy,
preliminary financial analyses of Southwestern and of a proposed business
combination transaction with Chesapeake. After discussion, the Southwestern
Board determined that the consideration described in the April 3 Letter to be
given to Southwestern's shareholders was still insufficient but that
additional information and internal discussion regarding valuation and other
considerations was warranted before determining the appropriate response to
the April 3 Letter. The Southwestern Board determined to have another meeting
prior to responding to the April 3 Letter.
On April 14, 2023, Mr. Wichterich contacted Ms. Kehr asking to discuss the
proposal contained in the April 3 Letter. Later on April 14, 2023, consistent
with prior discussions and the prior authorization of the Southwestern Board,
Ms. Kehr responded that Southwestern continued to discuss the proposal and a
response would be forthcoming.
On April 20, 2023, representatives of Goldman provided Southwestern with
customary relationship disclosures regarding Goldman's relationships with
Southwestern, Chesapeake and their respective affiliates.
On April 21, 2023, a special meeting of the Southwestern Board with all
members other than Mr. Konar present was held, with representatives of
Goldman, RBCCM and Kirkland in attendance. At such meeting, members of the
executive management of Southwestern, including Messrs. Way, Carrell, Giesler,
and Lacy, and Goldman, RBCCM and Kirkland reviewed with the Southwestern Board
the updated proposal contained in the April 3 Letter and Southwestern's
standalone plan. The Southwestern Board additionally discussed the merits of
an all-stock transaction as compared to consideration consisting of both stock
and cash and certain preliminary financial aspects of, and potential timing
for, a combination in light of market conditions. Following the discussion,
the Southwestern Board determined the appropriate written
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response to the April 3 Letter was one that noted the proposed consideration
was still insufficient, which, following the meeting, members of the executive
management of Southwestern circulated to the Southwestern Board.
On April 22, 2023, in accordance with the Southwestern Board's prior
authorization, Ms. Kehr and executive management of Southwestern sent
Chesapeake a written response to the April 3 Letter via email, which response
stated that the proposed pro forma ownership was still insufficient for the
shareholders of Southwestern.
Also on April 22, 2023, Ms. Kehr, at the direction of the Southwestern Board,
had a discussion with Mr. Wichterich during which she reiterated that the pro
forma ownership offered was insufficient, and that the Southwestern Board
would additionally need to understand Chesapeake's intentions regarding
governance and organization of the combined entity.
On April 23, 2023, Southwestern received an additional unsolicited updated
proposal letter from Chesapeake (the "April 23 Letter") substantially
unchanged from the April 3 Letter. The consideration proposed in the April 23
Letter was unchanged in that it contemplated Chesapeake acquiring all of the
outstanding equity of Southwestern in a stock-for-stock transaction at an
exchange ratio of 0.0718x and an implied ownership in the pro forma combined
company that was unchanged from the April 3 Letter.
On April 25, 2023, a regularly scheduled meeting of the Southwestern Board was
held, with representatives of Kirkland and Goldman in attendance. At the
request of the Southwestern Board, representatives of Goldman and members of
the executive management of Southwestern reviewed with the Southwestern Board
the proposal contained in the April 23 Letter and Southwestern's standalone
plan in light of stock prices over the past several weeks, given that the
consideration proposed was unchanged. Members of executive management
discussed with the Southwestern Board potential responses for the Southwestern
Board's consideration. Following discussion, the Southwestern Board declined
to engage on the terms proposed in the April 23 Letter, noting the importance
of pro forma ownership of the combined company for Southwestern's shareholders
and that the ownership implied by the proposed exchange ratio for
Southwestern's shareholders remained insufficient.
Later in the day on April 25, 2023, Ms. Kehr circulated to Mr. Wichterich the
Southwestern Board's response to the April 23 Letter, which conveyed that the
ownership implied by the proposed exchange ratio for Southwestern's
shareholders remained insufficient and the proposal did not contain any
details regarding governance and organization of the combined company. In the
cover email attaching the April 23 Letter, Ms. Kehr offered a meeting among
herself, Messrs. Way, Wichterich, and Dell'Osso.
On May 5, 2023, a teleconference call occurred between Mr. Way and Ms. Kehr of
Southwestern on the one hand, and Messrs. Dell'Osso and Wichterich of
Chesapeake on the other hand, in respect of a potential transaction. During
such discussions, the representatives from Chesapeake discussed their view of
the merits of a potential combination. Following the discussion, both sides
agreed there was a gap in valuation that could not be bridged at that time.
On May 11, 2023, BofA Securities, Inc. ("BofA Securities"), at the direction
of Southwestern, met with the executive management team of a potential
counterparty ("Company A") in order to discuss a potential strategic
transaction. On May 16, 2023, Company A relayed to BofA Securities that it
recognized the potential merits of a strategic transaction and that it would
undertake a further review.
On May 24, 2023, Mr. Dell'Osso contacted Mr. Way to propose meeting in person
in Houston to discuss further the merits of a potential transaction. As part
of such discussion, Mr. Way, consistent with the prior authorization of the
Southwestern Board, affirmed that Southwestern's position on value and pro
forma ownership had not changed and that if Chesapeake's position also had not
changed, an in-person meeting was premature.
After the discussions in late May 2023, no further discussions occurred
between Southwestern and Chesapeake regarding a potential business combination
until the discussions in August 2023 described below.
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In July 2023, as part of Southwestern's ongoing strategic planning process,
the Southwestern Board discussed with Southwestern's executive management
team, Goldman and RBCCM certain strategic alternatives, including a potential
acquisition of, or combination with, a second potential counterparty ("Company
B").
At a regularly scheduled meeting of the Southwestern Board on August 1, 2023,
at which all members were present, Mr. Way provided an update regarding the
potential business combination with Chesapeake, noting that there had been no
further discussion with Chesapeake since May 2023, and discussed the relative
financial performance of Southwestern and Chesapeake. Mr. Way also discussed a
potential strategic transaction with Company B, noting that Southwestern and
Company B had executed a confidentiality agreement. The Board noted that any
potential transaction with Company B would have to be evaluated in connection
with a review of strategic alternatives, including a potential transaction
with Chesapeake.
On August 7, 2023, certain members of the executive management of
Southwestern, including Messrs. Way and Giesler, and certain members of the
executive management of Company B met in person in order to discuss a
potential strategic transaction with Company B.
On August 16 and 17, 2023, at a regularly scheduled meeting of the Chesapeake
Board, Chesapeake management provided the Chesapeake Board with an overview
and update on potential strategic transactions, including the potential merger
with Southwestern, during which questions were asked and addressed by Messrs.
Dell'Osso, Singh, Viets, Ayres, and Director - Business Development A&D Derek
Dixon and Ms. Greenhoward.
On August 21, 2023, Southwestern received a fourth unsolicited proposal letter
from Chesapeake (the "August 21 Letter"). In this proposal letter, Chesapeake
noted that it recently had signed a definitive agreement in respect of its
divestiture of certain "Eagle Ford" assets and stated that Chesapeake would
like to reopen the previous discussions regarding a potential business
combination transaction with Southwestern. The August 21 Letter proposed,
among other things, an exchange ratio of 0.0833x, implying a value per
Southwestern share of $7.16 based on the prior day's close, representing a 10%
premium to the 20-day VWAP exchange ratio of Southwestern's and Chesapeake's
stock price at that time, and which represented approximately a 39% pro forma
ownership in the combined company by Southwestern's shareholders. Chesapeake
also requested access to non-public information regarding Southwestern.
On August 29, 2023, a special meeting of the Southwestern Board was held at
which all members were present, with representatives of Goldman, RBCCM and
Kirkland in attendance. At such meeting, the Southwestern Board discussed with
members of Southwestern's executive management, including Messrs. Way,
Carrell, Giesler, and Lacy, and Senior Vice President Marketing, Transportation
& Commercial Dennis Price, and Senior Vice President & Chief Human Resources
Officer Carina Gillenwater, and representatives of Goldman, RBCCM and
Kirkland, the updated proposal contained in the August 21 Letter, including in
comparison to proposals contained in the unsolicited March 10 Letter, the
April 3 Letter and the April 23 Letter and Southwestern's preliminary
financial performance based on Southwestern management's forecasts. The
Southwestern Board also discussed with members of Southwestern's executive
management and representatives of Goldman, RBCCM and Kirkland potential
responses to the August 21 Letter. Following discussion, the Southwestern
Board determined to respond (which it later did by letter on August 30, 2023)
to Chesapeake stating that while the proposed pro forma ownership remained
insufficient, Southwestern would be open to meeting with representatives of
Chesapeake and providing certain non-public information to Chesapeake on a
confidential basis, subject to the parties' execution of a customary
non-disclosure agreement. At such meeting, the Southwestern Board also
directed the executive management of Southwestern to continue to consider
other strategic alternatives, including the potential acquisition of or
combination with Company B.
Subsequently, in September 2023 and October 2023, members of Southwestern
management, including Messrs. Way and Carrell, and members of management of
Company B held several telephonic meetings and, on September 9, 2023 and
September 22, 2023, in-person meetings to discuss a potential transaction, but
these discussions were preliminary in nature and no potential financial
transaction terms were discussed or proposed by either party.
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Between August 29, 2023 and September 10, 2023, Messrs. Way and Dell'Osso
engaged in a series of discussions, including in respect of scheduling a
potential in-person meeting between certain representatives of each of
Chesapeake and Southwestern. In connection with such discussions, Mr. Way
noted that executing a mutual confidentiality agreement was a condition to
such in-person meeting. Mr. Way also explained that the Southwestern Board
believed that the proposed merger consideration and pro forma ownership
reflected in the August 21 Letter was too low but, with this understanding,
Southwestern was open to exchanging non-public information if Chesapeake had
interest in continuing good faith discussions towards a higher pro forma
ownership for Southwestern shareholders. Mr. Dell'Osso acknowledged that
exchanging non-public information and conducting additional mutual due
diligence would assist Chesapeake in determining if it could increase its
proposed exchange ratio.
On September 11, 2023, Southwestern requested that Chesapeake execute a mutual
confidentiality agreement to allow further discussion between the parties. The
draft confidentiality agreement sent by Mr. Lacy of Southwestern to Mr. Russ
of Chesapeake included customary non-disclosure and use provisions for a
period of 18 months and a standstill provision (which would terminate upon the
occurrence of certain specified events) that prohibited each party, for the
duration of the standstill period of 12 months, from offering to acquire or
acquiring the other party, and from taking certain other actions, including
soliciting proxies and making any request to amend, waive or terminate the
standstill provision, in each case, without the prior consent of the other
party.
On September 14, 2023, Chesapeake sent a revised draft of a proposed mutual
confidentiality agreement to Southwestern, which confidentiality agreement
proposed a 12-month term and a six-month standstill provision.
On September 15, 2023, Chesapeake and Southwestern executed the mutual
confidentiality agreement, which included a 12-month term and a six-month
standstill.
On September 19, 2023, certain members of the executive management of
Southwestern, including Messrs. Way, Giesler, and Carrell, and Marshall and
Messrs. Dell'Osso, Singh, and Viets of Chesapeake, met in Dallas, Texas to
conduct initial mutual business, operational and financial due diligence and
to discuss, among other things, the merits of, and certain potential synergies
and benefits relating to, a business combination between Southwestern and
Chesapeake. At the meeting, members of the executive management of
Southwestern, consistent with prior messaging, indicated that the Southwestern
Board still considered the offered pro forma ownership insufficient, and that
they expected an increase would be warranted following the parties'
discussions and Chesapeake's access to certain confidential information
regarding Southwestern.
Also in mid-September 2023, Mr. Dell'Osso met in person with the CEO of a
potential strategic counterparty ("Company Y"). Subsequently, Chesapeake and
Company Y entered into a customary confidentiality agreement, and Company Y
provided preliminary operational due diligence. The discussions between
Chesapeake and Company Y were high level and preliminary in nature, and no
potential transaction terms were discussed or proposed by either party.
On September 20, 2023, certain members of the executive management of
Southwestern, including Messrs. Way, Carrell, and Giesler, and representatives
of Wells Fargo Securities, LLC ("Wells Fargo") attended a management
presentation regarding a potential strategic transaction with a third
potential counterparty ("Company C") and received access to certain
confidential information regarding Company C and its business.
On September 21, 2023, Southwestern provided access to certain confidential
information regarding Southwestern and its business in a virtual data room
accessible to certain employees and representatives of Chesapeake.
On September 26, 2023, a special meeting of the Southwestern Board was held
with all members other than Mr. Konar present, with representatives of
Goldman, RBCCM, and Kirkland in attendance to discuss progress on a
transaction with Chesapeake, the recent in-person meetings and changes in
market conditions. After discussion, the Southwestern Board determined that
the proposed exchange ratio and pro forma ownership offered by Chesapeake was
insufficient, but that continued discussions with Chesapeake, including on key
governance-related matters, were warranted.
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On September 28, 2023, representatives of Southwestern, including Corporate
Development Director and GM Adam Esparza, Kirk Sisco, and Josh Williams,
attended a telephonic meeting in connection with a potential strategic
transaction with Company C, during which the attendees discussed the marketing
and operations of Company C and potential strategic rationales for a
transaction.
On October 9, 2023, a special meeting of the Chesapeake Board was held, with
representatives of Evercore, Latham and Wachtell in attendance. During the
meeting, the Chesapeake Board discussed the status of the proposed transaction
and the various offers made to Southwestern over the prior months. Messrs.
Dell'Osso, Singh, Viets, Ayres, and Dixon, and Ms. Greenhoward also provided
the Chesapeake Board an update on the status of operational and financial due
diligence, and together with representatives from Evercore, management
discussed anticipated operational and other synergies expected in a merger
transaction. Evercore presented the Chesapeake Board with certain preliminary
financial analyses. Messrs. Singh, and Ayres, and Ms. Greenhoward also
discussed Southwestern's existing indebtedness and the impact of a potential
combination on Southwestern's existing senior notes.
On October 10, 2023, Mr. Dell'Osso called Mr. Way to discuss the potential
business combination, including that Chesapeake was open to increasing its
offered exchange ratio from 0.0833x to 0.0851x, implying a value per
Southwestern share of $7.58 based on the prior day's close, representing an
15% premium to the 10-day VWAP exchange ratio of Southwestern's and
Chesapeake's stock price at that time, and which represented an approximately
a 39% pro forma ownership in the combined company by Southwestern's
shareholders. Mr. Dell'Osso continued to express a belief that the proposed
business combination would be beneficial to both Southwestern and Chesapeake
and their respective stakeholders and relayed that Chesapeake's objectives in
a potential business combination included (a) creating a larger and more
diversified combined company with (b) an improved credit profile, including a
potential investment grade rating, (c) expanded trading liquidity, including
potential S&P 500 indexation, (d) significant operational and other synergies
and (e) increased, sustainable cash flow for optimized capital allocation. Mr.
Way acknowledged the incremental increase in the offered pro forma ownership
and noted the Southwestern Board would review and discuss.
On October 11, 2023, a special meeting of the Southwestern Board was held with
all members present, with representatives of Goldman, RBCCM and Kirkland in
attendance. At the request of the Southwestern Board Kirkland reviewed the
Southwestern Board's fiduciary duties in connection with a potential business
combination transaction and certain potential next steps if the Southwestern
Board determined to continue to pursue a transaction, including legal and
operational due diligence, potential transaction structures and the review of
certain non-public information relating to Chesapeake. Also, Mr. Way discussed
with the Southwestern Board the call, authorized by the Southwestern Board,
that he had with Mr. Dell'Osso the previous day and other recent market
occurrences, including the recent announcement of the contemplated
Exxon-Pioneer combination. Members of the executive management of
Southwestern, including Messrs. Way, Carrell, Giesler, Lacy and Price and Ms.
Gillenwater, along with representatives of Goldman and RBCCM, discussed with
the Southwestern Board certain preliminary financial matters relating to
Southwestern and the proposed transaction, including the increased pro forma
ownership and potential synergies. Certain members of the executive management
of Southwestern reviewed with the Southwestern Board certain matters relating
to Southwestern's standalone plan, including, among other things, the
prospective outlook for natural gas pricing for 2023 through 2025, including
factors driving the expected outlook, Southwestern's hedging activity during
the third quarter of 2023 and its expected hedging strategy going forward.
After discussions, the Southwestern Board determined to offer a counterproposal
of an exchange ratio of 0.0900x, implying a value per Southwestern share of
$7.99 which represented a 22% premium to the 10-day VWAP exchange ratio of
Southwestern's and Chesapeake's stock price at that time and which implied an
approximately 41% pro-forma ownership in the combined company by Southwestern's
shareholders. The Southwestern Board also authorized the executive management
of Southwestern to provide certain additional non-public information requested
by Chesapeake in connection with the counterproposal and discussed certain
other strategic alternatives, including a potential transaction with Company B.
On October 12, 2023, at the direction of the Southwestern Board, Mr. Way
called Mr. Dell'Osso to relay the counterproposal and that Southwestern would
be providing certain additional information requested by Chesapeake in
connection with Chesapeake's consideration of the counterproposal.
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Throughout the remainder of October 2023 and during November 2023,
representatives of Southwestern, including Messrs. Way, Carrell, Giesler and
Lacy, and Chesapeake engaged in several discussions regarding due diligence
matters, including to provide Chesapeake with the additional non-public
information it had requested and to discuss structuring considerations.
On October 16, 2023, representatives of Southwestern, including Mr. Esparza,
and Wells Fargo attended a telephonic meeting with representatives of Company
C in connection with a potential strategic transaction with Company C. At such
meeting, Company C provided an operational and transaction process update.
On October 17, 2023, an article appeared in Reuters indicating that there were
rumors that Chesapeake was considering combining with Southwestern and quoting
certain investors in Chesapeake as supportive of such an acquisition. In the
trading day after such article appeared, the market exchange ratio of
Southwestern stock relative to Chesapeake stock increased by approximately
7.6%.
On October 21, 2023, Latham sent the first draft of the proposed Merger
Agreement to Kirkland, which proposed, among other things, (a) a transaction
structure contemplating an acquisition of Southwestern by Chesapeake by way of
reverse triangular merger, with Chesapeake as the surviving public company,
(b) no proposal regarding certain governance items, including post-closing
board and officer composition, headquarters location and other governance
matters, (c) customary representations, warranties and covenants for an
acquisition of Southwestern by Chesapeake, (d) the ability for Chesapeake to
make regular and variable cash dividends in accordance with its stated
dividend policy (which policy was subject to modification by the Chesapeake
Board), (e) limitations on Southwestern's ability to engage in (or unwind or
modify) hedging arrangements without Chesapeake's consent, (f) largely
reciprocal non-solicitation provisions that would allow either the
Southwestern Board or the Chesapeake Board, under certain circumstances, to
change its recommendation in the event of a superior proposal or intervening
event and to terminate the Merger Agreement in exchange for payment of a
to-be-agreed upon termination fee and (g) a regulatory efforts covenant with a
commercially reasonable efforts antitrust efforts standard that explicitly
limited any obligation of Chesapeake to engage in divestitures to secure
antitrust clearance along with a 12-month outside date from signing, with
automatic six-month extension if antitrust approvals are not secured.
On October 23, 2023, Mr. Dell'Osso called Mr. Way to relay that the Chesapeake
Board was continuing to consider Southwestern's counterproposal.
On October 24, 2023, a regularly scheduled meeting of the Southwestern Board
was held with all members present, with representatives of Goldman, RBCCM, and
Kirkland in attendance. At the request of the Southwestern Board, Mr. Way
discussed with the Southwestern Board the recent calls held with representatives
of Chesapeake, including Mr. Dell'Osso, and Southwestern, including Mr. Way,
the draft Merger Agreement received from Latham and various considerations
regarding a potential combination with Chesapeake, as well as Southwestern's
standalone ``longrange plan," preliminary capital budget and business plan for
2024, third-quarter results, hedging activities and reviews of other strategic
alternatives. All members of management left the meeting and the Southwestern
Board met in executive session, with representatives of Goldman, RBCCM and
Kirkland present, to further discuss various matters regarding the potential
transaction with Chesapeake, including a strategy for discussing governance
matters with Chesapeake. Representatives of Goldman, RBCCM and of Kirkland
left the meeting and Mr. Way rejoined, at which time the Southwestern Board
met in private session to discuss the various matters presented regarding the
potential transaction and determined to continue pursuing the potential
transaction with Chesapeake.
On October 25, 2023, a special meeting of the Chesapeake Board was held during
which the Chesapeake Board and executive management including Messrs.
Dell'Osso, Singh, Viets, and Russ, and Ms. Greenhoward discussed a number of
strategic considerations. The Chesapeake Board and management team discussed
the achievements Chesapeake had made since emergence from bankruptcy,
including reductions in debt, asset optimization and return of capital to
shareholders. Also discussed were macro-economic conditions and various
long-term strategies for enhancing shareholder value, as well as focusing on
becoming the premier natural gas investment for investors. The Chesapeake
Board and management discussed the merits of consolidation and potential
strategic transactions, including continued discussion of the merits of a
merger
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with Southwestern, as well as a potential combination with, or acquisition of,
several other strategic counterparties, and finally, a standalone case for
Chesapeake. Following the meeting and with the approval of the Chesapeake
Board, Messrs. Wichterich and Dell'Osso made initial contact with several
potential strategic counterparties to discuss whether they might be interested
in a strategic transaction with Chesapeake and if so, whether further
discussion would be warranted. After that initial outreach, Messrs. Wichterich
and Dell'Osso met in person and held discussions during the last week of
October and early November with representatives from several different
potential strategic counterparties, including the CEO of Company X, as well as
the CEO of another upstream company ("Company Z"), in order to gauge interest
in a potential strategic transaction with Chesapeake. The CEO of Company X
believed that a potential transaction could have merit and requested that
Chesapeake enter into a mutual confidentiality agreement in order to
facilitate the exchange of information. Chesapeake and Company X later entered
into a mutual confidentiality agreement with a threeyear term and an 18-month
standstill provision (which provision would terminate upon the occurrence of
certain specified events), and following execution, Chesapeake shared certain
limited operational information. The discussions that Chesapeake held in
October and November of 2023 with Company X and Company Z were all high-level
and preliminary in nature, and no potential transaction terms were discussed
or proposed by any party nor did any materialize.
On November 8, 2023, a regularly scheduled meeting of the Chesapeake Board was
held, with representatives of Evercore, Latham and Wachtell in attendance. The
Chesapeake Board reviewed materials provided by the management team and
Evercore that contained updates to the preliminary financial analyses and
certain metrics the Chesapeake Board reviewed at prior meetings, together with
illustrative financial summary information. During the meeting, the Chesapeake
Board, together with the management team, including Messrs. Singh and Viets
and Ms. Greenhoward and Evercore, Latham and Wachtell, discussed the status of
due diligence with Southwestern, as well as the merits of a combination.
Representatives from Latham and Wachtell also advised the Chesapeake Board
with respect to certain antitrust regulatory matters associated with a
potential merger. Following deliberation, the Chesapeake Board authorized Mr.
Dell'Osso to reach out to Mr. Way to reiterate support for a combination at
the previously offered exchange ratio and to convey that the Chesapeake Board
continued to believe that a combination between the companies would be
strategically optimal, value-enhancing and well-received by shareholders of
both sides.
On November 9, 2023, Mr. Dell'Osso called Mr. Way to relay that the Chesapeake
Board, following the analysis of additional data provided by Southwestern to
Chesapeake, was confirming Chesapeake's prior proposal of an exchange ratio of
0.0851x, which represented approximately a 39.5% pro forma ownership in the
combined company by Southwestern's shareholders as of such date.
On November 13, 2023, a special meeting of the Southwestern Board was held
with all members present, with representatives of Goldman, RBCCM and Kirkland
in attendance. At the request of the Southwestern Board, Mr. Way reviewed the
latest call received from Mr. Dell'Osso in which Chesapeake confirmed its
previous proposal but otherwise did not respond to Southwestern's
counterproposal. The Southwestern Board discussed with Southwestern's
executive management, including Messrs. Way, Carrell, Giesler, Lacy and Price
and Ms. Gillenwater, and representatives of Goldman and RBCCM various
illustrative financial metrics relating to Southwestern and Chesapeake,
assuming the Chesapeake Board determined to increase its exchange ratio
proposal. The Southwestern Board also discussed with Kirkland the Merger
Agreement and certain governance matters, including appropriate antitrust
standards. After discussion, the Southwestern Board determined to continue
progressing discussions on governance and the Merger Agreement while
simultaneously seeking a higher exchange ratio from Chesapeake.
On November 17, 2023, at the direction of the Southwestern Board, Mr. Way
called Mr. Dell'Osso to indicate that the Southwestern Board intended to
convey a revised counterproposal and outlined the revisions to Southwestern's
counterproposal, including in respect of certain governance items - among them
a request to increase the size of Chesapeake's' Board to 10 members, with four
appointed by Southwestern.
On November 21, 2023, Southwestern received a legally required notice from an
activist investor's lawyers stating that their client intended to purchase a
sizeable amount of Southwestern's common stock, which, when purchased, would
make such activist investor among Southwestern's largest shareholders.
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On November 23, 2023, at the direction of the Southwestern Board, members of
the executive management delivered the revised draft of the Merger Agreement
to Chesapeake which reflected (a) a mutual "force the vote" provision, (b)
mutual termination fees of 3.5% of Chesapeake's equity value, (c) reciprocal
representations, warranties and covenants, (d) a cap on Chesapeake's ability
to pay regularly scheduled cash dividends and (e) the ability of Southwestern
to provide, in certain instances, issuances of equity and cash incentive
compensation to employees. The revised Merger Agreement remained silent on
certain governance items, which remained subject to ongoing discussions
between the parties.
Over the course of November 27 through 30, 2023, the Chesapeake Board held
several meetings to discuss a number of strategic considerations, including
the benefits of a combination with Southwestern. During these meetings,
Messrs. Dell'Osso, Singh, Viets, Ayres, and Dixon, and Ms. Greenhoward
reported back to the Chesapeake Board on a number of open questions and
diligence items relating to the prospective Southwestern combination,
including the business model and financial projections, expected synergies
(and negative synergies), human resources and staffing matters, valuation
metrics, pro forma debt considerations and other integration matters.
Following further discussions and deliberation, the Chesapeake Board
authorized Mr. Dell'Osso to reconnect with Mr. Way and reconfirm Chesapeake's
support for a merger at the previously offered exchange ratio.
On December 1, 2023, Mr. Dell'Osso called Mr. Way and stated that Chesapeake
was not prepared to increase its prior exchange ratio proposal at that time.
However, Mr. Dell'Osso sought to continue the prior discussions regarding
value and various other issues. Consistent with the Southwestern Board's
instructions to continue to progress such negotiations, Mr. Way further
discussed with Mr. Dell'Osso such issues, including the construct for
identifying and selecting employees for the combined company, the name of the
combined company, and the role of Southwestern's corporate office for the
combined company.
On December 4, 2023, a special meeting of the Southwestern Board was held with
all members present, with representatives of Goldman, RBCCM and Kirkland in
attendance. At the request of the Southwestern Board, Mr. Way discussed his
call with Mr. Dell'Osso on December 1st. After discussions, the Southwestern
Board authorized Mr. Way to make a counterproposal to Chesapeake at an
exchange ratio of 0.0880x, which reflected a 40.2% pro forma ownership of the
combined company by Southwestern shareholders and to continue discussions and
negotiations on various other governance and operational matters, subject to
further Southwestern Board discussions and final approval by the Southwestern
Board. The Southwestern Board also directed Southwestern's executive
management, including Messrs. Way, Carrell, Giesler, Lacy, and Price, and Ms.
Gillenwater, and representatives of Goldman, RBCCM and Kirkland to progress
transaction documentation, due diligence and related workstreams.
On December 4 and 5, 2023, Messrs. Way and Dell'Osso engaged in a number of
discussions and negotiations regarding various governance items, including,
among others, the number and composition of the post-closing combined company
board and executive officers, whether the combined company would have a new
name and ticker symbol, where the headquarters of the combined company would
be located and whether the combined company would have a non-executive
chairman, with Southwestern proposing, as authorized by the Southwestern Board
at the December 4, 2023 meeting, (a) a new name and ticker symbol, (b)
headquarters or a substantial presence in Houston, (c) a construct for
staffing the combined company based on the best person for the job as
determined by Messrs. Way and Dell'Osso acting together and (d) that 4 of 11
directors on the combined company board would nominated by Southwestern. On
such calls, Mr. Way reiterated that the Southwestern Board was proposing an
exchange ratio of 0.0880x.
On December 6, 2023, Southwestern received a letter from an activist investor
noting that it held over $100 million of Southwestern's common stock. The
letter noted that the activist investor had reviewed the recent Reuters
article regarding a potential business combination transaction with Chesapeake
and wanted to note that, if such a transaction was potentially to occur, such
activist would be supportive of such potential combination, and would not want
"social issues" to impede a transaction. The letter additionally implied that
the activist investor had spoken with other Southwestern shareholders and such
other shareholders were also likely to be supportive of a potential
transaction between Southwestern and Chesapeake.
On December 8, 2023, a special meeting of the Southwestern Board was held with
all members present, with representatives of Goldman, RBCCM and Kirkland in
attendance. At the request of the Southwestern Board, Mr. Way summarized his
recent calls with Mr. Dell'Osso, the letter received from the activist
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investor on December 6th and the previous legal notice received from the
activist investor on November 21st. The Southwestern Board also was provided
with an update on Chesapeake and its business, certain financial metrics for
Southwestern and Chesapeake and the progress of operational and financial due
diligence, including the potential for synergies expected to result from a
business combination and other potential pro forma effects of a transaction.
After discussion, the Southwestern Board authorized Mr. Way to continue to
negotiate with Chesapeake and to convey a counterproposal that Southwestern's
shareholders would own at least 40% of the pro forma combined company. The
Southwestern Board additionally determined not to respond to the letter
received from the activist investor on December 6th and directed Southwestern's
executive management team, including Messrs. Way, Carrell, Giesler, Lacy and
Price and Ms. Gillenwater, and Goldman, RBCCM and Kirkland to continue to
progress discussions and negotiations on various governance matters, due
diligence (including synergies), transaction documentation and related
workstreams, subject to future approval by the Southwestern Board.
Also on December 8, 2023, a special meeting of the Chesapeake Board was held
with representatives of Evercore, Latham and Wachtell in attendance. Mr.
Dell'Osso provided the Chesapeake Board with a summary of his recent
conversations with Mr. Way and the 0.0880x exchange ratio counterproposal and
other governance proposals offered by Southwestern. After the Chesapeake Board
meeting concluded, Mr. Dell'Osso, authorized by the Chesapeake Board, called
Mr. Way to indicate that Chesapeake would soon be providing a counterproposal
that would include the following terms: (a) Southwestern shareholders would
own 40% of the pro forma combined company; (b) that 4 of 11 directors on the
combined company board would represent Southwestern; (c) that the combined
company board would have a non-executive chairman; (d) that the combined
company would have a new name; (e) that while the combined company would have
a material presence in the Houston office, the headquarters of the combined
company would be in Oklahoma City; and (f) that the combined company would be
staffed by the most qualified individuals among both companies' respective
employees. However, Mr. Dell'Osso stated that the Chesapeake Board had
expressed reservations about accelerating the process in a manner that could
result in an announcement of a transaction during a period in which there was
significant weakness in the natural gas market and, instead, preferred to
continue negotiations of the definitive agreements, synergy and integration
discussions with a goal of announcing the transaction in the middle of January
2024.
Later on December 8, 2023, representatives of Latham sent a revised draft of
the Merger Agreement to representatives of Kirkland. The proposed changes in
this revised draft were generally consistent with the counterproposal outlined
by Mr. Dell'Osso to Mr. Way, and additionally made the following key changes:
(a) a right for each of the Southwestern Board and the Chesapeake Board to
terminate the Merger Agreement to permit their respective companies to enter
into a definitive agreement with respect to a superior proposal; (b) a right
for the Chesapeake Board to declare and pay one or more variable dividends,
during the interim period between signing and closing in accordance with
Chesapeake's board-determined variable dividend policy; (c) revisions to the
treatment of Southwestern equity awards and employment matters in connection
with the proposed transaction; (d) a termination fee payable by Chesapeake in
certain circumstances (including a termination by Chesapeake to enter into a
definitive agreement with respect to a superior proposal), calculated to
represent 3.5% of Chesapeake's equity value; (e) a termination fee payable by
Southwestern in certain circumstances (including a termination by Southwestern
to enter into a definitive agreement with respect to a superior proposal),
calculated to represent 3.5% of Southwestern's equity value; (f) the revision
of the interim operating covenants to remove certain restrictions on
Chesapeake during the interim period, including its ability to issue incentive
equity to its employees, engage in certain M&A and divestiture activities,
incur debt and enter into or modify certain material contracts; (g) the
reinsertion of certain restrictions on Southwestern's hedging activities and
ability to issue bonuses, raises and incentive equity to employees; and (h) a
proposal that, in the event that an antitrust remedy was needed in order to
complete the transaction, Chesapeake would not be required to divest assets or
accept any remedy that would materially impair the benefits of the
transactions to Chesapeake, and that Chesapeake would control any antitrust
regulatory approval process.
On December 10, 2023, a special meeting of the Southwestern Board was held
with all members present, with representatives of Goldman and Kirkland in
attendance. At the request of the Southwestern Board, Mr. Way outlined the
topics discussed during his December 8th call with Mr. Dell'Osso and the
counterproposal outlined during that call. In addition, at this meeting, the
Southwestern Board also reviewed materials provided by Goldman that contained
key financial metrics for each of Southwestern and
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Chesapeake and its preliminary pro forma financial analysis, including an
update on the potential for synergies expected to result from the proposed
business combination. A representative of Kirkland also discussed the proposed
transaction terms as set forth in the draft Merger Agreement provided to
Southwestern on December 8, 2023 and reminded the Southwestern Board of its
fiduciary duties to its shareholders, including a discussion on the conflict
of interest evaluation process. The Southwestern Board asked various questions
about the subject matter of the call and the terms of the counterproposal, and
discussed, with the assistance of Southwestern's management and advisors, the
risks associated with delaying signing and announcing a transaction, potential
alternative reasons for the proposed delay, potential alternative transactions
that Southwestern or Chesapeake might engage in and potential responses to
Chesapeake's counterproposal. Members of Southwestern's executive management
team, including Messrs. Way, Carrell, Giesler, Lacy and Price and Ms.
Gillenwater, also discussed with the Southwestern Board a representative
communication plan were the Southwestern Board to approve a transaction with
Chesapeake. During this meeting of the Southwestern Board, members of the
Southwestern Board and the executive management of Southwestern discussed and
considered with Goldman and Kirkland various questions relating to the
proposed transaction, including with respect to the value of the December 4th
proposal as compared to Southwestern as a standalone entity, the strategic
prospects and long-term value of the combined company and whether there
existed reasonably actionable strategic alternatives to achieve a higher value
for Southwestern's shareholders. The Southwestern Board asked questions during
this discussion, and Kirkland and Southwestern's executive management team
addressed the Southwestern Board's questions, and following deliberation among
the Southwestern Board members, advised of its position on key terms in the
Merger Agreement, including, among other items, the ability to accept a
superior proposal from a third party and the regulatory approval conditions.
The Southwestern Board then unanimously determined that it was willing to
proceed with a transaction based on the counterproposal proposed by Chesapeake
but that Mr. Way should message to Chesapeake that the Southwestern Board
would like to accelerate and progress the various workstreams with a goal of
executing definitive agreements and announcing a transaction on or prior to
December 18, 2023, but that, in any event, the parties should target
announcing no later than early January 2024. In connection therewith, the
Southwestern Board directed Southwestern's executive management team and
Goldman and Kirkland to continue to finalize the transaction documents and due
diligence as expeditiously as possible.
On December 10, 2023, following the completion of the meeting of the
Southwestern Board, Mr. Way called Mr. Dell'Osso to outline the terms as
directed by the Southwestern Board, including that the parties should
expeditiously proceed towards executing a transaction and to set up additional
calls and an in-person meeting in Dallas on December 13, 2023 to discuss,
among other things, synergies and other transaction workstreams.
On December 12, 2023, representatives of Southwestern, including Messrs.
Esparza and Sisco, and Mr. Dell'Osso of Chesapeake held a teleconference call
to discuss potential synergies.
On December 13, 2023, members of the executive management of Southwestern,
including Messrs. Way, Carrell, Giesler, Lacy and Price, and Messrs.
Dell'Osso, Singh, Viets, Russ, Dixon, Vice President - Chief Information
Officer John Christ, and Vice President - Marketing Jason Kurtz, and Ms.
Greenhoward of Chesapeake met in Dallas, Texas, to conduct mutual business,
operational and financial diligence and to discuss potential synergies, the
organizational structure of the combined company, a potential integration
timeline, and the announcement plan for a potential transaction.
On December 14, 2023, consistent with the direction of the Southwestern Board,
representatives of Kirkland sent a revised draft of the Merger Agreement to
representatives of Latham. This revised draft included, among others, the
following key changes: (a) limitations on the right of the Chesapeake Board to
declare and pay one or more variable dividends during the interim period
between signing and closing; (b) modifications to the scope of representations
and warranties and interim operating covenants, including additional
restrictions on the ability of Chesapeake to engage in certain transactions
involving the incurrence of debt and the acquisition or divestiture of
material assets; (c) the removal of certain restrictions on Southwestern's
hedging activities and ability to issue bonuses, raises and incentive equity
to employees; and (d) a proposal that, in the event that an antitrust remedy
was needed in order to complete the transaction, Chesapeake would be required
to divest assets and accept any remedy other than any remedy that would result
in a material adverse effect on the business, financial condition or results
of operations of Southwestern,
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Chesapeake and their respective subsidiaries, taken as a whole and assuming a
consolidated entity of the size and scale of a hypothetical company that is
100% of the size of the combined company, and that the parties would jointly
control any antitrust regulatory approval process.
Also on December 14, 2023, representatives of Chesapeake sent a list of due
diligence questions, including legal due diligence questions to representatives
of Southwestern regarding Southwestern's business, growth capital outlook,
legal matters and operations.
On December 15, 2023, representatives of Southwestern sent a preliminary due
diligence request list, including legal due diligence questions to
representatives of Chesapeake.
On December 22, 2023, representatives of Goldman provided Southwestern with
updated customary relationship disclosures regarding Goldman's relationships
with Southwestern, Chesapeake and their respective affiliates and Southwestern
entered into an engagement letter with Goldman.
Between December 14, 2023 and January 2, 2024, representatives of Chesapeake
and representatives of Southwestern engaged in various discussions and updates
regarding the pending due diligence requests and investor relations matters
and continued to negotiate key transaction documentation.
On December 21, 2023, a special meeting of the Chesapeake Board was held with
representatives of Evercore, Latham and Wachtell in attendance. The Chesapeake
Board reviewed materials previously provided by the Chesapeake management team
and Evercore that contained updates to certain financial metrics and expected
synergies in a combination with Southwestern. Messrs. Singh, Viets, and Ayres,
and Ms. Greenhoward provided the Chesapeake Board with an update on
progression of due diligence, transaction documentation and integration
matters.
On January 2, 2024, representatives of Latham sent a revised draft of the
Merger Agreement to representatives of Kirkland. This revised draft included,
among others, the following key changes: (a) a right for the Chesapeake Board
to declare and pay one or more variable dividends, during the interim period
between signing and closing in accordance with Chesapeake's board-determined
variable dividend policy; (b) revisions to the treatment of Southwestern's
employment matters (including ability to grant raises, bonuses and incentive
equity during the interim period) in connection with the proposed transaction;
(c) revision of the interim operating covenants to remove certain restrictions
on Chesapeake during the interim period, including its ability to issue
incentive equity to its employees, engage in certain M&A and divestiture
activities, incur debt and enter into or modify certain material contracts;
and (d) a proposal that, in the event that an antitrust remedy was needed in
order to complete the transaction, Chesapeake would be required to divest
assets and accept any remedy other than any remedy that would result in a
material adverse effect on the business, financial condition or results of
operations of Southwestern, Chesapeake and their respective subsidiaries,
taken as a whole and assuming a consolidated entity of the size and scale of a
hypothetical company that is 100% of the size of Southwestern, and that
Chesapeake would control any antitrust regulatory approval process.
From January 2, 2024 through January 10, 2024, the parties conducted customary
legal, financial and operational due diligence on each other. Representatives
of Southwestern, including Messrs. Way, Giesler, and Lacy and Ms. Gillenwater,
and Mr. Russ of Chesapeake, together with Kirkland and Latham, held a series
of reciprocal due diligence discussions with respect to litigation, human
resources, employee benefits and personnel, regulatory, real estate,
environmental, health and safety and other matters.
During the same period, the executive management of Southwestern, including
Messrs. Way, Giesler, and Lacy and Ms. Gillenwater, and its advisors conducted
multiple meetings and teleconferences with executive management of Chesapeake
and its advisors, as well as the Southwestern Board, to receive and discuss
transaction status updates and discuss issues. Additionally, Chesapeake and
Southwestern exchanged emails to discuss their plans regarding investor
relations in connection with the potential transaction, including a joint
press release and an investor presentation and to discuss the drafts of the
Merger Agreement and ancillary documentation.
In early January 2024, RBCCM provided the Southwestern Board with updated
information regarding RBCCM's material investment banking relationships with
Southwestern and Chesapeake during the prior two-year period.
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From January 4, 2024 through January 7, 2024, the Chesapeake Board conducted a
number of meetings and teleconferences, including some in executive session
and some with members of Chesapeake executive management, and its advisors
Latham, Wachtell, and Evercore to discuss various aspects of the combination
with Southwestern, including legal and transaction updates, personnel and
employee severance matters and other integration items.
On January 4, 2024, representatives of Kirkland sent representatives of Latham
a revised draft of the Merger Agreement. The proposed changes in this revised
draft included, among other things: (a) limitations on the right of the
Chesapeake Board to declare and pay one or more variable dividends during the
interim period between signing and closing; (b) modifications to the scope of
the interim operating covenants, including additional restrictions on the
ability of Chesapeake to engage in certain transactions involving the
incurrence of debt and the acquisition or divestiture of material assets; (c)
the removal of certain restrictions on Southwestern's hedging activities and
ability to issue bonuses, raises and incentive equity to employees; and (d) a
proposal that, in the event that an antitrust remedy was needed in order to
complete the transaction, Chesapeake would be required to divest assets and
accept any remedy other than any remedy that would result in a material
adverse effect on the business, financial condition or results of operations
of Southwestern, Chesapeake and their respective subsidiaries, taken as a
whole and assuming a consolidated entity of the size and scale of a
hypothetical company that is 100% of the size of the combined company, and
that the parties would jointly control any antitrust regulatory approval
process.
On January 5, 2024, an article appeared in The Wall Street Journal indicating
that there were rumors that Chesapeake was close to reaching a definitive
agreement to combine with Southwestern. In the trading day after such article
appeared, the trading price of Southwestern common stock increased by
approximately 7.3% and the market exchange ratio of Southwestern stock
relative to Chesapeake stock increased by approximately 4.3%.
Also on January 5, 2024, a special meeting of the Southwestern Board was held
with all members present, with representatives of Goldman, RBCCM and Kirkland
in attendance. At the request of the Southwestern Board, Goldman and RBCCM
updated the Southwestern Board regarding certain financial metrics for
Southwestern and Chesapeake and preliminary pro forma financial overview of
the transaction, including an update on the potential for synergies expected
by management to result from the proposed business combination. A
representative of Kirkland discussed the proposed transaction terms as set
forth in the draft Merger Agreement provided to Chesapeake on January 4, 2023
and reminded the Southwestern Board of its fiduciary duties to its
shareholders, as well as legal due diligence to-date. Members of Southwestern's
executive management team, including Messrs. Way, Carrell, Giesler, Lacy, and
Price and Ms. Gillenwater, also discussed with the Southwestern Board
illustrative announcement materials and a representative communication plan
were the Southwestern Board to approve a transaction with Chesapeake. A
discussion also occurred regarding the regulatory approval processes. The
Southwestern Board asked questions during this discussion, and Kirkland and
Southwestern's executive management team addressed the Southwestern Board's
questions, and following deliberation among the Southwestern Board authorized
Southwestern's executive management and Goldman, RBCCM and Kirkland to proceed
with completing the negotiations and due diligence processes in respect of the
potential business combination.
Shortly after the special meeting, representatives of Southwestern, including
Mr. Giesler, contacted representatives of each of BofA Securities and Wells
Fargo to inform them of the potential transaction. Thereafter, BofA Securities
and Wells Fargo were formally engaged as advisors to Southwestern in
connection with the potential transaction.
On January 8, 2024, representatives of Latham sent a revised draft of the
Merger Agreement to representatives of Kirkland. This revised draft included,
among others, the following key changes: (a) a right for the Chesapeake Board
to declare and pay one or more variable dividends, during the interim period
between signing and closing in accordance with Chesapeake's board-determined
variable dividend policy; (b) revisions to the treatment of Southwestern's
employment matters (including ability to grant raises, bonuses and incentive
equity during the interim period) in connection with the proposed transaction;
(c) the revision of the interim operating covenants to remove certain
restrictions on Chesapeake during the interim period, including its ability to
issue incentive equity, bonuses and raises to its employees, engage in certain
M&A and divestiture activities, incur debt and enter into or modify certain
material contracts; and (d) a proposal that, in the event that an antitrust
remedy was needed in order to complete the transaction,
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Chesapeake would be required to divest assets and accept any remedy other than
any remedy that would result in a material adverse effect on the business,
financial condition or results of operations of Southwestern, Chesapeake and
their respective subsidiaries, taken as a whole and assuming a consolidated
entity of the size and scale of a hypothetical company that is 100% of the
size of Southwestern, and that Chesapeake would control any antitrust
regulatory approval process.
On January 9, 2024, a special meeting of the Chesapeake Board was held with
representatives of Evercore, Latham and Wachtell in attendance. During the
meeting, representatives of Evercore reviewed materials previously provided to
the Chesapeake Board that contained a summary transaction terms, certain
Chesapeake projections prepared by Chesapeake's management and a summary of
Evercore's preliminary financial analyses with respect to the proposed
combination, as well as a discussion regarding expected synergies. During the
meeting the Chesapeake Board asked questions of Messrs. Dell'Osso, Singh,
Viets, and Russ and Evercore, Latham and Wachtell, which were addressed.
During the course of the day on January 9, 2024, representatives of Kirkland
and Latham sent several revised drafts of the Merger Agreement back and forth
and engaged in numerous telephonic and electronic discussions regarding the
Merger Agreement and related documentation, ultimately agreeing on terms
including: (a) a limited right for the Chesapeake Board to declare and pay one
or more variable dividends, during the interim period between signing and
closing in accordance with an agreed-upon, scheduled variable dividend policy;
(b) revisions to the treatment of Southwestern's employment matters (including
ability to grant raises, bonuses and incentive equity during the interim
period) in connection with the proposed transaction; (c) the revision of the
interim operating covenants to provide certain restrictions on Chesapeake
during the interim period, including its ability to engage in certain M&A and
divestiture activities, incur debt and enter into or modify certain material
contracts; and (d) revisions that, in the event that an antitrust remedy was
needed in order to complete the transaction, Chesapeake would be required to
divest assets and accept any remedy other than any remedy that would result in
a material adverse effect on the business, financial condition or results of
operations of Southwestern, Chesapeake and their respective subsidiaries,
taken as a whole and assuming a consolidated entity of the size and scale of a
hypothetical company that is 100% of the size of Southwestern and that
Chesapeake would control any antitrust regulatory approval process.
In the morning on January 10, 2024, a special meeting of the Chesapeake Board
was held with representatives of Evercore, Latham and Wachtell in attendance.
Representatives of Wachtell reviewed with the Chesapeake Board its fiduciary
obligations. Representatives of Evercore then presented Evercore's final
financial analysis and rendered to the Chesapeake Board Evercore's oral
opinion, subsequently confirmed by delivery of a written opinion dated January
10, 2024, that, as of the date of such opinion and based upon and subject to
the assumptions, limitations, qualifications and conditions described in
Evercore's written opinion, the exchange ratio was fair, from a financial
point of view, to Chesapeake. At the request of the Chesapeake Board, a
representative from Latham reviewed and discussed the key provisions of the
Merger Agreement, which was previously provided to the Chesapeake Board. The
Chesapeake Board asked questions, which were addressed by Messrs. Dell'Osso,
Singh, Viets, and Russ, Evercore, Latham and Wachtell. Following the
discussion, the Chesapeake Board determined that it is in the best interests
of Chesapeake and its shareholders, and declared it advisable, for Chesapeake
to enter into the Merger Agreement, approved the execution, delivery and
performance of the Merger Agreement and the consummation of the transactions
contemplated thereby, including the issuance of Chesapeake shares, and
approved that the Stock Issuance Proposal be submitted to the Chesapeake
shareholders and resolved to recommend that the Chesapeake shareholders
approve the Stock Issuance Proposal.
Later on January 10, 2024, the Southwestern Board held a special meeting with
all members present, with members of Southwestern's executive management team,
including Messrs. Way, Carrell, Giesler, Lacy and Price and Ms. Gillenwater,
and representatives of Goldman, RBCCM and Kirkland in attendance, to consider
the proposed business combination with Chesapeake. Representatives of Goldman
provided the Southwestern Board with Goldman's financial analysis with respect
to the proposed business combination and rendered to the Southwestern Board
Goldman's oral opinion, subsequently confirmed in Goldman's written opinion
dated as of January 10, 2024, that as of such date, and based upon and subject
to the assumptions made, procedures followed, matters considered and
qualifications and limitations on the scope of the review undertaken by
Goldman, as set forth in Goldman's written opinion, the Exchange Ratio was
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fair, from a financial point of view, to the holders (other than the
Chesapeake and its Affiliates) of Southwestern common stock. A representative
of Kirkland then presented and reviewed the duties and responsibilities of the
members of the Southwestern Board under Delaware law in connection with the
proposed transaction and materials summarizing the key provisions of the
Merger Agreement, which materials were previously provided to the Southwestern
Board. The Southwestern Board asked questions, and Southwestern's executive
management team and Goldman, RBCCM and Kirkland addressed the Southwestern
Board's questions. Following the discussion, the Southwestern Board adopted
resolutions, taking into account the various matters described below under
"Recommendation of the Southwestern Board and its Reasons for the Merger," and
unanimously determined that it was in the best interests of Southwestern and
its shareholders, and advisable, for Southwestern to enter into the Merger
Agreement; approved the Merger Agreement and the transactions contemplated
thereby, including the merger; approved that the Merger Agreement be submitted
to the Southwestern shareholders and resolved to recommend that the
Southwestern shareholders approve the Merger Agreement.
That same day, representatives of each of Kirkland and Latham finalized the
Merger Agreement and disclosure schedules. Later in the evening on January 10,
2023, the parties executed the Merger Agreement and, prior to the market
opening on January 11, 2024, issued a joint press release announcing the
transaction.
Recommendation of the Chesapeake Board and its Reasons for the Merger
On January 10, 2024, the Chesapeake Board determined that the Merger Agreement
and the transactions contemplated thereby, including the Merger and the
issuance of shares of Chesapeake Common Stock in the Merger, are in the best
interests of Chesapeake and its shareholders, and approved and declared
advisable the execution, delivery and performance by Chesapeake of the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the Merger and the issuance of shares of Chesapeake Common Stock in
the Merger.
The Chesapeake Board recommends that Chesapeake shareholders vote "FOR" the
Stock Issuance Proposal and "FOR" the Advisory Chesapeake Compensation
Proposal.
In the course of reaching its determinations and recommendations, the
Chesapeake Board consulted with the Chesapeake executive management team and
Chesapeake's outside legal and financial advisors and considered several
potentially positive factors that weighed in favor of the Merger, including
the following (not necessarily presented in order of relative importance):
.
Premium Asset Portfolio
.
The expectation that the combined company will have a premier natural gas
portfolio of more than 1.8 million net acres, with a total net production of
approximately 7.9 Bcfe/d and more than 15 years of inventory, that is equipped
to meet domestic demand growth and will be competitive in the rapidly growing
global LNG business; and
.
The complementary nature of Southwestern's and Chesapeake's asset positions
located in premium natural gas basins in the Northeast (Appalachia) and along
the Gulf Coast (Haynesville).
.
Financial Considerations
.
Chesapeake's expectation that the Merger will be accretive to shareholders in
the near and long term on all key financial metrics, including cash flow per
share, free cash flow per share, net asset value and return on capital
employed;
.
Chesapeake's expectation that the Merger will enhance Chesapeake's capital
return program by enhancing free cash flow generation and supporting an
expected increase in Chesapeake's dividend per share of approximately 20% over
the next five years; and
.
Chesapeake's expectation that the combined company will have a strengthened
credit profile, potentially achieving an investment grade rating after the
Merger, with an expected leverage ratio of approximately 1.0x net-debt-to-EBITDA
X or less within one year of closing.
.
Synergies and Strategic Considerations
.
Chesapeake's belief that Southwestern's high-quality assets and top-tier
inventory will generate significant free cash flow, and its belief that the
Merger will create a more resilient energy company that is expected to produce
stable cash flows through varied commodity cycles;
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.
Chesapeake's belief that the Merger is expected to result in significant
synergies of approximately $400 million annually that will enable a lower
corporate breakeven through operational efficiencies, improved drilling
performance, extended laterals and infrastructure optimization;
.
The expectation that the combined company will be able to create a global
platform to expand Chesapeake's marketing and trading business, improve access
to domestic and international markets, reduce sensitivity to commodity price
volatility and enhance revenue; and
.
That the combined company will maintain its low natural gas emissions profile,
100% RSG natural gas certification across all production, commitment to
achieve net zero Scope 1 and 2 GHG emissions by 2035, transparent disclosures
regarding measurable targets, investment in low-carbon solutions, and social
and governance excellence.
.
Opinion of Financial Advisor
. The oral opinion of Evercore rendered to the Chesapeake Board on January 10,
2024, which was subsequently confirmed in Evercore's written opinion dated
January 10, 2024, that as of the date of such opinion and based upon and
subject to the assumptions, limitations, qualifications and conditions
described in Evercore's written opinion, the Exchange Ratio was fair, from a
financial point of view, to Chesapeake, as more fully described below in the
section entitled "
The Merger
-
Opinion of Chesapeake's Financial Advisor
" beginning on page 115 and the full text of the written opinion of Evercore
attached as
Annex B
to this joint proxy statement/prospectus.
.
Likelihood of Completion of the Merger
. Chesapeake's belief, due to the limited number and customary nature of the
closing conditions, that the Merger will be consummated prior to the Outside
Date of January 10, 2025 (as may be extended to July 10, 2025 and further
extended to January 10, 2026 in certain circumstances).
.
Favorable Terms of the Merger Agreement
.
Chesapeake's belief, in coordination with Chesapeake's legal advisors, that
the terms of the Merger Agreement, taken as a whole, including the parties'
representations, warranties, covenants and conditions to closing, and the
circumstances under which the Merger Agreement may be terminated, are
reasonable;
.
The fact that Chesapeake has the ability, under certain circumstances, to
provide information to, and to engage in discussions or negotiations with, a
third party that makes an unsolicited acquisition proposal to Chesapeake; and
.
The fact that the Chesapeake Board has the ability to terminate the Merger
Agreement under certain circumstances, including by entering into an agreement
relating to a superior proposal, subject to certain conditions (including
payment of a termination fee and certain rights of Southwestern).
The Chesapeake Board also considered and balanced against the potentially
positive factors a number of uncertainties, risks and other countervailing
factors in its deliberations concerning the Merger and the Merger Agreement,
including the following (not necessarily presented in order of relative
importance):
.
The risks and contingencies relating to the announcement and pendency of the
Merger, including the potential for diversion of management and employee
attention and the potential effect of the combination on the businesses of
both companies and the restrictions on the conduct of Chesapeake's business
during the period between the execution of the Merger Agreement and the
completion of the Merger;
.
The potential challenges and difficulties in integrating the operations of
Southwestern and Chesapeake and the risk that the anticipated cost savings and
operational and other synergies between the two companies, or other
anticipated benefits of the Merger, might not be realized, may only be
achieved over time or might take longer to realize than expected;
.
The fact that Chesapeake would be required to (i) pay Southwestern a
termination fee of $389 million if, among other circumstances, Chesapeake were
to terminate the Merger Agreement in order to enter into an agreement relating
to a superior proposal and/or (ii) reimburse Southwestern in an amount equal
to $37.25 million in respect of Southwestern's costs and expenses incurred in
connection
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with the Merger Agreement and the transactions contemplated by the Merger
Agreement if the Chesapeake shareholders do not approve the Stock Issuance
Proposal;
.
The fact that there are restrictions in the Merger Agreement on Chesapeake's
ability to solicit competing bids to acquire it and to entertain other
acquisition proposals unless certain conditions are satisfied;
.
The fact that the restrictions on Chesapeake's conduct of business prior to
completion of the transaction could delay or prevent Chesapeake from
undertaking business opportunities that may arise or from taking other actions
with respect to its operations during the pendency of the transaction; and
.
Risks of the type and nature described under the sections entitled "
Risk Factors
" and "
Cautionary Statement Regarding Forward-Looking Statements
" beginning on pages 49 and 64, respectively.
After taking into account the factors set forth above, as well as others, the
Chesapeake Board concluded that the risks, uncertainties, restrictions and
potentially negative factors associated with the Merger were outweighed by the
potential benefits of the Merger to Chesapeake shareholders.
The foregoing discussion of factors considered by Chesapeake is not intended
to be exhaustive, but summarizes the material factors considered by the
Chesapeake Board. In light of the variety of factors considered in connection
with its evaluation of the Merger Agreement and the Merger, the Chesapeake
Board did not find it practicable to, and did not, quantify, rank or otherwise
assign relative weights to the specific factors considered in reaching its
determinations and recommendations. Moreover, each member of the Chesapeake
Board applied his or her own personal business judgment to the process and may
have given different weight to different factors. The Chesapeake Board based
its recommendation on the totality of the information presented, including
thorough discussions with, and questioning of, Chesapeake's executive
management team and the Chesapeake Board's outside legal and financial
advisors.
In considering the recommendation of the Chesapeake Board to approve the
Merger Agreement, holders of Chesapeake Common Stock should be aware that the
executive officers and directors of Chesapeake have certain interests in the
transaction that may be different from, or in addition to, the interests of
Chesapeake shareholders generally. See the section entitled "
The Merger - Interests of Certain Chesapeake Directors and Executive Officers
in the Merger
" beginning on page 132.
It should be noted that this explanation of the reasoning of the Chesapeake
Board and certain information presented in this section is forward-looking in
nature and should be read in light of the factors set forth in "
Cautionary Statement Regarding Forward-Looking Statements
" beginning on page 64.
Recommendation of the Southwestern Board and its Reasons for the Merger
On January 10, 2024, the Southwestern Board unanimously determined that it is
in the best interests of Southwestern and its shareholders, and declared it
advisable, for Southwestern to enter into the Merger Agreement, and has
unanimously approved the execution, delivery and performance by Southwestern
of the Merger Agreement and the consummation of the transactions contemplated
thereby, including the Merger.
The Southwestern Board unanimously recommends that Southwestern shareholders
vote "FOR" the Merger Proposal and "FOR" the Advisory Southwestern
Compensation Proposal.
In evaluating the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement, the Southwestern Board consulted with
Southwestern's senior management, outside legal counsel and financial advisors
with complementary experience. The Southwestern Board determined that entering
into the Merger Agreement with Chesapeake provided the best alternative for
maximizing value for holders of Southwestern Common Stock reasonably available
to Southwestern, including when compared to continuing to operate on a
standalone basis and other reasonably actionable strategic alternatives such
as those that Southwestern had evaluated consistently in recent years,
including potential corporate combinations within the oil and gas industry,
acquisitions of growth assets and divestitures of non-core assets.
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In arriving at this determination and in recommending that the holders of
Southwestern Common Stock vote their Southwestern Common Stock in favor of
adoption of the Merger Agreement, the Southwestern Board considered a number
of factors, including the following factors (not necessarily in order of
relative importance) that the Southwestern Board viewed as generally positive
or favorable to its determination, approval and related recommendations:
Attractive Value and Exchange Ratio.
The attractive value and nature of the consideration to be received in the
Merger by holders of Southwestern Common Stock, including the fact that:
.
the transaction is structured as a stock-for-stock merger with a fixed
exchange ratio;
.
the Southwestern Board believes that the pro forma ownership implied by the
Exchange Ratio fairly reflects the contribution of Southwestern to the
production, reserves, cash generation capacity and potential synergies of the
combined company;
.
the implied value of the merger consideration is $6.69 per share of
Southwestern Common Stock based on the exchange ratio of 0.0867 per share,
compared to the closing trading prices of Southwestern and Chesapeake of $6.77
and $89.00, respectively, on October 16, 2023, the last trading day prior to
the publication of media reports that Southwestern and Chesapeake had engaged
in discussions regarding a possible transaction, the closing prices of
Southwestern and Chesapeake of $6.89 and $77.18 on January 10, 2024, the last
trading day prior to entry into the Merger Agreement, and a hypothetical
undisturbed trading price of Southwestern of $5.85. See "
The Merger - Opinion of Southwestern's Financial Advisor - Summary of
Financial Analyses
" for more information on the hypothetical undisturbed trading price;
.
the transaction results in holders of Southwestern Common Stock realizing fair
value for their investment and provides a value that is superior to other
strategic alternatives and generally will not result in taxable gains to
holders of Southwestern Common Stock;
.
the transaction allows holders of Southwestern Common Stock to share pro rata
in any future additional value from higher commodity prices or other factors;
.
the stock-for-stock nature of the transaction allows holders of Southwestern
Common Stock to participate in the value and opportunities of the combined
company after the Merger, including Chesapeake's return of capital program and
a combined company with a stronger balance sheet with reduced debt;
.
the combined company will provide holders of Southwestern Common Stock with
exposure to a more capital efficient and diversified yet complementary asset
base, and greater expected future free cash flow growth, which the
Southwestern Board viewed as an important opportunity for holders of
Southwestern Common Stock to enhance long-term risk-adjusted returns;
.
the trading market for Chesapeake Common Stock will provide holders of
Southwestern Common Stock who receive Chesapeake Common Stock in the Merger
with additional trading liquidity than is currently available for Southwestern
Common Stock alone; and
.
the Southwestern Board believes that the shares of Chesapeake Common Stock
that will be delivered to holders of Southwestern Common Stock are a highly
attractive currency that will benefit in the near and long term from the
combination's significant synergies described in more details below.
Benefits of a Combined Company
. The belief of the Southwestern Board that the combined company resulting
from a Merger of Chesapeake and Southwestern would be well positioned to
achieve future free cash flow growth and generate superior returns for
Southwestern's stockholders, as a result of the following considerations,
among others:
.
the anticipated benefits associated with combining the assets of the two
companies, including the Southwestern Management Synergies Estimates (as
defined below) and reductions to expenses associated with the following:
.
creating a diversified yet complementary asset base which is anticipated to be
more capital efficient and to increase commercial opportunities, including
organic growth projects;
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.
increased operational scale and expanded scope of business, which are expected
to enhance the resilience of cash flow generation and the combined company's
ability to generate returns for shareholders and pursue value-added growth
opportunities;
.
the fact that Chesapeake currently has significant cash reserves, which are
expected to provide additional liquidity to the combined company's balance
sheet, accelerate the combined company's reduction of debt and increase the
sustainability of the return of capital to shareholders;
.
the increased size and scale of the combined company, which is expected to
afford new structural advantages, including a stronger credit profile, a lower
cost of capital and economies of scale;
.
the fact that the combined company is expected to generate significant free
cash flow and potentially achieve an investment grade rating after the Merger,
accelerating the combined company's financial flexibility to reduce both
absolute debt and financial leverage through time;
.
enhanced potential for returning capital to shareholders of the combined
company, including Southwestern's stockholders;
.
the potential that the scale of the combined company could permit the combined
company to be included in one or more large-cap stock market indices; and
.
eliminating duplicative or redundant functions and expenses;
.
the shared commitment to safety, integrity, collaboration, responsible
operations and employee development, which is expected to continue to drive
strong operational performance and deliver shareholder value;
.
the experience and proven track record of the combined company's executive
management team and its continued focus on stockholder value and economic
returns;
.
the combined company will be overseen by an experienced, diverse and
majority-independent board composed of four directors from the Southwestern
Board (Catherine A. Kehr, John D. Gass, Shameek Konar and Anne Taylor) and
seven directors from the Chesapeake Board, and will be managed by an
experienced team of executives from both Southwestern and Chesapeake led by
Chesapeake Chief Executive Officer Nick Dell'Osso;
.
the combined company will build a global marketing and trading presence in
Houston to supply lower-cost, lower-carbon energy to meet increasing domestic
and international LNG demand;
.
the combined company will have high-quality, large-scale acreage in Appalachia
and Haynesville, where the pro forma company has current net production of
approximately 7.9 Bcfe/d with more than 5,000 gross locations and 15 years of
inventory;
.
the combination will help maximize the value of Southwestern's scale of
production, quality capital structure and 100% certified responsibly sourced
gas;
.
the combination is expected to be immediately accretive, from the perspective
of the holders of Southwestern Common Stock, to key per share financial
metrics, including operating cash flow, free cash flow, and cash dividends at
then-current commodity prices as of the date of the Merger Agreement;
.
the combined company is expected to continue to pursue industry leading ESG
and sustainability policies, including (1) maintaining an independent and
diverse board comprised of directors with track records of delivering value
and industry experience, (2) aligning executive compensation with stockholder
value creation and sustainability and (3) committing to strong performance and
further improvement across sustainability metrics, including safety and
emissions; and
.
the combined company will maintain its low natural gas emissions profile,
commitment to achieving net zero Scope 1 and 2 GHG emissions in the next
several decades, transparent disclosures regarding measurable targets,
investment in low-carbon solutions, and social and governance best practices.
Continuation of Standalone Southwestern
. The Southwestern Board's belief that Southwestern's ability to attract
capital, grow, adapt to uncertainties and continue delivering superior returns
to holders of Southwestern Common Stock as a standalone entity is expected to
be more challenging compared to the combined company due to:
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.
the increasing importance of the benefits of greater scale in driving
shareholder value, including, but not limited to, the impact of scale on fixed
costs, lower cost of capital, the ability to capitalize on opportunities in
the increasingly global nature of natural gas markets, and enhanced resilience
in increasingly volatile commodity price environments;
.
Southwestern's higher relative cost structure given in part certain fixed
costs and its higher interest expense from its higher debt and leverage and
the resulting impact on free cash flow generation potential, particularly in a
lower commodity price environment;
.
Southwestern's likely lower credit rating than the combined company;
.
Southwestern's more limited common stock trading liquidity compared to the
combined company;
.
the relatively mature nature of domestic E&P assets and drilling inventory,
creating more challenging growth prospects compared to other alternatives;
.
Southwestern's smaller scale, higher financial leverage and higher break-even
commodity price, limiting its ability to reach investment grade status;
.
Southwestern's standalone position, scale and capital structure providing less
potential to adapt to and benefit from the future evolution of the energy
industry; and
.
Southwestern management's assessment that reasonably actionable alternatives
to diversify into other geographic market areas, products or lines of
businesses in a manner that is likely to be value enhancing to holders of
Southwestern Common Stock are limited.
Opportunity to Receive Alternative Acquisition Proposals and to Change the
Southwestern Board's Recommendation Upon Receipt of a Superior Proposal.
The Southwestern Board considered the terms of the Merger Agreement related to
Southwestern's ability to respond to unsolicited bona fide acquisition
proposals and determined that third parties would be unlikely to be deterred
from making an acquisition proposal by the provisions of the Merger Agreement
because the Southwestern Board may, under certain circumstances, furnish
information or enter into discussions in connection with an acquisition
proposal. In this regard, the Southwestern Board considered that:
.
subject to its compliance with the Merger Agreement, the Southwestern Board
can change its recommendation to holders of Southwestern Common Stock with
respect to the adoption of the Merger Agreement prior to the adoption of the
Merger Agreement by the vote of holders of Southwestern Common Stock if the
Southwestern Board determines, in good faith after consultation with its
financial advisors and outside legal counsel, that another acquisition
proposal constitutes a superior proposal, and following consultation with
outside legal counsel, the Southwestern Board determines that such change of
recommendation is consistent with its duties under applicable law; and
.
while the Merger Agreement contains a termination fee of $260 million,
representing approximately 3.5% of Southwestern's equity value as of the date
of the Merger Agreement, that Southwestern would be required to pay to
Chesapeake in certain circumstances, including if (i) Chesapeake terminates
the Merger Agreement in connection with a change in the Southwestern Board's
recommendation to holders of Southwestern Common Stock with respect to the
adoption of the Merger Agreement, (ii) Chesapeake terminates the Merger
Agreement due to a willful and material breach by Southwestern of its
non-solicit obligations in the Merger Agreement, (iii) Southwestern terminates
the Merger Agreement to enter into a definitive agreement in respect of a
Southwestern Superior Proposal, (iv) Chesapeake or Southwestern terminates the
Merger Agreement following the failure of holders of Southwestern Common Stock
to approve the Merger Proposal upon a vote at the Southwestern Special Meeting
and
, within twelve months of termination of the Merger Agreement, Southwestern
consummates or enters into a definitive agreement in respect of an alternative
transaction and (v) under certain circumstances, within twelve months of
termination of the Merger Agreement, Southwestern consummates or enters into a
definitive agreement in respect of an alternative transaction, the
Southwestern Board believed that this fee is reasonable in light of the
circumstances and the overall terms of the Merger Agreement, consistent with
fees in comparable transactions and not preclusive of other offers.
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Opinion of Goldman Sachs & Co. LLC
. The Southwestern Board considered the oral opinion of Goldman Sachs,
subsequently confirmed in Goldman Sachs's written opinion dated as of the same
date on which the oral opinion was provided, to the Southwestern Board, with
respect to the fairness as of such date, from a financial point of view, to
holders of Southwestern Common Stock of the Exchange Ratio, which opinion was
based on and subject to various assumptions made, procedures followed, matters
considered and qualifications and limitations on the scope of the review
undertaken by Goldman Sachs in rendering its opinion, as more fully described
below in the section titled "
The Merger - Opinion of Southwestern's Financial Advisor
"; and
Likelihood of Completion and Terms of the Merger Agreement
. The Southwestern Board reviewed and considered the terms of the Merger
Agreement, taken as a whole, including the parties' representations,
warranties and covenants, and the circumstances under which the Merger
Agreement may be terminated, and concluded that such terms are reasonable and
fair to Southwestern and its stockholders. The Southwestern Board also
reviewed and considered the conditions to the completion of the Merger and
concluded that, while the completion of the Merger is subject to regulatory
approvals, such approvals were not likely to prevent the completion of the
Merger in light of the efforts covenant provided by Chesapeake. The
Southwestern Board also considered that Chesapeake has agreed to pay
Southwestern $389 million in the event that (i) Southwestern terminates the
Merger Agreement in connection with a change in the Chesapeake Board's
recommendation to holders of Southwestern Common Stock with respect to the
adoption of the Merger Agreement, (ii) Southwestern terminates the Merger
Agreement due to a willful and material breach by Chesapeake of its
non-solicit obligations in the Merger Agreement, (iii) Chesapeake terminates
the Merger Agreement to enter into a definitive agreement in respect of a
Chesapeake Superior Proposal, (iv) Chesapeake or Southwestern terminates the
Merger Agreement following the failure of holders of Chesapeake Common Stock
to approve the Stock Issuance Proposal upon a vote at the Chesapeake Special
Meeting
and
, within twelve months of termination of the Merger Agreement, Chesapeake
consummates or enters into a definitive agreement in respect of an alternative
transaction and (v) under certain circumstances, within twelve months of
termination of the Merger Agreement, Chesapeake consummates or enters into a
definitive agreement in respect of an alternative transaction.
The Southwestern Board also considered a number of uncertainties, risks and
factors it deemed generally negative or unfavorable in making its
determination, approval and related recommendation, including the following
(not necessarily in order of relative importance):
Exchange Ratio
. The Southwestern Board considered that, because the Exchange Ratio is
based on a fixed exchange ratio rather than a fixed value, holders of
Southwestern Common Stock bear the risk of a decrease but have the ability to
participate in an increase in the trading price of Chesapeake Common Stock
during the pendency of the Merger and the fact that the Merger Agreement does
not provide Southwestern with a value-based termination right;
Tax Considerations for Holders of Southwestern Common Stock
. The Southwestern Board considered that the Integrated Mergers, taken
together, are intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code;
Interim Operating Covenants
. The Southwestern Board considered the restrictions on the conduct of
Southwestern's and its subsidiaries' businesses as well as Chesapeake's and
its subsidiaries' businesses during the period between the execution of the
Merger Agreement and the completion of the Merger as set forth in the Merger
Agreement;
Risks Associated with the Pendency of the Merger
. The risks and contingencies relating to the announcement and pendency of
the Merger (including the likelihood of litigation or other opposition brought
by or on behalf of Southwestern shareholders or Chesapeake shareholders
challenging the Merger and the other transactions contemplated by the Merger
Agreement) and the risks and costs to Southwestern if the Merger is not
completed in a timely manner or if the Merger does not close at all, including
potential employee attrition, the impact on Southwestern's relationships with
third parties and the effect termination of the Merger Agreement may have on
the trading price of Southwestern Common Stock and Southwestern's operating
results;
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Opportunity to Receive Acquisition Proposals and Ability to Terminate the
Merger Agreement in Order to Enter into Definitive Agreement with Respect to
Superior Proposal; Termination Fees; Expense Reimbursement
. The Southwestern Board considered the possibility that a third party may
be willing to enter into a strategic combination with Southwestern on terms
more favorable than the Merger. In connection therewith, the Southwestern
Board considered the terms of the Merger Agreement relating to no-shop
covenants and termination fees and the potential that such provisions might
deter alternative bidders that might have been willing to submit an
acquisition proposal to Southwestern. The Southwestern Board also considered
that, under specified circumstances, Southwestern may be required to pay a
termination fee or expenses in the event the Merger Agreement is terminated
and the effect this could have on Southwestern, including:
.
the possibility that the termination fee could discourage other potential
parties from making an acquisition proposal, although the Southwestern Board
believed that the termination fee was reasonable in amount and the fact that,
under certain circumstances, Southwestern could terminate the Merger Agreement
in order to enter into an agreement with respect to a Southwestern Superior
Proposal would not unduly deter any other party that might be interested in
making an acquisition proposal;
.
if the Merger is not consummated, Southwestern will generally be obligated to
pay its own expenses incident to preparing for and entering into and carrying
out its obligations under the Merger Agreement and the transactions
contemplated by the Merger Agreement; and
.
the requirement that if the Merger Agreement is terminated as a result of the
failure to obtain approval of the Merger Proposal by holders of Southwestern
Common Stock, Southwestern would be obligated to reimburse Chesapeake in an
amount equal to $55.6 million for the expenses incurred by Chesapeake in
connection with the Merger and the other transactions contemplated by the
Merger Agreement;
Regulatory Approval
. The Southwestern Board considered that the Merger and the related
transactions require regulatory approval to complete such transactions and the
risk that the applicable governmental entities may seek to impose unfavorable
terms or conditions, or otherwise fail to grant, such approval;
Interests of Southwestern Directors and Executive Officers and Other Concerns
Related to Conflicts or the Potential Appearance of Conflicts
. The Southwestern Board considered that certain of the Southwestern Board's
directors and executive officers may have interests in the Merger that may be
different from, or in addition to, those of holders of Southwestern Common
Stock generally. For more information about such interests, see the section
titled "
The Merger - Interests of Southwestern Board of Directors and Executive
Officers in the Merger
";
Merger Costs
. The Southwestern Board considered the costs associated with the completion
of the Merger, including Southwestern management's time and energy and
potential for opportunity costs related to other reasonably actionable
strategic alternatives;
Possible Failure to Achieve Synergies
. The Southwestern Board considered the potential challenges and
difficulties in integrating the operations of Southwestern and Chesapeake and
the risk that anticipated cost savings and operational efficiencies between
the two companies, or other anticipated benefits of the Merger, might not be
realized or might take longer to realize than expected; and
Other Risks
. The Southwestern Board considered risks of the type and nature described
under the sections titled "
Cautionary Statement Regarding Forward-Looking Statements
" and "
Risk Factors
."
The Southwestern Board believed that, overall, the potential benefits of the
Merger to holders of Southwestern Common Stock outweighed the risks and
uncertainties of the Merger.
The foregoing discussion of factors considered by the Southwestern Board is
not intended to be exhaustive, but includes the material factors considered by
the Southwestern Board. In light of the variety of factors considered in
connection with its evaluation of the Merger, the Southwestern Board did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determinations and
recommendations. Moreover, each member of the Southwestern Board applied his
or her own personal business judgment to the process and may have given
different weight to
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different factors. The Southwestern Board did not undertake to make any
specific determination as to whether any factor, or any particular aspect of
any factor, supported or did not support its ultimate determination. The
Southwestern Board based its recommendation on the totality of the information.
Certain Unaudited Forecasted Financial Information
Neither Chesapeake nor Southwestern, as a matter of course, makes public
long-term forecasts or internal projections as to future performance,
revenues, production, earnings or other results due to, among other reasons,
the uncertainty of the underlying assumptions and estimates. However, in
connection with Southwestern's evaluation of the Merger, Southwestern's
management provided to the Southwestern Board and Southwestern's financial
advisors certain unaudited internal financial forecasts with respect to
Southwestern on a stand-alone basis prepared by Southwestern management (the
"Southwestern Forecasted Financial Information for Southwestern"), certain
unaudited financial forecasts with respect to Chesapeake on a stand-alone
basis prepared by Southwestern management (the "Southwestern Forecasted
Financial Information for Chesapeake") and certain unaudited internal
financial forecasts for Chesapeake and Southwestern on a pro forma basis for
the proposed Merger, prepared by Southwestern's management, including certain
operating synergies projected by Southwestern management (the "Southwestern
Management Synergies Estimates") to result from the proposed Merger
(collectively, with the Southwestern Management Synergies Estimates, the
"Southwestern Pro Forma Forecasted Financial Information" and, together with
the Southwestern Forecasted Financial Information for Southwestern and the
Southwestern Forecasted Financial Information for Chesapeake, the
"Southwestern Forecasted Financial Information") and provided to Chesapeake
certain unaudited internal financial forecasts with respect to Southwestern on
a stand-alone basis prepared by Southwestern management. In addition, in
connection with Chesapeake's evaluation of the Merger, Chesapeake's management
provided to the Chesapeake Board and its financial advisors certain unaudited
internal financial forecasts with respect to Chesapeake on a stand-alone basis
prepared by Chesapeake's management (the "Chesapeake Forecasted Financial
Information for Chesapeake"), certain unaudited internal financial forecasts
with respect to Southwestern on a stand-alone basis provided by Chesapeake
management (the "Chesapeake Forecasted Financial Information for Southwestern")
and certain synergies projected by Chesapeake management to result from the
proposed Merger (the "Chesapeake Management Synergies Estimates" and, together
with the Chesapeake Forecasted Financial Information for Chesapeake and the
Chesapeake Forecasted Financial Information for Southwestern, the "Chesapeake
Forecasted Financial Information") and provided to Southwestern certain
unaudited internal financial forecasts with respect to Chesapeake on a
stand-alone basis prepared by Chesapeake management. The Southwestern
Forecasted Financial Information and the Chesapeake Forecasted Financial
Information are referred to herein as the "Forecasted Financial Information."
The Southwestern Forecasted Financial Information and Southwestern Pro Forma
Forecasted Financial Information was provided by Southwestern to Goldman Sachs
for its use and reliance in connection with its financial analyses and opinion
as described in the section entitled "
The Merger - Opinion of Southwestern's Financial Advisor
." The Chesapeake Forecasted Financial Information was provided by Chesapeake
to Evercore and was approved by Chesapeake for Evercore's use and reliance in
connection with its financial analyses and opinion as described in the section
entitled "
The Merger - Opinion of Chesapeake's Financial Advisor
." The inclusion of this Forecasted Financial Information should not be
regarded as an indication that any of Southwestern, Chesapeake, their
respective affiliates, officers, directors, advisors or other representatives
or any other recipient of this Forecasted Financial Information considered, or
now considers, it to be necessarily predictive of actual future performance or
events, or that it should be construed as financial guidance, and such summary
projections set forth below should not be relied on as such.
The Forecasted Financial Information includes non-GAAP financial measures,
including EBITDA, Free Cash Flow, Net Debt and Unlevered Free Cash Flow for
Southwestern and EBITDA, Free Cash Flow, Net Debt and Unlevered Free Cash Flow
for Chesapeake. Please see the tables below for a description of how
Southwestern and Chesapeake define these non-GAAP financial measures.
Chesapeake and Southwestern believe that EBITDA provides information useful in
assessing operating and financial performance across periods, while Free Cash
Flow and Unlevered Free Cash Flow each provides a useful measure of available
cash generated by operating activities for other investing and financing
activities. Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information presented in accordance
with GAAP, and non-GAAP financial measures used by Southwestern and Chesapeake
may not be comparable to similarly titled measures used by other companies.
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This Forecasted Financial Information was prepared solely for internal use and
is subjective in many respects. While presented with numeric specificity, the
Forecasted Financial Information reflects numerous estimates and assumptions
that are inherently uncertain and may be beyond the control of Chesapeake's
and Southwestern's managements, including, among others, future results of
each of Chesapeake and Southwestern, oil and gas industry activity, commodity
prices, demand for natural gas and crude oil, general economic and regulatory
conditions and other matters described in the sections entitled "
Cautionary Statement Regarding Forward-Looking Statements
" and "
Risk Factors
." The Forecasted Financial Information reflects both assumptions as to
certain business decisions that are subject to change and, in many respects,
subjective judgment, and thus is susceptible to multiple interpretations and
periodic revisions based on actual experience and business developments.
Neither Chesapeake, Southwestern, nor their respective affiliates, officers,
directors, advisors or other representatives can give assurance that the
Forecasted Financial Information and the underlying estimates and assumptions
will be realized. This Forecasted Financial Information constitutes
"forward-looking statements" and actual results may differ materially and
adversely from those set forth below.
The Forecasted Financial Information was not prepared with a view toward
compliance with published guidelines of the SEC or the guidelines established
by the American Institute of Certified Public Accountants for preparation or
presentation of prospective financial information. The Chesapeake Forecasted
Financial Information included in this joint proxy statement/prospectus has
been prepared by, and is the responsibility of, the management of Chesapeake.
The Southwestern Forecasted Financial Information and the Southwestern Pro
Forma Forecasted Financial Information included in this joint proxy statement/
prospectus has been prepared by, and is the responsibility of, the management
of Southwestern. PricewaterhouseCoopers LLP has not audited, reviewed,
examined, compiled nor applied agreed-upon procedures with respect to the
accompanying Forecasted Financial Information and, accordingly, PricewaterhouseC
oopers LLP does not express an opinion or any other form of assurance with
respect thereto. The report of PricewaterhouseCoopers LLP contained in
Chesapeake's
Annual Report on Form 10-K for the year ended December 31, 2023
, which is incorporated by reference into this joint proxy statement/
prospectus, relates to historical financial information of Chesapeake, and
such report does not extend to the Forecasted Financial Information and should
not be read to do so. In addition, the PricewaterhouseCoopers LLP report
contained in Southwestern's
Annual Report on Form 10-K for the year ended December 31, 2023
, which is incorporated by reference in this joint proxy statement/prospectus,
relates to Southwestern's previously issued financial statements. It does not
extend to the Forecasted Financial Information and should not be read to do so.
The Forecasted Financial Information does not take into account any
circumstances or events occurring after the date it was prepared. Neither
Chesapeake nor Southwestern can give assurance that, had the Forecasted
Financial Information been prepared either as of the date of the Merger
Agreement or as of the date of this joint proxy statement/prospectus, similar
estimates and assumptions would be used. Except as required by applicable
securities laws, Chesapeake and Southwestern do not intend to, and disclaim
any obligation to, make publicly available any update or other revision to the
Forecasted Financial Information to reflect circumstances existing since their
preparation or to reflect the occurrence of unanticipated events, even if any
or all of the underlying assumptions are shown to be inappropriate, including
with respect to the accounting treatment of the Merger under GAAP, or to
reflect changes in general economic or industry conditions. The Forecasted
Financial Information does not take into account all of the possible financial
and other effects of the Merger on Chesapeake or Southwestern, the effect on
Chesapeake or Southwestern of any business or strategic decision or action
that has been or will be taken as a result of the Merger Agreement having been
executed, or the effect of any business or strategic decisions or actions that
would likely have been taken if the Merger Agreement had not been executed,
but which were instead altered, accelerated, postponed or not taken in
anticipation of the Merger. Further, the Forecasted Financial Information does
not take into account the effect on Chesapeake or Southwestern of any possible
failure of the Merger to occur. None of Chesapeake or Southwestern or their
respective affiliates, officers, directors, advisors or other representatives
has made, makes or is authorized in the future to make any representation to
any Chesapeake or Southwestern shareholder or other person regarding
Chesapeake's or Southwestern's ultimate performance compared to the
information contained in the Forecasted Financial Information or that the
Forecasted Financial Information will be achieved. The inclusion of the
Forecasted Financial Information herein should not be deemed an admission or
representation by any of Chesapeake, Southwestern, their respective
affiliates, officers, directors, advisors or other representatives or any other
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person that it is viewed as material information of Chesapeake or
Southwestern, particularly in light of the inherent risks and uncertainties
associated with such forecasts. The summary of the Forecasted Financial
Information included below is not being included in this joint proxy
statement/prospectus in order to influence any Chesapeake or Southwestern
shareholder's decision or to induce any shareholder to vote in favor of any of
the proposals at the Chesapeake Special Meeting or the Southwestern Special
Meeting, but is being provided solely because it was made available to the
Chesapeake Board, Chesapeake's financial advisor, the Southwestern Board and
Southwestern's financial advisor, as applicable, in connection with the Merger.
In light of the foregoing, and considering that the Chesapeake Special Meeting
and the Southwestern Special Meeting will be held several months after the
Forecasted Financial Information was prepared, as well as the uncertainties
inherent in any forecasted information, Chesapeake and Southwestern
shareholders are cautioned not to place undue reliance on such information,
and each of Chesapeake and Southwestern urges you to review Chesapeake's and
Southwestern's most recent SEC filings for a description of Chesapeake's and
Southwestern's reported financial results included therein. See the section
entitled "
Where You Can Find More Information
."
Commodity Price Assumptions of Southwestern
In preparing the prospective financial and operating information described
below, Southwestern management used the following natural gas and oil price
assumptions, which were based on Henry Hub and WTI New York Mercantile
Exchange strip pricing ("NYMEX Strip") as of December 15, 2023:
Commodity Prices
2024E 2025E 2026E 2027E
NYMEX Strip
Gas ($/mcf) $ 2.69 $ 3.51 $ 3.82 $ 3.87
Oil ($/bbl) $ 72.26 $ 69.66 $ 67.03 $ 65.28
Southwestern Forecasted Financial Information for Chesapeake
The following table sets forth certain summarized prospective financial and
operating information regarding Chesapeake for the fiscal years 2023 through
2027 on a stand-alone basis prepared by Southwestern management.
Chesapeake Stand-Alone Basis
(1)
2024E 2025E 2026E 2027E
(in millions, except per unit metrics)
(2)
Henry Hub ($/mcf) $ 2.69 $ 3.51 $ 3.82 $ 3.87
WTI ($/bbl) $ 72.26 $ 69.66 $ 67.03 $ 65.28
Production (mmcfe/d) 3,176 3,342 3,378 3,478
EBITDA $ 1,948 $ 2,420 $ 2,885 $ 3,073
(3)
Cash Flow from Operations $ 1,690 $ 2,202 $ 2,598 $ 2,803
Capital Expenditures $ 1,560 $ 1,501 $ 1,425 $ 1,525
Free Cash Flow $ 130 $ 701 $ 1,173 $ 1,278
(4)
(1)
The summarized prospective financial and operating information regarding
Chesapeake for the fiscal years 2024 through 2025 on a stand-alone basis were
prepared by Chesapeake management.
(2)
The Southwestern Forecasted Financial Information for Chesapeake set forth in
this table does not take into account any circumstances or events occurring
after the date it was prepared. Given that the Chesapeake Special Meeting and
Southwestern Special Meeting will be held several months after the
Southwestern Forecasted Financial Information for Chesapeake was prepared, as
well as the uncertainties inherent in any forecasted information, Southwestern
and Chesapeake shareholders are cautioned not to place undue reliance on such
information.
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(3)
EBITDA is defined as adjusted for interest expense, income taxes,
depreciation, depletion and amortization and certain other noncash items.
EBITDA is not a measure of financial performance under GAAP. Accordingly, it
should not be considered as a substitute for net income (loss), operating
income (loss) or other measures prepared in accordance with GAAP.
(4)
Free Cash Flow is defined as cash flow from operations less capital
expenditures. Free Cash Flow is not a measure of financial performance under
GAAP. Accordingly, it should not be considered as a substitute for net income
(loss), operating income (loss) or other measures prepared in accordance with
GAAP.
Southwestern Forecasted Financial Information for Southwestern
The following table sets forth certain summarized prospective financial and
operating information of Southwestern for the fiscal years 2023 through 2027
on a stand-alone basis prepared by Southwestern management.
Southwestern Stand-Alone Basis
2024E 2025E 2026E 2027E
(in millions, except per unit metrics)
(1)
Henry Hub ($/mcf) $ 2.69 $ 3.51 $ 3.82 $ 3.87
WTI ($/bbl) $ 72.26 $ 69.66 $ 67.03 $ 65.28
Production (mmcfe/d) 4,283 4,332 4,617 4,724
EBITDA $ 2,104 $ 2,643 $ 3,178 $ 3,244
(2)
Cash Flow from Operations $ 1,868 $ 2,397 $ 2,815 $ 2,920
Capital Expenditures $ 1,832 $ 2,260 $ 2,207 $ 2,233
Free Cash Flow $ 40 $ 133 $ 609 $ 686
(3)
(1)
The Southwestern Forecasted Financial Information for Southwestern set forth
in this table does not take into account any circumstances or events occurring
after the date it was prepared. Given that the Chesapeake Special Meeting and
Southwestern Special Meeting will be held several months after the
Southwestern Forecasted Financial Information for Southwestern was prepared,
as well as the uncertainties inherent in any forecasted information,
Southwestern and Chesapeake shareholders are cautioned not to place undue
reliance on such information.
(2)
EBITDA is defined as net income adjusted for interest expense, income taxes,
depreciation, depletion and amortization and certain other noncash items.
EBITDA is not a measure of financial performance under GAAP. Accordingly, it
should not be considered as a substitute for net income (loss), operating
income (loss) or other measures prepared in accordance with GAAP.
(3)
Free Cash Flow is defined as cash flow from operations adjusted for capital
expenditures and other items. Free Cash Flow is not a measure of financial
performance under GAAP. Accordingly, it should not be considered as a
substitute for net income (loss), operating income (loss) or other measures
prepared in accordance with GAAP.
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Southwestern Pro Forma Forecasted Financial Information
The following table sets forth certain unaudited internal financial forecasts
for Chesapeake and Southwestern on a pro forma basis for the proposed Merger
for the fourth quarter of 2023 and fiscal years 2024 through 2027 prepared by
Southwestern management.
Pro Forma
Q42023E 2024E 2025E 2026E 2027E
(in millions)
(1)
Henry Hub ($/mcf) $ 2.88 $ 2.69 $ 3.51 $ 3.82 $ 3.87
WTI ($/bbl) $ 78.45 $ 72.26 $ 69.66 $ 67.03 $ 65.28
Production (mmcfe/d) 7,885 7,458 7,675 7,995 8,202
EBITDA $ 1,229 $ 4,139 $ 5,236 $ 6,351 $ 6,606
(2)
Capital Expenditures $ 750 $ 3,019 $ 3,427 $ 3,333 $ 3,520
Free Cash Flow $ 75 $ 512 $ 1,216 $ 2,257 $ 2,328
(3)
(1)
The Southwestern Pro Forma Forecasted Financial Information set forth in this
table does not take into account any circumstances or events occurring after
the date it was prepared. Given that the Chesapeake Special Meeting and
Southwestern Special Meeting will be held several months after the
Southwestern Pro Forma Forecasted Financial Information was prepared, as well
as the uncertainties inherent in any forecasted information, Southwestern and
Chesapeake shareholders are cautioned not to place undue reliance on such
information.
(2)
Pro Forma EBITDA was determined by adding Chesapeake's Adjusted EBITDA,
Southwestern's Adjusted EBITDA and expected operating synergies of $0 million
in Q4 2023, $86 million in 2024, $173 million in 2025, $288 million in 2026
and 2027. Pro Forma EBITDA is not a measure of financial performance under
GAAP. Accordingly, it should not be considered as a substitute for net income
(loss), operating income (loss) or other measures prepared in accordance with
GAAP.
(3)
Pro Forma Free Cash Flow is defined as cash flow from operations less capital
expenditures and other items. Reflects total expected synergies of $0 million
in Q4 2023, $344 million in 2024, $408 million in 2025, $488 million in 2026
and $431 million in 2027. Pro Forma Free Cash Flow is not a measure of
financial performance under GAAP. Accordingly, it should not be considered as
a substitute for net income (loss), operating income (loss) or other measures
prepared in accordance with GAAP.
Southwestern Management Synergies Estimates
For purposes of the Southwestern Management Synergies Estimates, Southwestern
management estimated operating synergies at $86 million in 2024, $173 million
in 2025 and $288 million in 2026 and 2027, and estimated capital synergies of
$258 million in 2024, $236 million in 2025, $200 million in 2026 and $143
million in 2027. No value was attributed to net operating loss carryforwards
and tax credits for purposes of the Southwestern Management Synergies
Estimates. The Southwestern Management Synergies Estimates were based on
certain assumptions regarding the types of synergies that may be achieved in
connection with the Merger, as well as the timing to achieve such synergies,
including the following assumptions:
.
reduction of general and administrative costs from duplicative public company
and other overhead costs;
.
reduction in well costs achieved by combined best practice and schedule
optimization;
.
savings on capital expenditures per well attributable to the use of extended
laterals; and
.
reduction of operating costs as a result of infrastructure optimization and
improved water utilization.
Commodity Price Assumptions of Chesapeake
In preparing the prospective financial and operating information described
below, Chesapeake management used the following natural gas and oil price
assumptions, which were based on Henry Hub and WTI New York Mercantile
Exchange strip pricing ("NYMEX Strip") as of January 4, 2024:
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Commodity Prices
2024E 2025E 2026E 2027E
NYMEX Strip
Gas ($/mcf) $ 2.84 $ 3.59 $ 4.00 $ 4.00
Oil ($/bbl) $ 72.07 $ 68.65 $ 70.00 $ 70.00
Chesapeake Forecasted Financial Information for Chesapeake
The following table sets forth certain summarized prospective financial and
operating information regarding Chesapeake for the fiscal years 2024 through
2027 on a stand-alone basis prepared by Chesapeake management.
Chesapeake Stand-Alone Basis
(1)
2024E 2025E 2026E 2027E
(in millions, except per unit metrics)
Henry Hub ($/mcf) $ 2.84 $ 3.59 $ 4.00 $ 4.00
WTI ($/bbl) $ 72.07 $ 68.65 $ 70.00 $ 70.00
Production (mmcfe/d) 3,176 3,342 3,446 3,490
EBITDAX $ 2,030 $ 2,500 $ 3,113 $ 3,175
(2)
Cash Flow from Operations $ 1,765 $ 2,272 $ 2,831 $ 2,907
Capital Expenditures $ 1,516 $ 1,501 $ 1,386 $ 1,554
Leverage Operating Free Cash Flow $ 205 $ 771 $ 1,445 $ 1,352
(3)
(1)
The Chesapeake Forecasted Financial Information for Chesapeake set forth in
this table does not take into account any circumstances or events occurring
after the date it was prepared. Given that the Chesapeake Special Meeting and
Southwestern Special Meeting will be held several months after the Chesapeake
Forecasted Financial Information for Chesapeake was prepared, as well as the
uncertainties inherent in any forecasted information, Southwestern and
Chesapeake shareholders are cautioned not to place undue reliance on such
information.
(2)
EBITDAX is defined as adjusted interest, taxes, depreciation, amortization and
exploration expense. EBITDAX is not a measure of financial performance under
GAAP. Accordingly, it should not be considered as a substitute for net income
(loss), operating income (loss) or other measures prepared in accordance with
GAAP.
(3)
Operating Free Cash Flow is defined as cash flow from operations less capital
expenditures. Operating Free Cash Flow is not a measure of financial
performance under GAAP. Accordingly, it should not be considered as a
substitute for net income (loss), operating income (loss) or other measures
prepared in accordance with GAAP.
Chesapeake Forecasted Financial Information for Southwestern
The following table sets forth certain summarized prospective financial and
operating information regarding Southwestern for the fiscal years 2023 through
2027 on a stand-alone basis prepared by Chesapeake management.
Southwestern Stand-Alone Basis
(1)
2024E 2025E 2026E 2027E
(in millions, except per unit metrics)
(2)
Henry Hub ($/mcf) $ 2.84 $ 3.59 $ 4.00 $ 4.00
WTI ($/bbl) $ 72.07 $ 68.65 $ 70.00 $ 70.00
Production Equivalents (mmcfed) 4,279 4,381 4,532 4,648
EBITDAX $ 2,295 $ 2,871 $ 3,549 $ 3,607
(3)
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Southwestern Stand-Alone Basis
(1)
2024E 2025E 2026E 2027E
(in millions, except per unit metrics)
(2)
Cash Flow from Operations $ 2,040 $ 2,738 $ 3,201 $ 3,253
Capital Expenditures $ 1,763 $ 2,021 $ 1,992 $ 2,073
Leverage Operating Free Cash Flow $ 169 $ 612 $ 1,114 $ 1,091
(4)
(1)
The summarized prospective financial and operating information regarding
Southwestern for the fiscal years 2024 through 2025 on a stand-alone basis
were prepared by Southwestern management.
(2)
The Chesapeake Forecasted Financial Information for Southwestern set forth in
this table does not take into account any circumstances or events occurring
after the date it was prepared. Given that the Chesapeake Special Meeting and
Southwestern Special Meeting will be held several months after the Chesapeake
Forecasted Financial Information for Southwestern was prepared, as well as the
uncertainties inherent in any forecasted information, Southwestern and
Chesapeake shareholders are cautioned not to place undue reliance on such
information.
(3)
EBITDAX is defined as adjusted interest, taxes, depreciation, amortization and
exploration expense. EBITDAX is not a measure of financial performance under
GAAP. Accordingly, it should not be considered as a substitute for net income
(loss), operating income (loss) or other measures prepared in accordance with
GAAP.
(4)
Operating Free Cash Flow is defined as cash flow from operations less capital
expenditures. Operating Free Cash Flow is not a measure of financial
performance under GAAP. Accordingly, it should not be considered as a
substitute for net income (loss), operating income (loss) or other measures
prepared in accordance with GAAP.
Chesapeake Management Synergies Estimates
Chesapeake management prepared the Chesapeake Management Synergies Estimates
which included estimated capital and P&L synergies that it reviewed internally
and which were shared with the Chesapeake Board and provided to Evercore as
described above. The Chesapeake Management Synergies Estimates were based on
certain assumptions regarding the types of synergies that may be achieved in
connection with the Merger, as well as the timing to achieve such synergies,
including the following assumptions:
.
reduction of general and administrative costs from duplicative public company
and other overhead costs;
.
reduction in well costs achieved by combined best practice and schedule
optimization;
.
savings on capital expenditures per well attributable to the use of extended
laterals; and
.
reduction of operating costs as a result of infrastructure optimization and
improved water utilization.
In connection with its analysis for the purpose of providing its opinion to
the Chesapeake Board as to the fairness, from a financial point of view, of
the Exchange Ratio to Chesapeake, Evercore utilized the following midpoint of
the synergies estimated by Chesapeake management, which midpoint Chesapeake
management believed to be achievable: capital synergies at an annual run-rate
of $290 million and before-tax P&L synergies of $193 million (or $167 million
with an assumed annual cash tax rate of 13%), in each case phased-in 31% in
2024, 73% in 2025 and 100% in all years thereafter.
Chesapeake and Southwestern do not intend to update or otherwise revise the
above Forecasted Financial Information to reflect circumstances existing after
the date when made or to reflect the occurrence of future events, even in the
event that any or all of the assumptions underlying such Forecasted Financial
Information are no longer appropriate, except as may be required by applicable
law.
Opinion of Chesapeake's Financial Advisor
The Chesapeake Board retained Evercore to act as its financial advisor in
connection with the Chesapeake Board's evaluation of strategic and financial
alternatives, including the Merger. As part of this
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engagement, the Chesapeake Board requested that Evercore evaluate the fairness
of the Exchange Ratio pursuant to the Merger Agreement, from a financial point
of view, to Chesapeake. At a meeting of the Chesapeake Board held on January
10, 2024, Evercore rendered to the Chesapeake Board its oral opinion,
subsequently confirmed by delivery of a written opinion dated January 10,
2024, that as of the date of such opinion and based upon and subject to the
assumptions, limitations, qualifications and conditions described in
Evercore's written opinion, the Exchange Ratio was fair, from a financial
point of view, to Chesapeake.
The full text of the written opinion of Evercore, dated January 10, 2024,
which sets forth, among other things, the procedures followed, assumptions
made, matters considered and qualifications and limitations on the scope of
review undertaken in rendering its opinion, is attached as
Annex B
and is incorporated herein by reference into this proxy statement in its
entirety. You are urged to read Evercore's opinion carefully and in its
entirety. Evercore's opinion was addressed to, and provided for the
information and benefit of, the Chesapeake Board (solely in its capacity as
such) in connection with its evaluation of the proposed Merger. The opinion
does not constitute a recommendation to the Chesapeake Board or to any other
persons in respect of the Merger, including as to how any holder of shares of
Chesapeake Common Stock should vote or act in respect of the Merger.
Evercore's opinion does not address the relative merits of the Merger as
compared to other business or financial strategies that might be available to
Chesapeake, nor does it address the underlying business decision of Chesapeake
to engage in the Merger.
In connection with rendering its opinion Evercore, among other things:
.
reviewed certain publicly available business and financial information
relating to Southwestern and Chesapeake that Evercore deemed to be relevant,
including publicly available research analysts' estimates;
.
reviewed certain internal projected financial and reserves data relating to
Southwestern and furnished to Evercore by the management of Chesapeake and
certain internal projected financial and reserves data relating to Chesapeake
prepared and furnished to Evercore by management of Chesapeake, each as
approved for Evercore's use by Chesapeake (the "Chesapeake Forecasts", as more
fully described in the section of this proxy statement captioned "
The Merger - Certain Unaudited Forecasted Financial Information
");
.
reviewed certain estimates prepared and furnished to Evercore by the
management of Chesapeake of the cost savings and revenue synergies (together,
the "Chesapeake Forecast Synergies") estimated to result from the Merger and
the amounts and timing of the realization of such Chesapeake Forecast
Synergies, as approved for Evercore's use by Chesapeake;
.
discussed with managements of Chesapeake and Southwestern their assessments of
the past and current operations of Southwestern, the current financial
condition and prospects of Southwestern and the Chesapeake Forecasts relating
to Southwestern, and discussed with management of Chesapeake their assessment
of the past and current operations of Chesapeake, the current financial
condition and prospects of Chesapeake, and the Chesapeake Forecasts, including
the Chesapeake Forecast Synergies;
.
reviewed the reported prices and the historical trading activity of
Southwestern Common Stock and Chesapeake Common Stock;
.
compared the financial performance of Southwestern and Chesapeake and their
respective stock market trading multiples with those of certain other publicly
traded companies that Evercore deemed relevant;
.
reviewed the financial terms and conditions of a draft, dated January 10,
2024, of the Merger Agreement; and
.
performed such other analyses and examinations and considered such other
factors that Evercore deemed appropriate.
For purposes of Evercore's analysis and opinion, Evercore assumed and relied
upon the accuracy and completeness of the financial and other information
publicly available, and all of the information supplied or otherwise made
available to, discussed with, or reviewed by Evercore, without any independent
verification of such information (and Evercore did not assume responsibility
or liability for any independent verification
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of such information), and further relied upon the assurances of the management
of Chesapeake that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to the Chesapeake
Forecasts as well as the Chesapeake Forecast Synergies, Evercore assumed with
the consent of the Chesapeake Board, that they were reasonably prepared on
bases reflecting the best currently available estimates and good faith
judgments of the management of Chesapeake as to the future financial
performance of Chesapeake and Southwestern and the other matters covered
thereby. Evercore relied, at the direction of Chesapeake,on the assessments of
the management of Chesapeake as to Chesapeake's ability to achieve the
Chesapeake Forecast Synergies and was advised by Chesapeake, and assumed with
the consent of the Chesapeake Board, that the Chesapeake Forecast Synergies
would be realized in the amounts and at the times projected. Evercore
expressed no view as to the Chesapeake Forecasts, the Chesapeake Forecast
Synergies, or the assumptions on which they were based.
For purposes of Evercore's analysis and opinion, Evercore assumed, in all
respects material to its analysis, that the final executed Merger Agreement
would not differ (other than in immaterial respects) from the draft Merger
Agreement reviewed by Evercore, that the representations and warranties of
each party contained in the Merger Agreement were true and correct, that each
party would perform all of the covenants and agreements required to be
performed by it under the Merger Agreement and that all conditions to the
consummation of the Merger would be satisfied without waiver or modification
thereof. Evercore further assumed, in all respects material to its analysis,
that all governmental, regulatory or other consents, approvals or releases
necessary for the consummation of the Merger would be obtained without any
delay, limitation, restriction or condition that would have an adverse effect
on Southwestern, Chesapeake or the consummation of the Merger or reduce the
contemplated benefits to Chesapeake of the Merger.
Evercore did not conduct a physical inspection of the properties or facilities
of Southwestern or Chesapeake and did not make or assume any responsibility
for making any independent valuation or appraisal of the assets or liabilities
(including any contingent, derivative or other off-balance sheet assets and
liabilities) of Southwestern or Chesapeake, nor was Evercore furnished with
any such valuations or appraisals, nor did Evercore evaluate the solvency or
fair value of Southwestern or Chesapeake under any state or federal laws
relating to bankruptcy, insolvency or similar matters. Evercore's opinion was
necessarily based upon information made available to Evercore as of January
10, 2024, and financial, economic, market and other conditions as they existed
and as could be evaluated as of that date. Subsequent developments to
Evercore's opinion could affect its opinion and Evercore did not and does not
have any obligation to update, revise or reaffirm its opinion.
Evercore was not asked to pass upon, and expressed no opinion with respect to,
any matter other than the fairness to Chesapeake, from a financial point of
view, of the Exchange Ratio. Evercore did not express any view on, and its
opinion did not address, the fairness of the proposed transaction to, or any
consideration received in connection therewith by, the holders of any class of
securities, creditors or other constituencies of Southwestern, nor as to the
fairness of the amount or nature of any compensation to be paid or payable to
any of the officers, directors or employees of Chesapeake or Southwestern, or
any class of such persons, whether relative to the Exchange Ratio or
otherwise. Evercore was not asked to, nor did it express any view on, and its
opinion did not address, any other term or aspect of the Merger Agreement or
the Merger, including, without limitation, the structure or form of the
Merger, or any term or aspect of any other agreement or instrument
contemplated by the Merger Agreement or entered into or amended in connection
with the Merger Agreement. Evercore's opinion did not address the relative
merits of the Merger as compared to other business or financial strategies
that might be available to Chesapeake, nor does it address the underlying
business decision of Chesapeake to engage in the Merger. Evercore did not
express any view on, and its opinion did not address, what the value of
Chesapeake Common Stock actually will be when issued or the prices at which
Chesapeake Common Stock will trade at any time, including following
announcement or consummation of the Merger. Evercore's opinion did not
constitute a recommendation to the Board of Directors or to any other persons
in respect of the Merger, including as to how any holder of shares of
Chesapeake Common Stock should vote or act in respect of the Merger. Evercore
did not express any opinion as to the prices at which shares of Southwestern
Common Stock will trade at any time, as to the potential effects of volatility
in the credit, financial and stock markets on Southwestern or the Merger or as
to the impact of the Merger on the solvency or viability of Southwestern or
the ability of Southwestern to pay its obligations when they come due.
Evercore is not a legal, regulatory, accounting or tax expert and
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assumed the accuracy and completeness of assessments by Chesapeake and its
advisors with respect to legal, regulatory, accounting and tax matters.
Set forth below is a summary of the material financial analyses reviewed by
Evercore with the Chesapeake Board on January 10, 2024, in connection with
rendering its opinion. The following summary, however, does not purport to be
a complete description of the analyses performed by Evercore. The order of the
analyses described and the results of these analyses do not represent relative
importance or weight given to these analyses by Evercore. Except as otherwise
noted, the following quantitative information, to the extent that it is based
on market data, is based on market data that existed on or before January 4,
2024, and is not necessarily indicative of current market conditions.
For purposes of its analyses and reviews, Evercore considered general
business, economic, market and financial conditions, industry sector
performance, and other matters, as they existed and could be evaluated as of
the date of its opinion, many of which are beyond the control of Chesapeake
and Southwestern. The estimates contained in Evercore's analyses and reviews,
and the ranges of valuations resulting from any particular analysis or review,
are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than
those suggested by Evercore's analyses and reviews. In addition, analyses and
reviews relating to the value of companies, businesses or securities do not
purport to be appraisals or to reflect the prices at which companies,
businesses or securities actually may be sold. Accordingly, the estimates used
in, and the results derived from, Evercore's analyses and reviews are
inherently subject to substantial uncertainty.
The following summary of Evercore's financial analyses includes information
presented in tabular format. In order to fully understand the analyses, the
tables should be read together with the full text of each summary. The tables
are not intended to stand alone and alone do not constitute a complete
description of Evercore's financial analyses. Considering the tables below
without considering the full narrative description of Evercore's financial
analyses, including the methodologies and assumptions underlying such
analyses, could create a misleading or incomplete view of such analyses.
Summary of Evercore's Financial Analyses
Net Asset Value Analyses
Chesapeake
Evercore calculated the after-tax net present value, as of October 1, 2023, of
future cash flows Chesapeake was expected to generate based on the reserves
data relating to Chesapeake included in the Chesapeake Forecasts (the
"Chesapeake Reserves Database") and using forecasted oil and natural gas
prices estimated by Chesapeake's management and approved by Chesapeake for
Evercore's use ("Management Pricing"). For purpose of its analysis, Evercore
selected discount rates ranging from 8% to 25% based on its professional
judgment and experience depending on the perceived risk profile of the reserve
categories. Using the various discount rates depending on the reserve
category, Evercore discounted to present value, as of October 1, 2023, the
pre-tax cash flows estimated to be generated by Chesapeake from the developed
and undeveloped reserve estimates, as reflected in the Chesapeake Reserves
Database, to derive a range of total reserve values. Based on this range of
total reserve values, the present value of capital expenditures, the present
value of the future estimated effects of Chesapeake's hedging, the present
value of the general and administrative expenses, the present value of cash
taxes (discounted using a range of discount rates based on the weighted
average of discount rates applied to the pre-tax cash flows by reserve
category), the net value of Chesapeake's acquisitions and divestitures, the
value of Chesapeake's acreage not developed, the value to Chesapeake from its
liquefied natural gas deals with Delfin LNG LLC and Gunvor Group Ltd,
Chesapeake's estimated pro forma net debt and cash as of September 30, 2023
(after giving effect to adjustments for certain items occurring subsequent to
September 30, 2023, including asset sales, share repurchases and dividends, as
furnished by management of Chesapeake), and the number of fully diluted
outstanding shares of Chesapeake Common Stock as of January 5, 2024, in each
case based on the Chesapeake Forecasts, this analysis indicated a range of
implied equity values per share of Chesapeake Common Stock of $63.50 to
$81.78, as compared to the closing price of Chesapeake Common Stock of $76.96
on January 4, 2024.
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Southwestern
Evercore calculated the after-tax net present value, as of October 1, 2023, of
future cash flows Southwestern was expected to generate based on the reserves
data relating to Southwestern included in the Chesapeake Forecasts (the
"Southwestern Reserves Database") and using the Management Pricing. For
purpose of its analysis, Evercore selected discount rates ranging from 8% to
25% based on its professional judgment and experience depending on the
perceived risk profile of the reserve categories. Using the various discount
rates depending on the reserve category, Evercore discounted to present value,
as of October 1, 2023, the pre-tax cash flows estimated to be generated by
Southwestern from the developed and undeveloped reserve estimates, as
reflected in the Southwestern Reserve Database, to derive a range of total
reserve values. Based on this range of total reserve values, the present value
of capital expenditures, the present value of the future estimated effects of
Southwestern's hedging, the present value of the general and administrative
expenses, the present value of cash taxes (discounted using a range of
discount rates based on the weighted average of discount rates applied to the
pre-tax cash flows by reserve category), Southwestern's estimated net debt and
cash as of September 30, 2023, and the number of fully diluted outstanding
shares of Southwestern Common Stock as of January 5, 2024, in each case based
on the Chesapeake Forecasts, this analysis indicated a range of implied equity
values per share of Southwestern Common Stock of $4.61 to $6.60, without
taking into account the Chesapeake Forecast Synergies, and $7.23 to $9.21 by
adding to the resulting range of implied equity values per share of
Southwestern Common Stock the present value of the Chesapeake Forecast
Synergies per share (calculated using a 12.6% discount rate and the number of
fully diluted outstanding shares of Southwestern Common Stock as of January 5,
2024, as provided by Chesapeake's management), as compared to the closing
price of Southwestern Common Stock of $6.40 on January 4, 2024, and the
implied offer price of Southwestern Common Stock of $6.67.
Implied Exchange Ratio
Utilizing the approximate implied per share equity value derived for
Chesapeake and Southwestern by application of the high and low ends of the
relevant reference ranges selected for Chesapeake and Southwestern as
described above, Evercore calculated the following ranges of implied exchange
ratios, as compared to the exchange ratio of 0.0832x based on the closing
prices of Chesapeake Common Stock and Southwestern Common Stock on January 4,
2024 and the Exchange Ratio of 0.0867x pursuant to the Merger Agreement:
Methodology Implied Exchange Ratio
Net Asset Value 0.056x - 0.104x
Net Asset Value (Including Chesapeake Forecast Synergies) 0.088x - 0.145x
Discounted Cash Flow Analyses
Chesapeake
Evercore performed a discounted cash flow analysis of Chesapeake to calculate
ranges of implied present values of the per share equity value of Chesapeake
utilizing estimates of the standalone unlevered, after-tax free cash flows
that Chesapeake was forecasted to generate over the period from October 1,
2023 through December 31, 2027 based on the Chesapeake Forecasts. Evercore
calculated terminal values for Chesapeake using two methods: (i) a perpetuity
growth method - under which Evercore calculated terminal values for Chesapeake
by applying a range of perpetuity growth rates of 1.0% to 2.5%, which range
was selected based on Evercore's professional judgment and experience, to an
estimate of the unlevered, after-tax free cash flows that Chesapeake was
forecasted to generate in the terminal year based on the Chesapeake Forecasts
and (ii) a terminal multiple method - under which Evercore calculated terminal
values for Chesapeake by applying a range of enterprise values to last twelve
months' (which is referred to as "LTM") earnings before interest, taxes,
depreciation, amortization and exploration expense (which is referred to as
"EBITDAX") multiples of 4.0x to 6.0x, which range was selected based on
Evercore's professional judgment and experience, to an estimate of
Chesapeake's terminal year EBITDAX based on the Chesapeake Forecasts.
The cash flows and terminal values in each case were then discounted to
present value as of October 1, 2023, using discount rates ranging from 9.25%
to 11.25%, representing an estimate of Chesapeake's weighted average cost of
capital, as estimated by Evercore based on its professional judgment and
experience, to
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derive implied enterprise value reference ranges for Chesapeake. Based on
these ranges of implied enterprise values, Chesapeake's estimated pro forma
net debt and cash as of September 30, 2023, and the number of fully diluted
outstanding shares of Chesapeake Common Stock as of January 5, 2024, in each
case based on the Chesapeake Forecasts, this analysis indicated ranges of
implied equity values per share of Chesapeake Common Stock as set forth in the
table below, as compared to the closing price of Chesapeake Common Stock of
$76.96 on January 4, 2024:
Methodology Implied Equity
Values Per Share
Perpetuity Growth Rate Method $ 82.19 - $125.32
Terminal Multiple Method $ 75.05 - $110.95
Southwestern
Evercore performed a discounted cash flow analysis of Southwestern to
calculate ranges of implied present values of the per share equity value of
Southwestern utilizing estimates of the standalone unlevered, after-tax free
cash flows that Southwestern was forecasted to generate over the period from
October 1, 2023 through December 31, 2027, based on the Chesapeake Forecasts
(the "Southwestern Standalone DCF"). Evercore calculated terminal values for
Southwestern using two methods: (i) a perpetuity growth method - under which
Evercore calculated terminal values for Southwestern by applying a range of
perpetuity growth rates of 1.0% to 2.5%, which range was selected based on
Evercore's professional judgment and experience, to an estimate of the
unlevered, after-tax free cash flows that Southwestern was forecasted to
generate in the terminal year based on the Chesapeake Forecasts and (ii) a
terminal multiple method - under which Evercore calculated terminal values for
Southwestern by applying a range of enterprise values to LTM EBITDAX multiples
of 3.5x to 5.5x, which range was selected based on Evercore's professional
judgment and experience, to an estimate of Southwestern's terminal year
EBITDAX based on the Chesapeake Forecasts.
The cash flows and terminal values in each case were then discounted to
present value as of October 1, 2023, using discount rates ranging from 9.50%
to 11.50%, representing an estimate of Southwestern's weighted average cost of
capital, as estimated by Evercore based on its professional judgment and
experience, to derive implied enterprise value reference ranges for
Southwestern. Based on these ranges of implied enterprise values,
Southwestern's estimated net debt and cash as of September 30, 2023, and the
number of fully diluted outstanding shares of Southwestern Common Stock as of
January 5, 2024, in each case based on the Chesapeake Forecasts, this analysis
indicated ranges of implied equity values per share of Southwestern Common
Stock as set forth in the table below without taking into account the
Chesapeake Forecast Synergies, and taking into account the Chesapeake Forecast
Synergies by adding to the resulting ranges of implied equity values per share
of Southwestern Common Stock the present value of the Chesapeake Forecast
Synergies per share (calculated using the ranges of discount rates, perpetuity
growth rates and EBITDAX exit multiples used in the discounted cash flow
analysis for Chesapeake as described above and the number of fully diluted
outstanding shares of Southwestern Common Stock as of January 5, 2024, as
provided by Chesapeake's management), as compared to the closing price of
Southwestern Common Stock of $6.40 on January 4, 2024 and the implied offer
price of Southwestern Common Stock of $6.67:
Methodology Implied Equity
Values Per Share
Perpetuity Growth Rate Method $ 6.80 - $12.05
Terminal Multiple Method $ 5.99 - $11.11
Perpetuity Growth Rate Method (including Chesapeake Forecast Synergies) $ 10.33 - $17.35
Terminal Multiple Method (including Chesapeake Forecast Synergies) $ 7.33 - $12.73
Implied Exchange Ratio
Utilizing the approximate implied per share equity value derived for
Chesapeake and Southwestern by application of the high and low ends of the
relevant reference ranges selected for Chesapeake and Southwestern as
described above, Evercore calculated the following ranges of implied exchange
ratios, as compared to
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the exchange ratio of 0.0832x based on the closing prices of Chesapeake Common
Stock and Southwestern Common Stock on January 4, 2024 and the Exchange Ratio
of 0.0867x pursuant to the Merger Agreement:
Methodology Implied
Exchange Ratio
Perpetuity Growth Rate Method 0.054x - 0.147x
Terminal Multiple Method 0.054x - 0.148x
Perpetuity Growth Rate Method (including Chesapeake Forecast Synergies) 0.082x - 0.211x
Terminal Multiple Method (including Chesapeake Forecast Synergies) 0.066x - 0.170x
Selected Publicly Traded Companies Analysis
Chesapeake
Evercore reviewed and compared certain financial information of Chesapeake to
corresponding financial multiples and ratios for the following selected
Appalachia and Haynesville publicly traded company operators with market
capitalizations between $500 million and $25 billion:
.
Antero Resources Corporation
.
CNX Resources Corporation
.
Comstock Resources, Inc.
.
Coterra Energy Inc.
.
EQT Corporation
.
Gulfport Energy Corporation
.
Range Resources Corporation
.
Southwestern
For each of the selected companies and Chesapeake, Evercore calculated (i)
total enterprise value (defined as equity market capitalization plus total
debt plus non-controlling interests, less cash and cash equivalents) as a
multiple of estimated calendar years 2024 and 2025 EBITDAX (which is referred
to as "TEV / EBITDAX"), and (ii) equity value as a multiple of estimated
calendar years 2024 and 2025 cash flows from operations (which is referred to
as "Equity Value / CFFO").
The results of these calculations were as follows:
Benchmark Mean Median
TEV / EBITDAX (2024E) 5.0x 5.0x
TEV / EBITDAX (2025E) 4.0x 4.0x
Equity Value / CFFO (2024E) 4.4x 5.0x
Equity Value / CFFO (2025E) 3.7x 3.8x
Based on the multiples it derived for the selected companies and its
professional judgment and experience, Evercore applied a (i) TEV / EBITDAX
multiple reference ranges of 4.5x to 5.5x and 3.75x to 4.75x to an estimate of
Chesapeake's calendar year 2024 EBITDAX and calendar year 2025 EBITDAX,
respectively, in each case based on the Chesapeake Forecasts, (ii) TEV /
EBITDAX multiple reference ranges of 4.5x to 5.5x and 3.75x to 4.5x to an
estimate of Chesapeake's calendar year 2024 EBITDAX and calendar year 2025
EBITDAX, respectively, in each case based on publicly available equity
research analyst consensus estimates per FactSet, (iii) Equity Value / CFFO
multiple reference ranges of 4.25x to 5.25x and 3.5x to 4.5x to an estimate of
Chesapeake's calendar year 2024 CFFO and calendar year 2025 CFFO,
respectively, in each case based on the Chesapeake Forecasts, and (iv) Equity
Value / CFFO multiple reference ranges of 4.25x to 5.25x and 3.5x to 4.5x to
an estimate of Chesapeake's calendar year 2024 CFFO and calendar year 2025
CFFO, respectively, in each case based on publicly available equity research
analyst consensus estimates per FactSet, in each case, to derive implied
enterprise value reference ranges for
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Chesapeake. Based on these ranges of implied enterprise values, Chesapeake's
estimated pro forma net debt and cash as of September 30, 2023, and the number
of fully diluted outstanding shares of Chesapeake Common Stock as of January
5, 2024, in each case as provided by Chesapeake's management, this analysis
indicated ranges of implied equity values per share of Chesapeake Common Stock
as set forth in the table below, as compared to the closing price of
Chesapeake Common Stock of $76.96 on January 4, 2024:
Metric Implied Equity
Values Per Share
TEV / EBITDAX (Chesapeake Forecasts) $ 65.51 - $85.45
TEV / EBITDAX (Analyst Consensus) $ 68.54 - $90.00
Equity Value / CFFO (Chesapeake Forecasts) $ 60.60 - $79.49
Equity Value / CFFO (Analyst Consensus) $ 60.70 - $79.04
Although none of these companies is directly comparable to Chesapeake,
Evercore selected these companies because they are Appalachia and Haynesville
publicly traded company operators with business characteristics that Evercore,
in its professional judgment and experience, considered generally relevant to
Chesapeake for purposes of its financial analyses. In evaluating the selected
companies, Evercore made judgments and assumptions with regard to general
business, economic and market conditions affecting the selected companies and
other matters, as well as differences in the selected companies' financial,
business and operating characteristics. Accordingly, an evaluation of the
results of this analysis is not entirely mathematical. Rather, this analysis
involves complex considerations and judgments regarding many factors that
could affect the relative values of the selected companies and the multiples
derived from the selected companies. Mathematical analysis, such as
determining the mean or median, is not in itself a meaningful method of using
the data of the selected companies.
Southwestern
Evercore reviewed and compared certain financial information of Southwestern
to corresponding financial multiples and ratios for the following selected
Appalachia and Haynesville publicly traded company operators with market
capitalizations between $500 million and $25 billion:
.
Antero Resources Corporation
.
Chesapeake
.
CNX Resources Corporation
.
Comstock Resources, Inc.
.
Coterra Energy Inc.
.
EQT Corporation
.
Gulfport Energy Corporation
.
Range Resources Corporation
For each of the selected companies and Southwestern, Evercore calculated (i)
total enterprise value as a multiple of estimated calendar years 2024 and 2025
EBITDAX, and (ii) equity value as a multiple of estimated calendar years 2024
and 2025 CFFO.
The results of these calculations were as follows:
Benchmark Mean Median
TEV / EBITDAX (2024E) 5.0x 5.0x
TEV / EBITDAX (2025E) 4.0x 4.0x
Equity Value / CFFO (2024E) 4.4x 5.0x
Equity Value / CFFO (2025E) 3.7x 3.8x
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Based on the multiples it derived for the selected companies and its
professional judgment and experience, Evercore applied a (i) TEV / EBITDAX
multiple reference ranges of 4.0x to 5.0x and 3.0x to 4.0x to an estimate of
Southwestern's calendar year 2024 EBITDAX and calendar year 2025 EBITDAX,
respectively, in each case based on the Chesapeake Forecasts, (ii) TEV /
EBITDAX multiple reference ranges of 4.0x to 5.0x and 3.0x to 4.0x to an
estimate of Southwestern's calendar year 2024 EBITDAX and calendar year 2025
EBITDAX, respectively, in each case based on publicly available equity
research analyst consensus estimates per FactSet, (iii) Equity Value / CFFO
multiple reference ranges of 2.5x to 3.5x and 2.0x to 3.0x to an estimate of
Southwestern's calendar year 2024 CFFO and calendar year 2025 CFFO,
respectively, in each case based on the Chesapeake Forecasts, and (iv) Equity
Value / CFFO multiple reference ranges of 2.5x to 3.5x and 2.0x to 3.0x to an
estimate of Southwestern's calendar year 2024 CFFO and calendar year 2025
CFFO, respectively, in each case based on publicly available equity research
analyst consensus estimates per FactSet, in each case, to derive implied
enterprise value reference ranges for Southwestern. Based on these ranges of
implied enterprise values, Southwestern's estimated net debt and cash as of
September 30, 2023, and the number of fully diluted outstanding shares of
Southwestern Common Stock as of January 5, 2024, in each case as provided by
Chesapeake's management, this analysis indicated ranges of implied equity
values per share of Southwestern Common Stock as set forth in the table below,
as compared to the closing price of Southwestern Common Stock of $6.40 on
January 4, 2024 and the implied offer price of Southwestern Common Stock of
$6.67:
Metric Implied Equity
Values Per Share
TEV / EBITDAX (Chesapeake Forecasts) $ 5.38 - $8.86
TEV / EBITDAX (Analyst Consensus) $ 5.88 - $9.08
Equity Value / CFFO (Chesapeake Forecasts) $ 5.68 - $8.58
Equity Value / CFFO (Analyst Consensus) $ 5.46 - $8.18
Although none of these companies is directly comparable to Southwestern,
Evercore selected these companies because they are Appalachia and Haynesville
publicly traded company operators with business characteristics that Evercore,
in its professional judgment and experience, considered generally relevant to
Southwestern for purposes of its financial analyses. In evaluating the
selected companies, Evercore made judgments and assumptions with regard to
general business, economic and market conditions affecting the selected
companies and other matters, as well as differences in the selected companies'
financial, business and operating characteristics. Accordingly, an evaluation
of the results of this analysis is not entirely mathematical. Rather, this
analysis involves complex considerations and judgments regarding many factors
that could affect the relative values of the selected companies and the
multiples derived from the selected companies. Mathematical analysis, such as
determining the mean or median, is not in itself a meaningful method of using
the data of the selected companies.
Implied Exchange Ratio
Utilizing the approximate implied per share equity value derived for
Chesapeake and Southwestern by application of the high and low ends of the
relevant reference ranges selected for Chesapeake and Southwestern as
described above, Evercore calculated the following ranges of implied exchange
ratios, as compared to the exchange ratio of 0.0832x based on the closing
prices of Chesapeake Common Stock and Southwestern Common Stock on January 4,
2024, and the Exchange Ratio of 0.0867x pursuant to the Merger Agreement:
Metric Implied
Exchange Ratio
TEV / EBITDAX (Chesapeake Forecasts) 0.063x - 0.135x
TEV / EBITDAX (Analyst Consensus) 0.065x - 0.132x
Equity Value / CFFO (Chesapeake Forecasts) 0.071x - 0.142x
Equity Value / CFFO (Analyst Consensus) 0.069x - 0.135x
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Other Factors
Evercore also noted certain other factors, which were not considered material
to its financial analyses with respect to its opinion, but were referenced for
informational purposes only, including, among other things, the following:
Equity Research Analysts' Price Targets
Chesapeake and Southwestern
Evercore reviewed selected publicly available share price targets of research
analysts' estimates known to Evercore as of January 4, 2024, noting that the
low and high share price targets ranged from (i) $80.00 to $120.00 for
Chesapeake Common Stock, as compared to the closing price of Chesapeake Common
Stock of $76.96 on January 4, 2024 and (ii) $5.75 to $10.00 for Southwestern
Common Stock, as compared to the closing price of Southwestern Common Stock of
$6.40 on January 4, 2024, and the implied offer price of Southwestern Common
Stock of $6.67. Public market trading price targets published by equity
research analysts do not necessarily reflect current market trading prices for
the shares of Chesapeake Common Stock and Southwestern Common Stock and these
target prices and the analysts' earnings estimates on which they were based
are subject to risk and uncertainties, including factors affecting the
financial performance of Chesapeake, Southwestern and future general industry
and market conditions.
Implied Exchange Ratio
Utilizing the high and low ends of the price targets reference ranges derived
for Chesapeake and Southwestern, in each case as described above, Evercore
calculated an implied exchange ratio range of 0.048x to 0.125x, as compared to
the exchange ratio of 0.0832x based on the closing prices of Chesapeake Common
Stock and Southwestern Common Stock on January 4, 2024, and the Exchange Ratio
of 0.0867x pursuant to the Merger Agreement.
52-Week Trading Range Analysis
Chesapeake and Southwestern
Evercore reviewed historical trading prices of shares of Chesapeake Common
Stock and shares of Southwestern Common Stock during the 52-week period ended
January 4, 2024, noting that low and high prices (based on closing values)
during such period ranged from (i) $71.66 to $92.23 per share of Chesapeake
Common Stock, as compared to the closing price of Chesapeake Common Stock of
$76.96 on January 4, 2024 and (ii) $4.61 to $7.55 per share of Southwestern
Common Stock, as compared to the closing price of Southwestern Common Stock of
$6.40 on January 4, 2024, and the implied offer price of Southwestern Common
Stock of $6.67.
Implied Exchange Ratio
Utilizing the high and low ends of historical trading prices of shares of
Chesapeake Common Stock and shares of Southwestern Common Stock from the
52-week period ended January 4, 2024, in each case as described above,
Evercore calculated an implied exchange ratio range of 0.050x to 0.105x, as
compared to the exchange ratio of 0.0832x based on the closing prices of
Chesapeake Common Stock and Southwestern Common Stock on January 4, 2024, and
the Exchange Ratio of 0.0867x pursuant to the Merger Agreement.
Miscellaneous
The foregoing summary of Evercore's financial analyses does not purport to be
a complete description of the analyses or data presented by Evercore to the
Chesapeake Board. In connection with the review of the Merger by the
Chesapeake Board, Evercore performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or of the
summary described above, without considering the analyses as a whole, could
create an incomplete view of the processes underlying Evercore's opinion. In
arriving at its fairness determination, Evercore
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considered the results of all the analyses and did not draw, in isolation,
conclusions from or with regard to any one analysis or factor considered by it
for purposes of its opinion. Rather, Evercore made its determination as to
fairness on the basis of its professional judgment and experience after
considering the results of all the analyses. In addition, Evercore may have
given various analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less probable than
other assumptions. As a result, the ranges of valuations resulting from any
particular analysis or combination of analyses described above should not be
taken to be the view of Evercore with respect to the actual value of the
shares of Chesapeake Common Stock. Further, Evercore's analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies used, including judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of Chesapeake or its advisors. Rounding may result in total sums
set forth in this section not equaling the total of the figures shown.
Evercore prepared these analyses for the purpose of providing an opinion to
the Chesapeake Board as to the fairness, from a financial point of view, of
the Exchange Ratio to Chesapeake. These analyses do not purport to be
appraisals or to necessarily reflect the prices at which the business or
securities actually may be sold. Any estimates contained in these analyses are
not necessarily indicative of actual future results, which may be
significantly more or less favorable than those suggested by such estimates.
Accordingly, estimates used in, and the results derived from, Evercore's
analyses are inherently subject to substantial uncertainty, and Evercore
assumes no responsibility if future results are materially different from
those forecasted in such estimates.
Evercore's financial advisory services and its opinion were provided for the
information and benefit of the Chesapeake Board (in its capacity as such) in
connection with its evaluation of the proposed Merger. The issuance of
Evercore's opinion was approved by an Opinion Committee of Evercore.
Evercore did not recommend any specific amount of consideration to the
Chesapeake Board or Chesapeake management or that any specific amount of
consideration constituted the only appropriate consideration in the
transaction for the holders of Chesapeake Common Stock.
Pursuant to the terms of Evercore's engagement letter with Chesapeake,
Chesapeake has agreed to pay Evercore a fee for its services in an aggregate
amount of up to $20 million, of which (i) $2.5 million was payable upon
delivery of Evercore's opinion in connection with the Merger Agreement and is
fully creditable against any fee payable upon the consummation of the Merger
and (ii) the remainder will be payable contingent upon the consummation of the
Merger. Chesapeake may also pay Evercore an additional discretionary fee of up
to $5 million in connection with the consummation of the Merger. Chesapeake
has also agreed to reimburse Evercore for its expenses and to indemnify
Evercore against certain liabilities arising out of its engagement.
During the two-year period prior to the date of its opinion, Evercore and its
affiliates have provided financial advisory or other services to Chesapeake
and Evercore received fees for the rendering of these services in the amount
of approximately $11 million. In addition, during the two-year period prior to
the date of its opinion, Evercore and its affiliates have not been engaged to
provide financial advisory or other services to Southwestern and Evercore has
not received any compensation from Southwestern during such period. Evercore
may provide financial advisory or other services to Chesapeake and
Southwestern in the future, and in connection with any such services Evercore
may receive compensation.
Evercore and its affiliates engage in a wide range of activities for its and
their own accounts and the accounts of customers, including corporate finance,
mergers and acquisitions, equity sales, trading and research, private equity,
placement agent, asset management and related activities. In connection with
these businesses or otherwise, Evercore and its affiliates and/or its or their
respective employees, as well as investment funds in which any of them may
have a financial interest, may at any time, directly or indirectly, hold long
or short positions and may trade or otherwise effect transactions for their
own accounts or the accounts of customers, in debt or equity securities,
senior loans and/or derivative products or other financial instruments of or
relating to Chesapeake, Southwestern, potential parties to the Merger and/or
any of their respective affiliates or persons that are competitors, customers
or suppliers of Chesapeake or Southwestern.
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Chesapeake engaged Evercore to act as a financial advisor based on Evercore's
qualifications, experience and reputation. Evercore is an internationally
recognized investment banking firm and regularly provides fairness opinions in
connection with mergers and acquisitions, leveraged buyouts and valuations for
corporate and other purposes.
Opinion of Southwestern's Financial Advisor
Goldman Sachs rendered its oral opinion, subsequently confirmed in writing, to
the Southwestern Board that, as of January 10, 2024, and based upon and
subject to the factors and assumptions set forth therein, the Exchange Ratio
pursuant to Merger Agreement was fair from a financial point of view to the
holders (other than Chesapeake and its affiliates) of Southwestern Common
Stock.
The full text of the written opinion of Goldman Sachs, dated January 10, 2024,
which sets forth assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as
Annex C
. The summary of Goldman Sachs' opinion contained in this proxy statement/
prospectus is qualified in its entirety by reference to the full text of
Goldman Sachs' written opinion. Goldman Sachs' advisory services and its
opinion were provided for the information and assistance of the Southwestern
Board in connection with its consideration of the transaction and such opinion
does not constitute a recommendation as to how any holder of Southwestern
Common Stock should vote with respect to the transaction or any other matter.
In connection with rendering the opinion described above and performing its
related financial analyses, Goldman Sachs reviewed, among other things:
.
the Merger Agreement;
.
annual reports to stockholders and Annual Reports on Form 10-K of Southwestern
and Chesapeake for the five fiscal years ended December 31, 2022;
.
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
Southwestern and Chesapeake;
.
certain other communications from Southwestern and Chesapeake to their
respective stockholders;
.
certain publicly available research analyst reports for Southwestern and
Chesapeake;
.
certain internal financial analyses and forecasts for Chesapeake standalone
prepared by the management of Chesapeake; and
.
certain internal financial analyses and forecasts for Southwestern, certain
financial analyses and forecasts for Chesapeake standalone, certain financial
analyses and forecasts for Chesapeake pro forma for the transaction, and
certain forecasts related to the expected utilization by Southwestern of
certain net operating loss carryforwards and tax credits, in each case, as
prepared by the management of Southwestern and approved for Goldman Sachs' use
by Southwestern (referred to in this section as the "Southwestern Projections"
and which are summarized in the section entitled "
Certain Unaudited Forecasted Financial Information
" beginning on page 109), including certain operating synergies projected by
the management of Southwestern to result from the transaction, as approved for
Goldman Sachs' use by Southwestern (referred to in this section as
"Southwestern Projections Synergies" and which are summarized in the section
entitled "
Certain Unaudited Forecasted Financial Information
" beginning on page 109).
Goldman Sachs also held discussions with members of the senior management of
Southwestern and Chesapeake regarding their assessment of the strategic
rationale for, and the potential benefits of, the transaction and the past and
current business operations, financial condition and future prospects of
Southwestern and Chesapeake; reviewed the reported price and trading activity
for Southwestern Common Stock and Chesapeake Common Stock; compared certain
financial and stock market information for Southwestern and Chesapeake with
similar information for certain other companies the securities of which are
publicly traded; reviewed the financial terms of certain recent business
combinations in the exploration and production industry; and performed such
other studies and analyses, and considered such other factors, as it deemed
appropriate.
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For purposes of rendering its opinion, Goldman Sachs, with the Southwestern
Board's consent, relied upon and assumed the accuracy and completeness of all
of the financial, legal, regulatory, tax, accounting and other information
provided to, discussed with or reviewed by, it, without assuming any
responsibility for independent verification thereof. In that regard, Goldman
Sachs assumed with Southwestern's consent that the Southwestern Projections,
including the Southwestern Projections Synergies, were reasonably prepared on
a basis reflecting the best then-currently available estimates and judgments
of the management of Southwestern. Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities (including any
contingent, derivative or other off-balance-sheet assets and liabilities) of
Southwestern or Chesapeake or any of their respective subsidiaries and it was
not furnished with any such evaluation or appraisal. Goldman Sachs assumed
that all governmental, regulatory or other consents and approvals necessary
for the consummation of the transaction will be obtained without any adverse
effect on Southwestern or Chesapeake or on the expected benefits of the
transaction in any way meaningful to its analysis. Goldman Sachs also assumed
that the transaction will be consummated on the terms set forth in the Merger
Agreement, without the waiver or modification of any term or condition the
effect of which would be in any way meaningful to its analysis.
Goldman Sachs' opinion does not address the underlying business decision of
Southwestern to engage in the transaction or the relative merits of the
transaction as compared to any strategic alternatives that may be available to
Southwestern; nor does it address any legal, regulatory, tax or accounting
matters. Goldman Sachs was not requested to solicit, and did not solicit,
interest from other parties with respect to an acquisition of, or other
business combination with, Southwestern or any other alternative transaction.
Goldman Sachs' opinion addresses only the fairness from a financial point of
view to the holders (other than Chesapeake and its affiliates) of Southwestern
Common Stock, as of the date of its opinion, of the Exchange Ratio pursuant to
the Merger Agreement. Goldman Sachs' opinion does not express any view on, and
does not address, any other term or aspect of the Merger Agreement or the
transaction or any term or aspect of any other agreement or instrument
contemplated by the Merger Agreement or entered into or amended in connection
with the transaction, including the fairness of the transaction to, or any
consideration received in connection therewith by, the holders of any other
class of securities, creditors, or other constituencies of Southwestern; nor
as to the fairness of the amount or nature of any compensation to be paid or
payable to any of the officers, directors or employees of Southwestern, or
class of such persons, in connection with the transaction, whether relative to
the Exchange Ratio pursuant to the Merger Agreement or otherwise. Goldman
Sachs does not express any opinion as to the prices at which Chesapeake Common
Stock or Southwestern Common Stock will trade at any time or as to the
potential effects of volatility in the credit, financial and stock markets on
Southwestern, Chesapeake or the transaction, or as to the impact of the
transaction on the solvency or viability of Southwestern or Chesapeake or the
ability of Southwestern or Chesapeake to pay their respective obligations when
they come due. Goldman Sachs' opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information
made available to Goldman Sachs as of, the date of its opinion and Goldman
Sachs assumes no responsibility for updating, revising or reaffirming its
opinion based on circumstances, developments or events occurring after the
date of its opinion. Goldman Sachs' opinion was approved by a fairness
committee of Goldman Sachs.
Summary of Financial Analyses
The following is a summary of the material financial analyses delivered by
Goldman Sachs to the Southwestern Board in connection with rendering the
opinion described above. The following summary, however, does not purport to
be a complete description of the financial analyses performed by Goldman
Sachs, nor does the order of analyses described represent relative importance
or weight given to those analyses by Goldman Sachs. Some of the summaries of
the financial analyses include information presented in tabular format. The
tables must be read together with the full text of each summary and are alone
not a complete description of Goldman Sachs' financial analyses. Except as
otherwise noted, the following quantitative information, to the extent that it
is based on market data, is based on market data as it existed on or before
January 10, 2024, the last trading day before the public announcement of the
transaction and is not necessarily indicative of current market conditions.
Illustrative Discounted Cash Flow Analysis - Southwestern Standalone
Using the Southwestern Projections, Goldman Sachs performed an illustrative
discounted cash flow analysis on Southwestern to derive a range of
illustrative present values per share of Southwestern Common
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Stock. Using the mid-year convention for discounting cash flows and discount
rates ranging from 9.0% to 11.0%, reflecting estimates of Southwestern's
weighted average cost of capital, Goldman Sachs discounted to present value as
of September 30, 2023, (i) estimates of unlevered free cash flow for
Southwestern for the period from October 1, 2023, to December 31, 2027, as
reflected in the Southwestern Projections and (ii) a range of illustrative
terminal values for Southwestern, which were calculated by applying terminal
year exit EBITDA multiples ranging from 3.25x to 4.25x, to a terminal year
estimate of EBITDA to be generated by Southwestern in calendar year 2027, as
reflected in the Southwestern Projections (which analysis implied perpetuity
growth rates ranging from 0.6% to 4.3%). The range of terminal year exit
EBITDA multiples was estimated by Goldman Sachs utilizing its professional
judgment and experience, taking into account historical trading multiples of
Southwestern. Goldman Sachs derived such discount rates by application of the
Capital Asset Pricing Model ("CAPM"), which requires certain company-specific
inputs, including Southwestern's target capital structure weightings, the cost
of long-term debt, after-tax yield on permanent excess cash, if any, future
applicable marginal cash tax rate and a beta for Southwestern, as well as
certain financial metrics for the United States financial markets generally.
Goldman Sachs derived a range of illustrative enterprise values for
Southwestern by adding the ranges of present values it derived above. Goldman
Sachs then subtracted from the range of illustrative enterprise values it
derived for Southwestern the amount of Southwestern's net debt as of September
30, 2023, as approved for Goldman Sachs' use by Southwestern, to derive a
range of illustrative equity values for Southwestern. Goldman Sachs then
divided the range of illustrative equity values it derived by the number of
fully diluted outstanding shares of Southwestern as of September 30, 2023, as
provided by and approved for Goldman Sachs' use by Southwestern, using the
treasury stock method, to derive a range of illustrative present values per
share ranging from $4.01 to $6.60.
Illustrative Present Value of Future Share Price Analysis - Southwestern
Standalone
Using the Southwestern Projections, Goldman Sachs performed an illustrative
analysis of the implied present value of an illustrative future value per
share of Southwestern Common Stock. For this analysis, Goldman Sachs first
calculated the implied enterprise value for Southwestern as of December 31 for
the fiscal year 2025, by applying a range of exit multiples of illustrative
enterprise value ("EV") to next twelve month ("NTM") EBITDA ("EV/NTM EBITDA")
of 3.25x to 4.25x to estimates of Southwestern's NTM EBITDA. This illustrative
range of EV/NTM EBITDA exit multiple estimates was derived by Goldman Sachs
utilizing its professional judgment and experience, taking into account
current and historical EV/
NTM EBITDA exit multiples for Southwestern.
Goldman Sachs then subtracted the amount of Southwestern's net debt for fiscal
year 2025, as provided by and approved for Goldman Sachs' use by Southwestern,
from the respective implied enterprise values in order to derive a range of
illustrative equity values as of December 31 for Southwestern for the fiscal
year 2025. Goldman Sachs then divided these implied equity values by the
projected year-end number of fully diluted outstanding shares of Southwestern
Common Stock of the fiscal year 2025, calculated using information provided by
and approved for Goldman Sachs' use by Southwestern, to derive a range of
implied future values per share of Southwestern Common Stock. Goldman Sachs
then discounted these implied future equity values per share of Southwestern
Common Stock to September 30, 2023 using an illustrative discount rate of
11.8%, reflecting an estimate of Southwestern's cost of equity. Goldman Sachs
derived such discount rate by application of the CAPM, which requires certain
company-specific inputs, including a beta for Southwestern, as well as certain
financial metrics for the United States financial markets generally. This
analysis resulted in a range of implied present values of $4.48 to $6.69 per
share of Southwestern Common Stock.
Selected Precedent Transactions Premia Analysis
Goldman Sachs reviewed and analyzed, using publicly available information, the
acquisition premia paid in certain acquisition transactions listed below
announced since December 31, 2019 involving U.S. publicly traded target
companies in the exploration and production industry with a transaction value
of greater than $3 billion. With respect to each of these transactions,
Goldman Sachs calculated the implied premium of the price paid in the
transaction relative to the last undisturbed closing share price of the target
company prior to the announcement of the transaction. The following table
presents the results of this analysis:
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Announcement Date Target Acquiror Premium to Last
Undisturbed Closing
Share Price
1/4/2024 Callon Petroleum Company APA Corporation 13.8
%
10/23/2023 Hess Corporation Chevron Corporation 4.9
%
10/11/2023 Pioneer Natural Resources Company Exxon Mobil Corporation 19.9
%
8/21/2023 Earthstone Energy, Inc. Permian Resources Corporation 14.8
%
5/22/2023 PDC Energy, Inc. Chevron Corporation 10.6
%
3/7/2022 Whiting Petroleum Corporation Oasis Petroleum Inc. (2.9
)%
5/24/2021 Cimarex Energy Co. Cabot Oil & Gas Corporation 0.4
%
10/20/2020 Parsley Energy, Inc. Pioneer Natural Resources Company 7.9
%
10/19/2020 Concho Resources Inc. ConocoPhillips 11.7
%
9/28/2020 WPX Energy, Inc. Devon Energy Corporation 2.6
%
7/20/2020 Noble Energy, Inc. Chevron Corporation 7.6
%
Although none of the selected transactions is directly comparable to the
transaction, the target companies in the selected transactions were companies
with certain operations or financial characteristics that, for the purposes of
analysis, may be considered similar to certain of Southwestern's operations or
financial characteristics, and as such, for purposes of this analysis, the
selected transactions may be considered similar to the transaction.
In addition, Goldman Sachs calculated the median closing stock price
performance for the following selected companies after October 16, 2023, the
last trading day prior to Reuters reporting that Southwestern was in
preliminary discussions regarding a potential transaction with Chesapeake,
through January 10, 2024, the date of the execution of the Merger Agreement,
and then applied these median performances to the closing price per share of
Southwestern common stock on October 16, 2023, to derive what are referred to
in this proxy statement/prospectus, for October 16, 2023, as the "hypothetical
undisturbed stock price" from such date. The selected companies used in this
calculation were:
.
EQT Corporation
.
Antero Resources Corporation
.
CNX Resources Corporation
.
Comstock Resources, Inc.
.
Coterra Energy Inc.
.
Range Resources Corporation
Although none of these selected companies is directly comparable to
Southwestern, the companies included were chosen because they are publicly
traded companies with operations that for purposes of analysis may be
considered similar certain operations.
Based on Goldman Sachs' review of the foregoing data and its professional
judgment and experience, Goldman Sachs applied a reference range of
illustrative premia of (2.9)% to 19.9% to the hypothetical undisturbed stock
price of Southwestern Common Stock from October 16, 2023, of $5.85. This
analysis resulted in a range of implied equity values per share of
Southwestern Common Stock of $5.68 to $7.01.
Illustrative Discounted Cash Flow Analysis - Pro Forma Combined Company
Using the Southwestern Projections, which take into account the Southwestern
Projections Synergies, Goldman Sachs performed an illustrative discounted cash
flow analysis of the combined company on a pro forma basis. Using the mid-year
convention for discounting cash flows and discount rates ranging from 8.5% to
10.5%, reflecting estimates of the combined company's weighted average cost of
capital, Goldman Sachs discounted to present value as of September 30, 2023
(i) estimates of unlevered free cash flow for the pro forma combined company
for the period from October 1, 2023, to December 31, 2027, as reflected in the
Southwestern Projections and (ii) a range of illustrative terminal values for
the pro forma combined
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company, which were calculated by applying terminal year exit EBITDA multiples
ranging from 4.0x to 5.0x, to a terminal year estimate of the EBITDA to be
generated by the pro forma combined company, as reflected in the Southwestern
Projections (which analysis implied perpetuity growth rates of (1.0)% to 2.6%
and includes run-rate Southwestern Projections Synergies). The range of
terminal year exit EBITDA multiples was estimated by Goldman Sachs utilizing
its professional judgment and experience, taking into account historical
trading multiples of Southwestern and Chesapeake over certain prior periods.
Goldman Sachs derived such discount rates by application of the CAPM, which
requires certain company-specific inputs, including the pro forma combined
company's target capital structure weightings, the cost of long-term debt,
after-tax yield on permanent excess cash, if any, future applicable marginal
cash tax rate and a beta for the pro forma combined company, as well as
certain financial metrics for the United States financial markets generally.
Goldman Sachs derived ranges of illustrative pro forma enterprise values for
the combined company by adding the ranges of present values it derived above.
Goldman Sachs then subtracted from the range of illustrative pro forma
enterprise values the amount of pro forma combined company net debt as
provided by and approved for Goldman Sachs' use by Southwestern, to derive a
range of implied pro forma equity values for the combined company. Goldman
Sachs then divided the range of implied pro forma equity values it derived by
the number of pro forma fully diluted shares of combined Southwestern common
stock (referred to in this section as the "Combined Southwestern Common
Stock") expected to be outstanding following the consummation of the
transaction, as provided by and approved for Goldman Sachs' use by
Southwestern, using the treasury stock method. Lastly, Goldman Sachs
multiplied such amount by the Exchange Ratio of 0.0867x to derive a range of
illustrative present values per share of the combined company. This analysis
resulted in a range of implied present values of $6.55 to $8.78 per share of
Combined Southwestern Common Stock.
Illustrative Present Value of Future Share Price Analysis - Pro Forma Combined
Company
Using the Southwestern Projections, which take into account the Southwestern
Projections Synergies, Goldman Sachs performed an illustrative analysis of the
implied present value of a share of Combined Southwestern Common Stock. For
this analysis, Goldman Sachs first calculated the illustrative pro forma
enterprise value as of December 31 for fiscal year 2025, by applying a range
of exit multiples of EV/NTM EBITDA of 4.0x to 5.0x to estimates of pro forma
NTM EBITDA for the fiscal year 2025. This illustrative range of EV/NTM EBITDA
exit multiple estimates was derived by Goldman Sachs utilizing its
professional judgment and experience, taking into account current and
historical EV/NTM EBITDA exit multiples for Southwestern and Chesapeake over
certain periods.
Goldman Sachs then subtracted the amount of the combined company's net debt
for the fiscal year 2025, as provided by and approved for Goldman Sachs' use
by Southwestern, from the respective illustrative pro forma enterprise values
in order to derive a range of implied pro forma equity values as of December
31 for the fiscal year 2025. Goldman Sachs then divided these implied pro
forma equity values by the projected year-end number of shares of Combined
Southwestern Common Stock for the fiscal year 2025, calculated using
information provided by and approved for Goldman Sachs' use by Southwestern,
to derive a range of implied pro forma future values per share of Combined
Southwestern Common Stock (excluding dividends). By applying an illustrative
pro forma discount rate of 10.9%, reflecting an estimate of the combined
company's cost of equity, and for the dividends only, using a mid-year
convention, Goldman Sachs discounted these implied pro forma future equity
values per share of Combined Southwestern Common Stock to September 30, 2023.
Goldman Sachs derived such discount rate by application of the CAPM, which
requires certain company-specific inputs, including a beta for the combined
company, as well as certain financial metrics for the United States financial
markets generally. Goldman Sachs then added the cumulative pro forma dividends
per share for the fiscal year 2025 projected to be paid to combined company's
stockholders, discounted to September 30, 2023, to derive a range of implied
pro forma future values per share of Combined Southwestern Common Stock
(including dividends). Lastly, Goldman Sachs multiplied such amount by the
Exchange Ratio of 0.0867x to derive a range of implied pro forma present
values per share of the combined company. This analysis resulted in a range of
implied present values of $6.44 to $8.28 per share of Combined Southwestern
Common Stock.
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General
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all of its analyses and
did not attribute any particular weight to any factor or analysis considered
by it. Rather, Goldman Sachs made its determination as to fairness on the
basis of its experience and professional judgment after considering the
results of all of its analyses. No company or transaction used in the above
analyses as a comparison is directly comparable to Southwestern or Chesapeake
or the transaction.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs' providing
its opinion to the Southwestern Board as to the fairness from a financial
point of view to the holders (other than Chesapeake and its affiliates) of
Southwestern Common Stock of the Exchange Ratio pursuant to the Merger
Agreement. These analyses do not purport to be appraisals nor do they
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Southwestern, Chesapeake, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
The Exchange Ratio was determined through arm's-length negotiations between
Southwestern and Chesapeake and was approved by the Southwestern Board.
Goldman Sachs provided advice to Southwestern during these negotiations.
Goldman Sachs did not, however, recommend any specific exchange ratio to
Southwestern or the Southwestern Board or that any specific exchange ratio
constituted the only appropriate exchange ratio for the transaction.
As described herein, Goldman Sachs' opinion to the Southwestern Board was one
of many factors taken into consideration by the Southwestern Board in making
its determination to approve the Merger Agreement. The foregoing summary does
not purport to be a complete description of the analyses performed by Goldman
Sachs in connection with the fairness opinion and is qualified in its entirety
by reference to the written opinion of Goldman Sachs attached as
Annex C
. Goldman Sachs and its affiliates are engaged in advisory, underwriting,
lending and financing, principal investing, sales and trading, research,
investment management and other financial and non-financial activities and
services for various persons and entities. Goldman Sachs and its affiliates
and employees, and funds or other entities they manage or in which they invest
or have other economic interests or with which they co-invest, may at any time
purchase, sell, hold or vote long or short positions and investments in
securities, derivatives, loans, commodities, currencies, credit default swaps
and other financial instruments of Southwestern, Chesapeake, any of their
respective affiliates and third parties or any currency or commodity that may
be involved in the transaction. Goldman Sachs acted as financial advisor to
Southwestern in connection with, and participated in certain of the
negotiations leading to, the transaction. During the two-year period ended
January 10, 2024, Goldman Sachs Investment Banking has not been engaged by
Southwestern or its affiliates to provide financial advisory or underwriting
services for which Goldman Sachs has recognized compensation. During the
two-year period ended January 10, 2024, Goldman Sachs Investment Banking has
not been engaged by Chesapeake or its affiliates to provide financial advisory
or underwriting services for which Goldman Sachs has recognized compensation.
Goldman Sachs may also in the future provide financial advisory and/or
underwriting services to Southwestern, Chesapeake and their respective
affiliates for which Goldman Sachs Investment Banking may receive compensation.
The Southwestern Board selected Goldman Sachs as its financial advisor because
it is an internationally recognized investment banking firm that has
substantial experience in transactions similar to the transaction. Pursuant to
a letter agreement dated December 22, 2023, Southwestern engaged Goldman Sachs
to act as its financial advisor in connection with the transaction. The
engagement letter between Southwestern and Goldman Sachs provides for a
transaction fee of $40 million, $8 million of which became payable upon the
announcement of the transaction, and the remainder of which is contingent upon
consummation of the transaction. In addition, Southwestern has agreed to
reimburse Goldman Sachs for certain of its expenses,
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including attorneys' fees and disbursements, and to indemnify Goldman Sachs
and related persons against various liabilities, including certain liabilities
under the federal securities laws.
Interests of Certain Chesapeake Directors and Executive Officers in the Merger
When considering the recommendation of the Chesapeake Board that Chesapeake
shareholders vote "
FOR
" the Stock Issuance Proposal, Chesapeake shareholders should be aware that
certain of Chesapeake's directors and executive officers have interests in the
Merger that are different from, or in addition to, the interests of other
Chesapeake shareholders generally. The Chesapeake Board was aware of these
interests when it approved the Merger Agreement and the transactions
contemplated thereby and recommended that Chesapeake shareholders vote "
FOR
" the Stock Issuance Proposal.
These interests are described in more detail below. The named executive
officers of Chesapeake are Domenic J. Dell'Osso Jr., President and Chief
Executive Officer; Mohit Singh, Executive Vice President and Chief Financial
Officer; Joshua J. Viets, Executive Vice President and Chief Operations
Officer; and Benjamin E. Russ, Executive Vice President - General Counsel and
Corporate Secretary.
Executive Severance Plan and Letter Agreements
Chesapeake maintains the Chesapeake Energy Corporation Executive Severance
Plan (the "Executive Severance Plan"), pursuant to which Chesapeake's named
executive officers are eligible to receive severance payments and benefits in
the event of a "qualifying termination," which generally includes a
termination of the Executive's employment by Chesapeake without "cause" or the
Executive's resignation for "good reason" (each, as defined in the Executive
Severance Plan). The severance payments and benefits are enhanced if such
termination occurs in connection with a change in control transaction. On
January 10, 2024, Chesapeake entered into letter agreements (the "Letter
Agreements") with each of its named executive officers (collectively, the
"Executives") to modify the application of the Executive Severance Plan in
connection with and following the consummation of the Merger. The purpose of
the Letter Agreements was generally to treat the Merger as a change in control
transaction for purposes of the Executive Severance Plan.
As modified by the Letter Agreements, the Executive Severance Plan provides
that Executives who incur a qualifying termination (a) during the
twenty-four-month period following the Effective Time or (b) during the
twelve-month period following a change in control other than the Merger
(collectively, the "Change in Control Termination") will be entitled to
enhanced severance benefits under the Executive Severance Plan, as follows:
(i)
cash severance equal to two times (or three times in the case of Mr. Dell'Osso
Jr.) the sum of the Executive's (i) annual base salary and (ii) target annual
incentive bonus;
(ii)
cash payment equal to the monthly amount of Chesapeake's contribution to the
premiums for such Executive's group health plan coverage for the Executive and
the Executive's spouse and/or eligible dependents determined under
Chesapeake's group health plans as in effect immediately prior to such
Executive's date of termination for a period of eighteen months;
(iii)
payment of (i) all accrued and unpaid base salary earned through the date of
termination, (ii) reimbursement for all incurred but unreimbursed expenses for
which the executive is entitled, and (iii) all employee benefits to which the
participant may be entitled (collectively, the "Accrued Benefits");
(iv)
all outstanding equity or long-term incentive awards granted to such
Executives prior to the Effective Time (the "Pre-Closing Awards") under the
Chesapeake Energy Corporation 2021 Long Term Incentive Plan (the "LTIP") will
become fully vested (with performance-based awards measured based on actual
performance in accordance with the terms of the applicable award agreement);
and
(v)
with respect to Executives who incur a qualifying termination during calendar
year 2024 and prior to the Effective Time, continued vesting of any LTIP
awards that are outstanding and scheduled to vest in calendar year 2024, with
such vesting occurring as if the Executive had remained employed
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through the applicable vesting date (and, for the avoidance of doubt, vesting
of performance-based awards will be based on actual performance, as determined
in accordance with the applicable award agreement).
The cash severance described in clause (i) above will be payable as payroll
continuation payments over the applicable severance period; the health plan
coverage payments in clause (ii) above will be paid in a lump sum on the first
regularly scheduled pay date on or after the date that is sixty days after
such Executive's date of termination. All amounts will be subject to
applicable withholding.
If an Executive were to incur a qualifying termination that does not
constitute a Change in Control Termination, the Executive would be entitled to
severance benefits under the Executive Severance Plan, as follows: (i) cash
severance equal to 100% (or, for Mr. Dell'Osso Jr., 200%) of the sum of such
Executive's annual base salary and target annual incentive bonus, (ii) cash
payment equal to the cost of the monthly amount of Chesapeake's contribution
to the premiums for such Executive's group health plan coverage for the
Executive and the Executive's spouse and/or eligible dependents determined
under Chesapeake's group health plans as in effect immediately prior to such
Executive's date of termination for a period of eighteen months, and (iii)
payment of the Accrued Benefits.
To receive severance benefits under the Executive Severance Plan, Executives
must execute a release of claims and comply with certain restrictive covenant
obligations, including: (i) assignment of intellectual property rights, (ii)
perpetual confidentiality, (iii) perpetual non-disparagement in favor of
Chesapeake, and (iv) a non-solicitation obligation for twelve months following
the Executive's termination of employment.
For an estimate of the value of the payments and benefits described above that
would be payable to Chesapeake's named executive officers under the Executive
Severance Plan upon a qualifying termination in connection with the Merger,
see the section entitled "
The Merger - Interests of Chesapeake Directors and Officers in the
Merger - Quantification of Potential Payments to Chesapeake's Named Executive
Officers
" beginning on page 133.
Indemnification and Insurance
The Merger Agreement provides that the executive officers and directors of
Chesapeake and its subsidiaries will have the right to indemnification and
continued coverage under directors' and officers' liability insurance policies
for six years following the Effective Time. Please see "
The Merger Agreement - Indemnification; Directors' and Officers' Insurance.
"
Board of Directors of the Combined Company Following Completion of the Merger
The Chesapeake Board at the Effective Time is expected to be composed of
eleven members, including four individuals selected by Southwestern.
The management of Chesapeake following the completion of the Merger will
include Domenic J. Dell'Osso, Jr. as President and Chief Executive Officer,
Mohit Singh as Executive Vice President and Chief Financial Officer, Joshua J.
Viets as Executive Vice President and Chief Operation Officer and Chris Lacy
as Executive Vice President, General Counsel and Corporate Secretary. For
additional information regarding the Chesapeake Board and the management of
Chesapeake following the completion of the Merger, please see "
The Merger Agreement - Organizational Documents; Directors and Officers.
"
Quantification of Potential Payments to Chesapeake's Named Executive Officers
In accordance with Item 402(t) of Regulation S-K, the table below sets forth
the amount of payments and benefits that each of Chesapeake's named executive
officers would receive in connection with the Merger, assuming (1) that the
Merger was consummated and each such named executive officer experienced a
qualifying termination on February 23, 2024 (which is the assumed date solely
for purposes of this golden parachute compensation disclosure); (2) a per
share price of Chesapeake Common Stock of $78.90, which is the average closing
market price of shares of Chesapeake Common Stock over the first five business
days following the first public announcement of the Merger; (3) that each
named executive officer's base salary rate and annual target bonus remain
unchanged from those in effect as of the date of this joint proxy statement/
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prospectus; and (4) the number of unvested Chesapeake equity awards held by
the named executive officers as of February 23, 2024, are outstanding as of
the Effective Time.
The calculations in the table below do not include any amounts that the named
executive officers were entitled to receive or that were vested as of the date
hereof. In addition, these amounts do not attempt to forecast any additional
awards, grants or forfeitures that may occur following February 23, 2024, and
prior to the Effective Time or any awards that, by their terms, vest
irrespective of the Merger prior to February 23, 2024. As a result of the
foregoing assumptions, which may or may not actually occur or be accurate on
the relevant date, including the assumptions described in the footnotes to the
table, the actual amounts, if any, to be received by a named executive officer
may materially differ from the amounts set forth below.
Golden Parachute Compensation
The following table sets forth all golden parachute compensation that will or
may be payable to Chesapeake's named executive officers.
Name Cash ($) Equity ($) Perquisites / Total ($)
(1) (2) Benefits ($)
(3)
Domenic J. Dell'Osso, Jr. 6,142,500 14,345,440 32,107 20,520,047
Mohit Singh 2,240,000 5,223,101 32,107 7,495,208
Joshua J. Viets 2,340,000 5,205,112 32,107 7,577,219
Benjamin E. Russ 1,587,600 3,401,379 32,107 5,021,086
(1)
Cash
. The amounts shown in this column represent the estimated value of the cash
severance each named executive officer is eligible to receive under
Chesapeake's Executive Severance Plan. The cash payment amounts are more fully
described in the section entitled "
The Merger
-
Interests of Certain Chesapeake Directors and Executive Officers in the
Merger - Executive Severance Plan and Letter Agreements
" beginning on page 132. The cash severance payments are "double trigger" and
would be due upon a qualifying termination of the named executive officer's
employment without cause or a resignation by the named executive officer for
good reason, in each case during the 24-month period following the Effective
Time of the Merger.
(2)
Equity
. The amounts listed in this column represent the aggregate value of
unvested Chesapeake RSUs and PSUs, with PSUs reflected at the target award
level. The vesting of equity awards held by the named executive officers are
subject to "double trigger" acceleration and would be fully accelerated upon a
qualifying termination of the named executive officer's employment without
cause or a resignation by the named executive officer for good reason, in each
case during the 24-month period following the Effective Time. PSUs would
accelerate and vest based on actual performance, as determined in accordance
with the applicable award agreement, which may be up to 200% of the target
award level. If the PSUs were to vest at the maximum award level, the amounts
in this column would be as follows: Mr. Dell'Osso Jr.: 297,664; Mr. Singh:
82,638; Mr. Viets: 86,014; and Mr. Russ: 70,904. The following table shows,
for each named executive officer, the number of shares subject to unvested
Chesapeake RSUs and PSUs as of February 23, 2024. These numbers do not
forecast any grants, additional issuances, or dividends following the date of
this joint proxy statement/prospectus. Depending on when the Effective Time
occurs, certain equity-based awards shown in the table may vest in accordance
with their terms prior to the Effective Time or may be forfeited (upon a
termination of service or failure to achieve applicable performance targets).
Name PSUs (#) RSUs (#)
Domenic J. Dell'Osso, Jr. 148,832 32,986
Mohit Singh 41,319 24,880
Joshua J. Viets 43,007 22,964
Benjamin E. Russ 35,452 7,658
(3)
Perquisites/Benefits
. The amounts listed in this column represent the estimated value of the
monthly premium (for the employer portion of the premium) under Chesapeake's
group health care plans as in
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effect on the date of the qualifying termination multiplied by 18 for each of
the named executive officers, and their respective spouses and/or eligible
dependents. The health care premium payment is "double trigger" and would be
due upon a qualifying termination of the named executive officer's employment
without cause or a resignation by the named executive officer for good reason,
in each case during the twenty-four-month period following the Effective Time
of the Merger. Payment of such amounts is subject to the execution and
effectiveness of a general release of claims agreement in substantially the
form approved by Chesapeake as part of the Executive Severance Plan.
Interests of Certain Southwestern Directors and Executive Officers in the Merger
When considering the recommendation of the Southwestern Board that
Southwestern shareholders vote "
FOR
" each of the Merger Proposal, the Advisory Southwestern Compensation Proposal
and the Southwestern Adjournment Proposal, Southwestern shareholders should be
aware that, aside from their interests as Southwestern shareholders, certain
of Southwestern's directors and executive officers have interests in the
Merger that are different from, or in addition to, the interests of other
Southwestern shareholders generally.
These interests are described below, and certain of them are quantified in the
narrative and tabular disclosure included under "
The Merger
-
Quantification of Potential Payments and Benefits to Southwestern's Named
Executive Officers
." The Southwestern Board was aware of such interests during its deliberations
on the merits of the Merger, in approving the Merger Agreement and in
recommending that Southwestern shareholders vote "
FOR
" the Merger Proposal, "
FOR
" the Advisory Southwestern Compensation Proposal and
"FOR"
the Southwestern Adjournment Proposal at the Southwestern Special Meeting on
June 18, 2024.
Director Nominees to the Chesapeake Board
At the Effective Time, John D. Gass, Catherine A. Kehr, Shameek Konar and Anne
Taylor, each of whom is a director on the Southwestern Board, will be
appointed as directors to the Chesapeake Board.
Treatment of Southwestern Long-Term Incentive Awards in the Merger
The Merger Agreement provides for the treatment set forth below at the
Effective Time with respect to outstanding long-term incentive awards issued
pursuant to the Southwestern Incentive Plans held by Southwestern's
non-employee directors and executive officers. For purposes of this
disclosure, amounts have been calculated assuming (i) a closing date of
February 27, 2024 (which is the assumed date of closing of the Merger solely
for the purpose of the disclosure in this section) (the "Estimated Closing
Date"), (ii) as required under SEC rules, the closing price of a share of
Southwestern Common Stock is $6.60 (the "Estimated Closing Value"), which is
equal to the average closing market price of a share of Southwestern Common
Stock over the first five business days following the first public
announcement of the entry into the Merger Agreement, (iii) outstanding
long-term incentive awards as of the Estimated Closing Date, and (iv) each
executive officer or director remains continuously employed or engaged with
Southwestern or a subsidiary thereof until the Merger closing date. Some of
the assumptions used in the disclosure below are based upon information not
currently available (including any incentive awards that may be granted after
the Estimated Closing Date) and, as a result, the actual amounts to be
received by any of Southwestern's executive officers and directors, if any,
may materially differ from the amounts set forth below. For additional
information regarding treatment of awards held by Southwestern's executive
officers upon a "qualifying termination" (as defined below) upon or following
the Merger pursuant to Southwestern employment agreements, see "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change In Control Payments and Benefits
" below.
Southwestern Restricted Stock Awards
: Each outstanding Southwestern Restricted Stock Award will automatically
vest in full, any restrictions with respect to each such Southwestern
Restricted Stock Award shall lapse, and each such Southwestern Restricted
Stock Award will convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied by (ii)
the total number of shares of Southwestern Common Stock attributable to such
Southwestern Restricted Stock Award.
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The following table sets forth, for each Southwestern executive officer who
has served at any time since January 1, 2023, and for each Southwestern
non-employee director, the aggregate number of shares of Southwestern Common
Stock subject to Southwestern Restricted Stock Awards as of the Estimated
Closing Date and the aggregate value of such awards assuming the Estimated
Closing Value. None of Southwestern's executive officers hold Southwestern
Restricted Stock Awards.
Non-Employee Director Name Number of Shares Value of Outstanding
Subject to Outstanding Restricted Stock Awards
Restricted Stock Awards ($)
(#)
Catherine A. Kehr 36,901 243,547
John D. Gass - -
Sylvester P. Johnson IV 36,901 243,547
Greg D. Kerley 36,901 243,547
Shameek Konar 40,778 269,135
Jon A. Marshall 36,901 243,547
Patrick M. Prevost - -
Anne Taylor - -
Denis J. Walsh III - -
Southwestern Director RSU Awards
: Each outstanding Southwestern Director RSU Award will automatically become
fully vested, canceled, and converted into the right to receive a number of
shares of Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied
by (ii) the total number of shares of Southwestern Common Stock subject to
each such Southwestern Director RSU Award, together with accrued dividend
equivalent payments in each case issuable and payable at the time or times
specified in Southwestern's Nonemployee Director Deferred Compensation Plan
and in accordance with such director's deferral elections as set forth in the
applicable Deferred Compensation Agreement.
The following table sets forth, for each Southwestern non-employee director,
the aggregate number of shares of Southwestern Common Stock subject to
unvested Southwestern Director RSU Awards held by such non-employee director
as of the Estimated Closing Date under Southwestern's Nonemployee Director
Deferred Compensation Plan and the aggregate value of such Southwestern
Director RSU Awards assuming the Estimated Closing Value. None of
Southwestern's executive officers hold unvested Southwestern Director RSU
Awards under Southwestern's Nonemployee Director Deferred Compensation Plan.
Non-Employee Director Name Number of Shares Value of Outstanding
Subject to Outstanding Director RSU Awards
Director RSU Awards ($)
(#)
Catherine A. Kehr - -
John D. Gass 36,901 243,547
Sylvester P. Johnson IV - -
Greg D. Kerley - -
Shameek Konar - -
Jon A. Marshall - -
Patrick M. Prevost 36,901 243,547
Anne Taylor 36,901 243,547
Denis J. Walsh III 36,901 243,547
Southwestern Single-Trigger RSU Awards and Southwestern Double-Trigger RSU
Awards
: Each outstanding Southwestern Single-Trigger RSU Award, will vest in full,
be canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (A) the Exchange Ratio, multiplied by (B) the
total number of shares of Southwestern Common Stock subject to each such
Southwestern Single-Trigger RSU Award, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger RSU Award agreement.
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Each outstanding Southwestern Double-Trigger RSU Award will be canceled and
convert into a Parent RSU Award (rounded to the nearest whole share) equal to
the product of (i) the total number of shares of Southwestern Common Stock
subject to such Southwestern Double-Trigger RSU Award immediately prior to the
Effective Time multiplied by (ii) the Exchange Ratio. Such Parent RSU Award
will vest and be payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger RSU Award agreement (except that such award will
be payable in Chesapeake Common Stock).
The following table sets forth, for each of Southwestern's executive officers
who have served at any time since January 1, 2023, the aggregate number of
shares of Southwestern Common Stock subject to unvested Southwestern
Single-Trigger RSU Awards and Southwestern Double-Trigger RSU Awards held by
such executive officers as of the Estimated Closing Date. None of
Southwestern's non-employee directors hold unvested Southwestern Single-Trigger
RSU Awards or Southwestern Double-Trigger RSU Awards as of the Estimated
Closing Date.
Executive Officer Name Number of Value of Number of Value of
Shares Subject to Outstanding Shares Subject to Outstanding
Outstanding Single-Trigger Outstanding Double-Trigger
Single-Trigger RSU Awards Double-Trigger RSU Awards
RSU Awards ($) RSU Awards ($)
(#) (#)
William J. Way 218,587 1,442,674 1,602,404 10,575,866
Carl F. Giesler, Jr. 80,167 529,102 564,387 3,724,954
Clayton A. Carrell 90,420 596,772 586,960 3,873,936
Derek W. Cutright 19,764 130,442 126,144 832,550
John P. Kelly 19,764 130,442 126,144 832,550
Andrew T. Huggins 29,027 191,578 126,144 832,550
William Q. Dyson 19,204 126,746 115,620 763,092
Christopher W. Lacy 26,100 172,260 318,314 2,100,872
Carina L. Gillenwater 14,170 93,522 128,050 845,130
Dennis M. Price - - 160,637 1,060,204
Southwestern Single-Trigger Performance Unit Awards and Southwestern
Double-Trigger Performance Unit Awards
: Each outstanding Southwestern Single-Trigger Performance Unit Award will
(A) automatically vest in full and become payable at the greater of (1) the
level based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Single-Trigger Performance Unit Award agreement and (2) the target level, and
(B) be canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (1) the Exchange Ratio, multiplied by (2) the
number of Earned Company Performance Shares, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger Performance Unit Award
agreement.
Each outstanding Southwestern Double-Trigger Performance Unit Award will be
deemed to correspond to a number of Earned Company Performance Shares
determined in the same manner as described in the immediately foregoing two
paragraphs, and will be canceled and convert into a Parent RSU Award in
respect of that number of shares of Chesapeake Common Stock equal to the
product (rounded to the nearest whole share) of (i) the number of Earned
Company Performance Shares with respect to such Southwestern Double-Trigger
Performance Unit Award multiplied by (ii) the Exchange Ratio. Such Parent RSU
Award will vest at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger Performance Unit Award and will
otherwise be subject to and payable on the same terms and conditions
(including "double-trigger" vesting provisions) as are set forth in the
corresponding Southwestern Double-Trigger Performance Unit Award agreement
(except that such award will be payable in shares of Chesapeake Common Stock
and will no longer be subject to performance-based vesting conditions).
The following table sets forth, for each of Southwestern's executive officers
who have served at any time since January 1, 2023, the aggregate number of
unvested shares of Southwestern Common Stock subject to Southwestern
Single-Trigger Performance Unit Awards and Southwestern Double-Trigger
Performance
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Unit Awards based on the deemed achievement of target performance (100%), in
each case, held by such executive officers as of the Estimated Closing Date
and the aggregate value of such awards assuming the Estimated Closing Value.
None of Southwestern's non-employee directors hold Southwestern Single-Trigger
Performance Unit Awards or Southwestern Double-Trigger Performance Unit Awards
as of the Estimated Closing Date.
Executive Officer Name Number of Value of Number of Value of
Shares Subject to Outstanding Shares Subject to Outstanding
Outstanding Single-Trigger Outstanding Double-Trigger
Single-Trigger Performance Double-Trigger Performance
Performance Unit Award Performance Unit Awards
Unit Award (Based on Unit Awards (Based on
(Based on Target) (Based on Target)
Target) ($) Target) ($)
(#) (#)
William J. Way 327,880 2,164,008 412,000 2,719,200
Carl F. Giesler, Jr. 120,250 793,650 125,920 831,072
Clayton A. Carrell 135,630 895,158 130,960 864,336
Derek W. Cutright 29,650 195,690 30,220 199,452
John P. Kelly 29,650 195,690 30,220 199,452
Andrew T. Huggins 26,570 175,362 30,220 199,452
William Q. Dyson 28,810 190,146 27,710 182,886
Christopher W. Lacy 39,150 258,390 71,020 468,732
Carina L. Gillenwater 21,260 140,316 27,710 182,886
Dennis M. Price - - - -
Southwestern Single-Trigger PCU Awards and Southwestern Double-Trigger PCU
Awards
: Each outstanding Southwestern Single-Trigger PCU Award will be
automatically fully vested and payable in cash in an amount equal to $1.00
multiplied by the greater of (A) the percentage earned based on actual
performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Single-Trigger PCU
Award agreement and (B) 100%.
Each outstanding Southwestern Double-Trigger PCU Award will be deemed earned
at a level equal to $1.00 multiplied by the greater of (i) the percentage
earned based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Double-Trigger PCU Award agreement and (ii) 100%. Such amount will vest and be
payable in cash at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger PCU Award of Southwestern and
will otherwise be subject to and payable on the same terms and conditions
(including "double-trigger" vesting provisions) as are set forth in the
corresponding Southwestern Double-Trigger PCU Award agreement, except that
such award will no longer be subject to performance-based vesting conditions.
The following table sets forth, for each of Southwestern's executive officers
who have served at any time since January 1, 2023, the aggregate estimated
value of Southwestern Single-Trigger PCU Awards and Southwestern Double-Trigger
PCU Awards based on the deemed achievement of target performance (100%), in
each case, held by such executive officers as of the Estimated Closing Date.
None of Southwestern's non-employee directors hold Southwestern Single-Trigger
PCU Awards or Southwestern Double-Trigger PCU Awards as of the Estimated
Closing Date. The performance level for the Southwestern Single-Trigger PCU
Awards and Southwestern Double-Trigger PCU Awards may go up to 200% of target,
and accordingly any payout may differ materially from the amounts set forth
below.
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Executive Officer Name Value of Outstanding Value of Outstanding
Single-Trigger PCU Awards Double-Trigger PCU Awards
(Based on Target Performance) (Based on Target Performance)
($) ($)
William J. Way 1,465,630 2,249,490
Carl F. Giesler, Jr. 537,500 687,500
Clayton A. Carrell 606,250 715,000
Derek W. Cutright 132,500 165,000
John P. Kelly 132,500 165,000
Andrew T. Huggins 118,750 165,000
William Q. Dyson 128,750 151,250
Christopher W. Lacy 175,000 387,750
Carina L. Gillenwater 95,000 151,250
Dennis M. Price - -
Change in Control Payments and Benefits
For purposes of the agreements described below, the completion of the Merger
will constitute a "change in control" as defined within the applicable
documents.
Southwestern has not entered into any employment agreements with its executive
officers, but it has entered into a severance agreement with each executive
officer. Under the Southwestern severance agreements, if an executive officer
voluntarily terminates his or her employment for "good reason" (as defined in
the applicable severance agreement) or if his or her employment is
involuntarily terminated other than for "cause" (as defined in the applicable
severance agreement), and not by reason of disability or death, and such
termination occurs during the period commencing on the date immediately
preceding the date of a "change in control" (as defined in the applicable
severance agreement) and ending on the third anniversary of the date of the
change in control, then such executive officer would be eligible to receive
the following severance benefits, subject to continued compliance with a
three-year post-termination non-solicitation covenant (such termination, a
"qualifying termination"): a lump sum payment equal to the sum of any
annualized bonus accrued to the executive officers through such executive
officer's termination date and unpaid as of such date , plus the product of
(i) 2.99 (for Messrs. Way, Giesler and Carrell) or 2.0 (for Messrs. Cutright,
Kelly, Dyson, Huggins, Lacy and Price and Ms. Gillenwater) and (ii) the sum of
(x) the executive's base salary as of the executive's termination date plus
(y) the maximum bonus opportunity available to the executive under the annual
incentive bonus program. Each executive is also entitled to any earned but
unpaid bonus from a prior completed fiscal year. Additionally, each executive
would be entitled to continued participation in certain health and welfare
benefits from the employment termination date until the earliest of (a) the
expiration of three years, (b) death or (c) the date he or she is afforded a
comparable benefit at comparable cost by a subsequent employer. Additionally,
if within six months prior to the date of a change in control, the executive
officer's employment with Southwestern is terminated by Southwestern other
than by reason of the executive officer's death, disability or for cause or
the terms and conditions of the executive officer's employment are adversely
changed in a manner which would constitute grounds for a termination of
employment by the executive officer for good reason, and it is reasonably
demonstrated that such termination of employment or adverse change (i) was at
the request of a third party who has taken steps reasonably calculated to
effect the change in control or (ii) otherwise arose in connection with or in
anticipation of the change in control, then for all purposes of the severance
agreements such termination of employment shall be deemed to have occurred
during the three year period following the change in control (such
termination, a "Deemed Eligible Termination").
The severance agreements provide that at the election of the executive
officer, the payments and benefits payable to the executive officer may be
reduced to the amount necessary to prevent the imposition of an excise taxes
under Code Section 4999.
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If each executive officer who is not a named executive officer experiences a
qualifying termination immediately following the completion of the Merger,
each would receive benefits under their respective severance agreements as
follows: Andrew T. Huggins would receive $2,354,397; William Q. Dyson would
receive $2,722,572; Christopher W. Lacy would receive $2,651,284; Carina L.
Gillenwater would receive $2,004,099; and Dennis M. Price would receive
$1,893,722. The value of change in control payments and benefits payable to
each Southwestern Named Executive Officer in the event of a qualifying
termination immediately following the completion of the Merger is summarized
below in "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Quantification of Potential Payments and Benefits to
Southwestern's Named Executive Officers - Change in Control Compensation
".
Pursuant to the terms of the 2022 Plan, unless otherwise provided in an award
agreement, upon a termination of employment without "Cause" (as defined in the
2022 Plan) or with good reason (to the extent the applicable participant is
party to an agreement with Southwestern providing for severance benefits on
termination for good reason), within twelve months following a Change in
Control (as defined in the 2022 Plan), then (i) each outstanding time-vesting
award shall become fully vested and be settled in cash or stock, as
applicable, and all restrictions thereon shall lapse upon the date of such
termination and (ii) each outstanding performance-vesting award will vest and
be settled in cash or stock, as applicable, and the restrictions thereon shall
lapse, based on the greater of actual performance measured through the date of
the Change in Control or target performance.
Pursuant to the Merger Agreement, Southwestern may establish a cash-based
retention bonus program (the "Retention Program") prior to the Effective Time
for the benefit of key employees of Southwestern and its subsidiaries (other
than Southwestern's named executive officers). Awards under the Retention
Program will vest and become payable 100% as of the Effective Time, subject to
continued employment or service through such date or, if earlier, upon a
qualifying termination of employment. As of the date hereof, Southwestern has
not committed to pay any amounts under such Retention Program to any of the
executive officers.
Quantification of Potential Payments and Benefits to Southwestern's Named
Executive Officers
The information set forth below is required by Item 402(t) of Regulation S-K
regarding compensation that is based on or otherwise relates to the Merger
that the named executive officers could receive in connection with the Merger.
Such amounts have been calculated assuming that (a) the Merger closed on the
Estimated Closing Date of February 27, 2024, (b) the Estimated Closing Value
per share of Southwestern Common Stock on the completion of the Merger of
$6.60 (which, in accordance with SEC requirements, is the average closing
price of Southwestern Common Stock over the first five business days following
the first public announcement of the Merger), (c) the performance vesting
conditions applicable to any Southwestern performance awards are deemed
achieved and "target" level performance (
i.e
., payout at 100% of the number of shares covered by such awards), (d) each
named executive officer experiences a qualifying termination immediately
following the completion of the Merger, and (e) each named executive officer
has properly complied with all requirements (including any applicable
restrictive covenants) necessary in order to receive all payments and
benefits. The calculations in the table below do not include amounts the named
executive officers were already entitled to receive or vested in as of
February 27, 2024. These amounts do not include any grants, issuances, or
forfeitures of equity or incentive awards after February 27, 2024, and prior
to the completion of the Merger, and do not reflect any equity or other
long-term incentive awards that vested or are expected to vest in accordance
with their terms after February 27, 2024, and prior to the completion of the
Merger. As a result, some of the assumptions used in the table below are based
upon information not currently available; accordingly, the actual amounts
payable to Southwestern's named executive officers will depend on whether the
named executive officer experiences a qualifying termination, the date of such
termination (if any) and the terms of the plans or agreements in effect at
such time, and accordingly may differ materially from the amounts set forth
below.
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Change in Control Compensation
Name Cash Equity Perquisites/ Total
($) ($) ($)
(1) (2) Benefits
($)
(3)
William J. Way 16,200,814 16,901,748 87,392 33,189,954
Carl F. Giesler, Jr. 6,892,396 5,878,778 118,397 12,889,571
Clayton A. Carrell 7,721,446 6,230,202 118,430 14,070,078
Derek W. Cutright 2,918,063 1,358,134 116,840 4,393,037
John P. Kelly 2,943,506 1,358,134 113,636 4,415,276
These amounts reflect the cash severance amounts payable under the
Southwestern severance agreements with each executive officer, as described
under "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
."
(1)
As noted above, receipt of payments and benefits under the Southwestern
severance agreements, including the cash severance, pro-rata accrued bonus and
earned but unpaid 2023 bonus amounts noted below, are subject to compliance
with certain restrictive covenants. Details of the cash payments are shown in
the following supplemental table:
Name Cash Pro Rata Earned but Single-Trigger Double-Trigger Total
Severance Accrued Unpaid PCU PCU ($)
($) Bonus 2023 Bonus Awards Awards ($)
(a) ($) ($) ($) (e)
(b) (c) (d)
William J. Way 10,465,000 194,672 1,826,022 1,465,630 2,249,490 16,200,814
Carl F. Giesler, Jr. 5,382,000 93,443 191,953 537,500 687,500 6,892,396
Clayton A. Carrell 5,415,638 94,027 890,531 606,250 715,000 7,721,446
Derek W. Cutright 2,142,400 51,331 426,832 132,500 165,000 2,918,063
John P. Kelly 2,163,200 51,830 430,976 132,500 165,000 2,943,506
(a)
Reflects cash severance payments equal to 2.99 (for Messrs. Way, Giesler and
Carrell) or 2.0 (for Messrs. Cutright and Kelly) times the sum of (x) the
executive's base salary as of the executive's termination date plus (y) the
executive's maximum bonus opportunity available to the executive under the
annual incentive bonus program for the year of such named executive officer's
termination of employment. The amount shown in this column is considered to be
a "double-trigger" payment, which means that both a change in control, such as
the Merger, and another event (
i.e.,
a qualifying termination of employment without cause or for good reason within
the three-year period following a change in control or a Deemed Eligible
Termination six (6) months prior to the change in control) must occur prior to
such payment being provided to the executive officer.
(b)
Reflects the portion of the 2024 bonus that has been accrued to each
executive, which for purposes of this disclosure is based on a prorated
portion of the executive's target bonus, and would become payable upon a
qualifying termination under each executive's separation agreement. The amount
shown in this column is considered to be a "double-trigger" payment, which
means that both a change in control, such as the Merger, and another event (
i.e.,
a qualifying termination of employment without cause or for good reason within
the three-year period following a change in control or a Deemed Eligible
Termination six (6) months prior to the change in control) must occur prior to
such payment being provided to the executive officer.
(c)
Reflects the 2023 bonus that has been earned, but not yet paid and would
become payable upon a qualifying termination under each executive's separation
agreement. The amount shown in this column is considered to be a "double-trigger
" payment, which means that both a change in control, such as the Merger, and
another event (
i.e.,
a qualifying termination of employment without cause or for good reason within
the three (3)-year period following a change in control or a Deemed Eligible
Termination six (6) months prior to the change in control) must occur prior to
such payment being provided to the executive officer. A portion of Mr.
Giesler's 2023 bonus was paid to him in December 2023.
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(d)
The value reported for the Southwestern Single-Trigger PCU Awards assumes
achievement based on the target performance level (
i.e.
, payout at 100% of the number of shares covered by such awards). As described
in more detail in "
The Merger - Treatment of Southwestern Long-Term Incentive Awards in the Merger
" and "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
", the performance condition results for the Southwestern Single-Trigger PCU
Awards will be measured at the closing based on achievement of the applicable
performance metrics at the greater of (A) the percentage earned based on
actual performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Single-Trigger PCU
Award agreement, which be up to 200% of target performance, and (B) the target
performance level. Consequently, the amounts received by the named executive
officers could differ from the amounts shown. Each named executive officer's
unvested Southwestern Single-Trigger PCU Awards will become fully vested at
the Effective Time and such accelerated vesting is considered to be a
"single-trigger" payment.
(e)
The value reported for the Southwestern Double-Trigger PCU Awards assumes
achievement based on the target performance level (
i.e.
, payout at 100% of the number of shares covered by such awards). As described
in more detail in "
The Merger - Treatment of Southwestern Long-Term Incentive Awards in the Merger
" and "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
", the performance condition results for the Southwestern Double-Trigger PCU
Awards will be measured at the closing based on achievement of the applicable
performance metrics at the greater of (A) the percentage earned based on
actual performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Double-Trigger PCU
Award agreement, which be up to 200% of target performance, and (B) the target
performance level. Consequently, the amounts received by the named executive
officers could differ from the amounts shown. The accelerated vesting of the
Southwestern Double-Trigger PCU Awards is considered to be a "double-trigger"
payment, which means that both a change in control, such as the Merger, and
another event (
i.e.
, a qualifying termination of employment without cause or for good reason
within the twelve-month period following a change in control) must occur prior
to such payments being provided to the executive officer and have been
calculated assuming a qualifying termination on the Estimated Closing Date.
(2)
These amounts reflect the value of Southwestern Restricted Stock Awards,
Southwestern Single-Trigger RSU Awards, Southwestern Double-Trigger RSU
Awards, Southwestern Single-Trigger Performance Unit Awards and Southwestern
Double-Trigger Performance Unit Awards, as described under "
The Merger - Treatment of Southwestern Long-Term Incentive Awards in the Merger
" and "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
." The amount is based on the Estimated Closing Value. Details of the equity
award payments are shown in the following supplemental table:
Name Single-Trigger Double-Trigger Single-Trigger Double-Trigger Equity Total
RSU Awards ($) RSU Awards ($) Performance Performance ($)
(a) (b) Unit Awards ($) Unit Awards
(c) ($)
(d)
William J. Way 1,442,674 10,575,866 2,164,008 2,719,200 16,901,748
Carl F. Giesler, Jr. 529,102 3,724,954 793,650 831,072 5,878,778
Clayton A. Carrell 596,772 3,873,936 895,158 864,336 6,230,202
Derek W. Cutright 130,442 832,550 195,690 199,452 1,358,134
John P. Kelly 130,442 832,550 195,690 199,452 1,358,134
(a)
Reflects each named executive officer's unvested Southwestern Single-Trigger
RSU Awards which are "single-trigger" arrangements (
i.e.
, vesting is triggered by a change in control for which payment is not
conditioned upon a subsequent termination of the executive officer).
(b)
Reflects each named executive officer's unvested Southwestern Double-Trigger
RSU Awards, which are subject to "double-trigger" vesting, which means that
both a change in control, such as the Merger, and another event (
i.e.
, a qualifying termination of employment without cause or for
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good reason within the twelve-month period following a change in control) must
occur prior to such payments being provided to the executive officer and have
been calculated assuming a qualifying termination on the Estimated Closing
Date.
(c)
Reflects each named executive officer's unvested Southwestern Single-Trigger
Performance Unit Awards which are "single-trigger" arrangements (
i.e.
, vesting is triggered by a change in control for which payment is not
conditioned upon a subsequent termination of the executive officer). The value
reported for the Southwestern Single-Trigger Performance Unit Awards assumes
achievement based on the target performance level (
i.e.
, payout at 100% of the number of shares covered by such awards). As described
in more detail in "
The Merger - Treatment of Southwestern Long-Term Incentive Awards in the Merger
" and "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
", the performance condition results for the Southwestern Single-Trigger
Performance Unit Awards will be measured at the closing based on achievement
of the applicable performance metrics at the greater of (A) the level based on
actual performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Single-Trigger
Performance Unit Award agreement, which could be up to 200% of target
performance, and (B) the target performance level. Consequently, the amounts
received by the named executive officers could differ from the amounts shown.
(d)
Reflects each named executive officer's unvested Southwestern Double-Trigger
Performance Unit Awards, which are subject to "double-trigger" vesting, which
means that both a change in control, such as the Merger, and another event (
i.e.
, a qualifying termination of employment without cause or for good reason
within the twelve-month period following a change in control) must occur prior
to such payments being provided to the executive officer and have been
calculated assuming a qualifying termination on the Estimated Closing Date.
The value reported for the Southwestern Double-Trigger Performance Unit Awards
assumes achievement based on the target performance level (
i.e.
, payout at 100% of the number of shares covered by such awards). As described
in more detail in "
The Merger - Treatment of Southwestern Long-Term Incentive Awards in the Merger
" and "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
", the performance condition results for the Southwestern Double-Trigger
Performance Unit Awards will be measured at the closing based on achievement
of the applicable performance metrics at the greater of (A) the level based on
actual performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Double-Trigger
Performance Unit Award agreement, which could be up to 200% of target
performance, and (B) the target performance level. Consequently, the amounts
received by the named executive officers could differ from the amounts shown.
(3)
Amounts shown reflect continued health and welfare benefits coverage to be
provided at Southwestern's expense for each of the executive officers and his
or her eligible dependents for a period of three years pursuant to the
Southwestern severance agreements, as described under "
The Merger - Interests of Certain Southwestern Directors and Executive
Officers in the Merger - Change in Control Payments and Benefits
", and is considered to be a "double-trigger" benefit, which means that both a
change of control, such as the Merger, and another event (
i.e
., a qualifying termination of employment without cause or for good reason
within the three (3)-year period following a change in control or a Deemed
Eligible Termination six (6) months prior to the change in control) must occur
prior to such benefits being provided to the executive officer. As noted
above, receipt of payments and benefits under the Southwestern severance
agreements is subject to the executive officer's compliance with certain
restrictive covenants.
Indemnification and Insurance
The Merger Agreement provides that the executive officers and directors of
Southwestern and its subsidiaries will have the right to indemnification and
continued coverage under directors' and officers' liability insurance policies
for at least six years following the Effective Time. Please see "
The Merger Agreement - Indemnification; Directors' and Officers' Insurance.
"
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Board of Directors of the Combined Company Following Completion of the Merger
The Chesapeake Board at the Effective Time is expected to be composed of
eleven members, including four individuals selected by Southwestern. The four
Southwestern director nominees are: Catherine A. Kehr, John D. Gass, Shameek
Konar and Anne Taylor.
The management of Chesapeake following the completion of the Merger will
include Domenic J. Dell'Osso, Jr. as President and Chief Executive Officer,
Mohit Singh as Executive Vice President and Chief Financial Officer, Joshua J.
Viets as Executive Vice President and Chief Operation Officer and Chris Lacy
as Executive Vice President, General Counsel and Corporate Secretary. For
additional information regarding the Chesapeake Board and the management of
Chesapeake following the completion of the Merger, please see "
The Merger Agreement - Organizational Documents; Directors and Officers
."
Treatment of the Southwestern Equity Awards in the Merger
The Merger Agreement also specifies the treatment of outstanding Southwestern
long-term incentive awards in connection with the Merger, which shall be
treated as follows at the Effective Time:
.
each outstanding Southwestern Restricted Stock Award will automatically vest
in full, any restrictions with respect to each such Southwestern Restricted
Stock Award shall lapse and each such Southwestern Restricted Stock Award will
convert into the right to receive a number of shares of Chesapeake Common
Stock equal to (i) the Exchange Ratio, multiplied by (ii) the total number of
shares of Southwestern Common Stock attributable to such Southwestern
Restricted Stock Award;
.
each outstanding Southwestern Director RSU Award will automatically vest in
full, be canceled, and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (i) the Exchange Ratio, multiplied by (ii)
the total number of shares of Southwestern Common Stock subject to such
Southwestern Director RSU Award, together with accrued dividend equivalent
payments in each case issuable and payable at the time or times specified in
Southwestern's Nonemployee Director Deferred Compensation Plan and in
accordance with such director's deferral elections as set forth in the
applicable Deferred Compensation Agreement;
.
each outstanding Southwestern Single-Trigger RSU Award will vest in full, be
canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (A) the Exchange Ratio, multiplied by (B) the
total number of shares of Southwestern Common Stock subject to each such
Southwestern Single-Trigger RSU Award, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger RSU Award agreement;
.
each outstanding Southwestern Double-Trigger RSU Award will be canceled and
convert into a Parent RSU Award equal to the product (rounded to the nearest
whole share) of (i) the total number of shares of Southwestern Common Stock
subject to such Southwestern Double-Trigger RSU Award immediately prior to the
Effective Time multiplied by (ii) the Exchange Ratio. Such Parent RSU Award
will vest and be payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger RSU Award agreement (except that such award will
be payable in Chesapeake Common Stock);
.
each outstanding Southwestern Single-Trigger Performance Unit Award will (A)
automatically vest in full and become payable at the greater of (1) the level
based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Single-Trigger Performance Unit Award agreement and (2) the target level, and
(B) be canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (1) the Exchange Ratio, multiplied by (2) the
number of Earned Company Performance Shares, together with accrued dividend
equivalent payments, in each case issuable and payable in accordance with the
terms of the applicable Southwestern Single-Trigger Performance Unit Award
agreement;
.
each outstanding Southwestern Double-Trigger Performance Unit Award will be
deemed to correspond to a number of Earned Company Performance Shares
determined in the same manner as described in the immediately foregoing bullet
point, and will be canceled and convert into a Parent RSU Award in respect of
that number of shares of Chesapeake Common Stock (rounded to the
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nearest whole share) equal to the product (rounded to the nearest whole share)
of (i) the number of Earned Company Performance Shares with respect to such
Southwestern Double-Trigger Performance Unit Award multiplied by (ii) the
Exchange Ratio. Such Parent RSU Award will vest at the end of the original
performance period associated with the corresponding Southwestern
Double-Trigger Performance Unit Award and will otherwise be subject to and
payable on the same terms and conditions (including "double-trigger" vesting
provisions) as are set forth in the corresponding Southwestern Double-Trigger
Performance Unit Award agreement (except that such award will be payable in
shares of Chesapeake Common Stock and will no longer be subject to
performance-based vesting conditions);
.
each outstanding Southwestern Single-Trigger PCU Award will automatically vest
in full and become payable in cash in an amount equal to $1.00 multiplied by
the greater of (A) the percentage earned based on actual performance
determined as of immediately prior to the Effective Time in accordance with
the terms of the applicable Southwestern Single-Trigger PCU Award agreement
and (B) 100%; and
.
each outstanding Southwestern Double-Trigger PCU Award will be deemed earned
at a level equal to $1.00 multiplied by the greater of (i) the percentage
earned based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable Southwestern
Double-Trigger PCU Award agreement and (ii) 100%. Such amount will vest and be
payable in cash at the end of the original performance period associated with
the corresponding Southwestern Double-Trigger PCU Award and will otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger PCU Award agreement, except that such award will
no longer be subject to performance-based vesting conditions.
Accounting Treatment of the Merger
In accordance with accounting principles generally accepted in the United
States and in accordance with FASB's ASC 805 - Business Combinations,
Chesapeake will account for the Merger as an acquisition of a business.
Regulatory Approvals
The completion of the Merger is subject to antitrust review in the United
States. Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be completed unless certain
waiting periods have expired or been terminated. The HSR Act provides that
each party must file an HSR notification with the FTC and the DOJ. A
transaction notifiable under the HSR Act may not be completed until the
expiration of a thirty-day waiting period following the parties' filings of
their respective HSR notifications or the early termination of that waiting
period.
Chesapeake and Southwestern have submitted the required HSR notifications to
the FTC and the DOJ on February 1, 2024. Chesapeake pulled its HSR filing and
refiled it on March 5, 2024. On April 4, 2024, Chesapeake and Southwestern
each received a Second Request from the FTC in connection with the FTC's
review of the Merger. Issuance of the Second Request extends the waiting
period imposed by the HSR Act until 30 days after Chesapeake and Southwestern
have each substantially complied with the Second Request, unless that period
is extended voluntarily by the parties or terminated sooner by the FTC.
Chesapeake and Southwestern will continue to work cooperatively with the FTC
in its review of the Merger, and now expect that the Merger will be completed
in the second half of 2024, subject to the fulfillment of the other closing
conditions, including approvals of Chesapeake and Southwestern shareholders.
The expiration or early termination of any HSR Act waiting period would not
preclude the DOJ or the FTC from challenging the Merger on antitrust grounds
or from seeking to preliminarily or permanently enjoin the proposed Merger.
Chesapeake and Southwestern have agreed in the Merger Agreement to use their
respective reasonable best efforts, subject to certain limitations, to make
any filings required under the HSR Act in connection with the Merger and to
obtain the expiration or termination of any waiting period under the HSR Act
applicable to the Merger. Chesapeake and Southwestern have agreed to use
reasonable best efforts to obtain regulatory approvals required to complete
the Merger, including agreeing to:
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.
propose, negotiate, agree to, and effect the sale, leasing, licensing,
divestiture or other disposition of any assets, operations, businesses or
interests of Chesapeake or Southwestern and their respective subsidiaries and
affiliates;
.
terminate existing relationships, contractual rights or obligations of
Chesapeake or Southwestern and their respective subsidiaries and affiliates;
.
terminate any venture or other arrangement of Chesapeake or Southwestern and
their respective subsidiaries and affiliates;
.
create any relationship, contractual rights or obligations binding on
Chesapeake or Southwestern and their respective subsidiaries and affiliates;
.
effectuate any other change or restructuring of Chesapeake or Southwestern and
their respective subsidiaries and affiliates; or
.
agree to restrictions or actions that after the Closing would limit
Chesapeake's or its subsidiaries' freedom of action or operation;
provided, however, that Chesapeake is not required to take any of the actions
described in the bullets above, that would or would reasonably be expected to,
either individually or in the aggregate, have a material adverse effect on the
financial condition, business, assets or results of operations of Chesapeake,
Southwestern and their respective subsidiaries, taken as a whole; provided,
however, that for this purpose, Chesapeake, Southwestern and their respective
subsidiaries, taken as a whole, will be deemed a consolidated group of
entities of the size and scale of a hypothetical company that is 100% of the
size of Southwestern and its subsidiaries, taken as a whole, taking into
account the terms of any divestiture or other disposition of assets, as of the
date of the Merger Agreement.
In addition, subject to the bullets above, if a proceeding is instituted by
any governmental authority challenging the validity or legality or seeking to
restrain the consummation of the Merger, Chesapeake and Southwestern have
agreed to use their reasonable best efforts to resist, resolve, or if
necessary defend against such proceeding.
Although Chesapeake and Southwestern currently believe they should be able to
obtain all required regulatory approvals in a timely manner, the parties
cannot be certain when or if they will obtain them or, if obtained, whether
the approvals will contain terms, conditions or restrictions not currently
contemplated that will be detrimental to Chesapeake after the completion of
the Merger.
The approval of an application for regulatory approval means only that the
regulatory criteria for approval have been satisfied or waived. It does not
mean that the approving regulatory authority has determined that the Merger
Consideration to be received by holders of Southwestern Common Stock and/or
the Merger is fair to Southwestern shareholders. Regulatory approval does not
constitute an endorsement or recommendation of the Merger by any regulatory
authority.
At any time before or after the expiration or termination of the applicable
waiting period, or any extension thereof, under the HSR Act, or before or
after the Merger is completed, the DOJ or the FTC may take action under the
antitrust laws in opposition to the Merger, including seeking to enjoin
completion of the Merger, to rescind the Merger or to conditionally permit
completion of the Merger subject to concessions or conditions. In addition,
U.S. state attorneys general could take action under the antitrust laws as
they deem necessary or desirable in the public interest, including, without
limitation, seeking to enjoin the completion of the Merger or permitting
completion subject to concessions or conditions. Private parties may also seek
to take legal action under the antitrust laws under some circumstances.
Although neither Chesapeake nor Southwestern believes that the Merger will
violate the antitrust laws, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
that it would not be successful.
No Assurances of Obtaining Approvals
There can be no assurances that any of the regulatory approvals described
above will be obtained and, if obtained, there can be no assurance as to the
timing of such approvals, the ability to obtain such approvals on satisfactory
terms or the absence of any litigation challenging such approvals.
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Dividend Policy
Although Chesapeake has paid cash dividends on Chesapeake Common Stock in the
past, the Chesapeake Board may determine not to declare dividends in the
future or may reduce the amount of dividends paid in the future. Pursuant to
the Merger Agreement, Chesapeake will not, and will not permit its
subsidiaries to, until the earlier of the Effective Time and the termination
of the Merger Agreement, declare, set aside or pay any dividends on, or make
any other distribution in respect of any outstanding capital stock of, or
other equity interests in, Chesapeake or its subsidiaries, except for (i)
regular quarterly cash dividends payable by Chesapeake in the ordinary course
(and pursuant to the formula set forth in Chesapeake's dividend policy which
is set forth on the disclosure letter Chesapeake delivered to Southwestern
(which, for avoidance of doubt, excluding any special dividends)) and (ii)
dividends and distributions by a direct or indirect wholly owned subsidiary of
Chesapeake to Chesapeake or another direct or indirect wholly owned subsidiary
of Chesapeake. Following the closing of the Merger, Chesapeake expects to
continue its dividend strategy. Under this strategy, Chesapeake plans to
continue to pay, on a quarterly basis, a dividend to its shareholders. The
declaration and payment of any future dividend will remain at the full
discretion of the Chesapeake Board and will depend on various factors, some of
which are beyond Chesapeake's control, including its working capital needs,
its ability to borrow, the restrictions contained in its indentures and credit
facility, its debt-service requirements and the cost of acquisitions, if any.
For additional information regarding risks associated with Chesapeake's
dividends, please see "
Risk Factors - Declaration, payment and amounts of dividends, if any,
distributed to shareholders of the combined company will be uncertain
."
Listing of Chesapeake Common Stock; Delisting of Southwestern Common Stock.
Prior to the Effective Time, Chesapeake has agreed to take all action
necessary to cause the shares of Chesapeake Common Stock to be issued in the
Merger to be approved for listing on Nasdaq, subject to official notice of
issuance. If the Merger is completed, Southwestern Common Stock will cease to
be listed on the NYSE and will be deregistered under the Exchange Act.
No Appraisal Rights
Appraisal rights are statutory rights that, if applicable under law, enable
shareholders of a corporation or shareholders of a limited partnership, as
applicable, to dissent from a Merger and to demand that such corporation or
limited partnership pay the fair value for their shares or shares as
determined by a court in a judicial proceeding instead of receiving the
consideration offered to such shareholders or shareholders in connection with
the transaction. Under the DGCL (with respect to the Southwestern
shareholders) and the OGCA (with respect to the Chesapeake shareholders),
neither Southwestern shareholders nor Chesapeake shareholders, respectively,
are entitled to appraisal rights or dissenters' rights in connection with the
Merger or the issuance of shares of Chesapeake Common Stock in the Merger.
No dissenters' or appraisal rights will be available with respect to the
Merger, the Stock Issuance Proposal or any of the other transactions
contemplated by the Merger Agreement.
Litigation Relating to the Merger
As of May 17, 2024, one complaint has been filed by a purported Chesapeake
stockholder against Chesapeake and the members of the Chesapeake Board
alleging, among other things, that the defendants caused to be filed a
materially misleading and incomplete registration statement on February 29,
2024 in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule
14a-9 promulgated thereunder and seeking to enjoin the merger and obtain other
relief: Gerald Joseph Lovoi v. Chesapeake Energy Corp., et al., No.
1:24-cv-01896 (S.D.N.Y Mar. 13, 2024). Chesapeake believes that the claims in
the complaint are without merit and intends to vigorously defend against them.
Southwestern has received one demand for books and records under Section 220
of the DGCL seeking review of certain Southwestern books and records related
to the Transactions and also requesting that Chesapeake and Southwestern
disclose additional Merger-related information.
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THE MERGER AGREEMENT
The following description sets forth the principal terms of the Merger
Agreement, which is attached as
Annex A
and incorporated by reference into this joint proxy statement/prospectus. The
rights and obligations of the parties are governed by the express terms and
conditions of the Merger Agreement and not by this description, which is
summary by nature. This description does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Merger
Agreement. You are encouraged to read the Merger Agreement carefully and in
its entirety, as well as this joint proxy statement/prospectus, before making
any decisions regarding any of the proposals described in this joint proxy
statement/prospectus. This section is only intended to provide you with
information regarding the terms of the Merger Agreement. Neither Chesapeake
nor Southwestern intends that the Merger Agreement will be a source of
business or operational information about Chesapeake or Southwestern.
Accordingly, the representations, warranties, covenants and other agreements
in the Merger Agreement should not be read alone, and you should read the
information provided elsewhere in this joint proxy statement/prospectus and in
the public filings Chesapeake and Southwestern make with the SEC, as described
in "Where You Can Find More Information."
Explanatory Note Regarding the Merger Agreement
The Merger Agreement and this summary are included solely to provide you with
information regarding the terms of the Merger Agreement. Factual disclosures
about Chesapeake, Southwestern or any of their respective subsidiaries or
affiliates contained in this proxy statement/prospectus or in Chesapeake's or
Southwestern's public reports filed with the SEC may supplement, update or
modify the factual disclosures about Chesapeake or Southwestern, as
applicable, contained in the Merger Agreement. The representations, warranties
and covenants made in the Merger Agreement by Chesapeake, Southwestern, Merger
Sub Inc and Merger Sub LLC were made solely for the purposes of the Merger
Agreement and as of specific dates and were qualified and subject to important
limitations agreed to by Chesapeake, Southwestern, Merger Sub Inc and Merger
Sub LLC in connection with negotiating the terms of the Merger Agreement. In
particular, in your review of the representations and warranties contained in
the Merger Agreement and described in this summary, it is important to bear in
mind that the representations and warranties were negotiated with the
principal purposes of establishing the circumstances in which a party to the
Merger Agreement may have the right not to complete the Merger if the
representations and warranties of the other party prove to be untrue due to a
change in circumstance or otherwise, and allocating risk between the parties
to the Merger Agreement, rather than establishing matters as facts. The
representations and warranties may also be subject to a different standard of
materiality from the materiality standard generally applicable to shareholders
and reports and documents filed with the SEC, and in some cases were qualified
by the matters contained in the respective disclosure letters that Chesapeake
and Southwestern delivered to each other in connection with the Merger
Agreement, which disclosures were not reflected in the Merger Agreement.
Moreover, information concerning the subject matter of the representations and
warranties, which do not purport to be accurate as of the date of this proxy
statement/ prospectus, may have changed since January 10, 2024. You should not
rely on the Merger Agreement representations, warranties, covenants or any
descriptions thereof as characterizations of the actual state of facts of
Chesapeake, Southwestern, Merger Sub Inc and Merger Sub LLC or any of their
respective subsidiaries or affiliates.
The Merger
Upon the terms and subject to the conditions of the Merger Agreement, at the
Effective Time, Merger Sub Inc will be merged with and into Southwestern in
accordance with the DGCL. As a result of the Merger, the separate existence of
Merger Sub Inc will cease and Southwestern will continue its existence under
the laws of the State of Delaware as the surviving entity (in such capacity,
the "Surviving Corporation").
At the Effective Time, the Merger will have the effects set forth in the
Merger Agreement and the applicable provisions of the DGCL and all the
property, rights, privileges, powers and franchises of each of Southwestern
and Merger Sub Inc will vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of each of
Southwestern and Merger Sub Inc will become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving
Corporation.
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Closing
Unless otherwise mutually agreed to in writing between Chesapeake and
Southwestern, the completion of the Merger will take place at 9:00 a.m.
Central Time on the date that is three business days immediately following the
satisfaction or waiver of the conditions to the completion of the Merger
(other than any such conditions that by their nature cannot be satisfied until
the closing date, which will be required to be so satisfied or (to the extent
permitted by applicable law) waived in accordance with the Merger Agreement on
the closing date). For more information on the conditions to the completion of
the Merger, please see the section entitled "
The Merger Agreement - Conditions to the Completion of the Merger
" beginning on page 188. The date on which the completion of the Merger occurs
is referred to herein as the "closing date."
As soon as practicable on the closing date, certificates of merger prepared
and executed in accordance with the relevant provisions of the DGCL will be
filed with the Office of the Secretary of State of the State of Delaware and
the Merger will become effective upon the filing and acceptance of such
certificates of merger with the Office of the Secretary of State of the State
of Delaware, or at such later time as agreed in writing by Chesapeake and
Southwestern and specified in such certificates of merger.
Organizational Documents; Directors and Officers
At the Effective Time, the certificate of incorporation of Southwestern in
effect immediately prior to the Effective Time (the "Southwestern Certificate
of Incorporation") shall be amended and restated in its entirety as of the
Effective Time to be in the form set forth in Exhibit A of the Merger
Agreement and the bylaws of Southwestern (the "Southwestern Bylaws") in effect
immediately prior to the Effective Time shall be amended and restated in their
entirety as of the Effective Time to be in the form set forth in Exhibit B of
the Merger Agreement, and shall be the certificate of incorporation and
bylaws, respectively, of the Surviving Corporation from and after the
Effective Time, in each case until duly amended and/or restated in accordance
with their respective terms and applicable law.
At the Effective Time, unless otherwise agreed to by Chesapeake and
Southwestern, Chesapeake shall take all actions necessary to cause the
Chesapeake Board to consist, at the Effective Time, of eleven (11) members,
including four (4) individuals selected by Southwestern, each of whom is a
member of the Southwestern Board as of the date of the Merger Agreement and
will meet the requirements under the rules and regulations of Nasdaq to be
considered an independent director on the Chesapeake Board, which directors
will serve until their respective successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the organizational documents of Chesapeake and applicable law. The four
(4) Southwestern director nominees are: Catherine A. Kehr, John D. Gass,
Shameek Konar and Anne Taylor.
Post-Closing Merger
Immediately following the Effective Time, Surviving Corporation shall merge
with and into Merger Sub LLC (the "LLC Sub Merger"), with Merger Sub LLC
continuing as the surviving entity in such merger as a wholly owned subsidiary
of Chesapeake, pursuant to a merger agreement substantially in the form set
forth in Exhibit C of the Merger Agreement (the "LLC Sub Merger Agreement").
At the time of and immediately after the LLC Sub Merger, Chesapeake shall own
all of the membership interests and other equity, if any, in Merger Sub LLC
and shall be the sole member of Merger Sub LLC, and Merger Sub LLC shall be
treated as an entity disregarded as separate from Chesapeake for U.S. federal
income tax purposes.
Effect of the Merger on Capital Stock; Merger Consideration
At the Effective Time, by virtue of the Merger and without any action on the
part of Chesapeake, Merger Sub Inc, Southwestern or any holder of any
securities of Chesapeake, Merger Sub Inc or Southwestern, each share of
Southwestern Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any Excluded Shares (as such term is defined below))
(such shares of Southwestern Common Stock, the "Eligible Shares"), will be
converted into the right to receive a number of validly issued, fully-paid and
nonassessable shares of Chesapeake Common Stock equal to the Exchange Ratio
(the "Merger Consideration"). As used in the Merger Agreement, "Exchange
Ratio" means 0.0867.
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All Eligible Shares when so converted, shall cease to be outstanding and shall
automatically be canceled and cease to exist and each holder of an Eligible
Share that was outstanding immediately prior to the Effective Time shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration, any dividends or other distributions paid with respect
to the portion of the Merger Consideration that consists of Chesapeake Common
Stock following the Effective Time and any cash to be paid in lieu of any
fractional shares of Chesapeake Common Stock, pursuant to the terms of the
Merger Agreement.
All shares of Southwestern Common Stock held by Southwestern as treasury
shares or by Chesapeake or Merger Sub Inc immediately prior to the Effective
Time and, in each case, not held on behalf of third parties (collectively, the
"Excluded Shares") will automatically be canceled and cease to exist as of the
Effective Time, and no consideration will be delivered in exchange for
Excluded Shares.
In the event of any change in the number of shares of Southwestern Common
Stock or Chesapeake Common Stock or securities convertible or exchangeable
into or exercisable for shares of Southwestern Common Stock or Chesapeake
Common Stock (in each case issued and outstanding after January 10, 2024 and
before the Effective Time) by reason of any stock split, reverse stock split,
stock dividend, subdivision, reclassification, recapitalization, combination,
exchange of shares or the like, the Exchange Ratio will be equitably adjusted
to reflect the effect of such change.
Treatment of Southwestern Long-Term Incentive Awards in the Merger
At the Effective Time, each outstanding Southwestern Restricted Stock Award
will automatically, and without any action on the part of the holder thereof,
vest in full and the restrictions with respect thereto shall lapse, and each
such Southwestern Restricted Stock Award will convert into the right to
receive a number of shares of Chesapeake Common Stock equal to (i) the
Exchange Ratio, multiplied by (ii) the total number of shares of Southwestern
Common Stock attributable to such Southwestern Restricted Stock Award.
At the Effective Time, each outstanding Southwestern Director RSU Award will
automatically and without any action on the part of the holder thereof, vest
in full as of the closing date, and each such Southwestern Director RSU Award
will be canceled and convert into the right to receive a number of shares of
Chesapeake Common Stock equal to (A) the Exchange Ratio, multiplied by (B) the
total number of shares of Southwestern Common Stock subject to such
Southwestern Director RSU Award, together with accrued dividend equivalent
payments, in each case issuable and payable at the time(s) as specified in
Southwestern's Nonemployee Director Deferred Compensation Plan and in
accordance with such Director's deferral elections as set forth in the
applicable Deferred Compensation Agreement.
At the Effective Time, each outstanding Southwestern Single-Trigger RSU Award
will be deemed to be fully vested as of the closing date, and each such
Southwestern Single-Trigger RSU Award will be canceled and convert into the
right to receive a number of shares of Chesapeake Common Stock equal to (1)
the Exchange Ratio, multiplied by (2) the total number of shares of
Southwestern Common Stock subject to each such Southwestern Single-Trigger RSU
Award, together with accrued dividend equivalent payments, in each case
issuable and payable in accordance with the terms of the applicable
Southwestern Single-Trigger RSU Award agreement.
At the Effective Time, each outstanding Southwestern Double-Trigger RSU Award
will be canceled and convert into a Parent RSU Award in respect of that number
of shares of Chesapeake Common Stock (rounded to the nearest whole share)
equal to the product of (1) the total number of shares of Southwestern Common
Stock subject to such Southwestern Double-Trigger RSU Award immediately prior
to the Effective Time multiplied by (2) the Exchange Ratio. Such Parent RSU
Award will vest and be payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
Southwestern Double-Trigger RSU Award agreement (except that such award will
be payable in Chesapeake Common Stock).
At the Effective Time, each outstanding Southwestern Single-Trigger
Performance Unit Award will (I) automatically, by virtue of the occurrence of
the closing, be deemed to be fully vested and payable at the greater of (1)
the level based on actual performance determined as of immediately prior to
the Effective
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Time in accordance with the terms of the applicable Southwestern Single-Trigger
Performance Unit Award agreement and (2) target level, and (II) be canceled
and convert into the right to receive a number of shares of Chesapeake Common
Stock equal to (x) the Exchange Ratio, multiplied by (y) the number of Earned
Southwestern Performance Shares, together with accrued dividend equivalent
payments, in each case issuable and payable in accordance with the terms of
the applicable Southwestern Single-Trigger Performance Unit Award agreement.
At the Effective Time, each outstanding Southwestern Double-Trigger
Performance Unit Award will be deemed to correspond to a number of Earned
Southwestern Performance Shares determined in the same manner as described in
the immediately preceding paragraph and will be canceled and convert into a
Parent RSU Award in respect of that number of shares of Chesapeake Common
Stock (rounded to the nearest whole share) equal to (1) the number of Earned
Southwestern Performance Shares with respect to such Southwestern
Double-Trigger Performance Unit Award multiplied by (2) the Exchange Ratio.
Such Parent RSU Award will vest at the end of the original performance period
associated with the corresponding Southwestern Double-Trigger Performance Unit
Award and will otherwise be subject to and payable on the same terms and
conditions (including "double-trigger" vesting provisions) as are set forth in
the corresponding Southwestern Double-Trigger Performance Unit Award agreement
(except that such award will be payable in Chesapeake Common Stock and will no
longer be subject to performance-based vesting conditions).
At the Effective Time, each outstanding Southwestern Single-Trigger PCU Award
will automatically, by virtue of the occurrence of the closing, be deemed to
be fully vested as of the closing date and payable in cash in an amount equal
to $1.00 for each unit granted under such Southwestern Single-Trigger PCU
Award multiplied by the greater of (1) the percentage earned based on actual
performance determined as of immediately prior to the Effective Time in
accordance with the terms of the applicable Southwestern Single-Trigger PCU
Award agreement and (2) 100%.
At the Effective Time, each outstanding Southwestern Double-Trigger PCU Award
will be deemed earned at a level equal to $1.00 for each unit granted under
such Southwestern Double-Trigger PCU Award multiplied by the greater of (1)
the percentage earned based on actual performance determined as of immediately
prior to the Effective Time in accordance with the terms of the applicable
Southwestern Double-Trigger PCU Award agreement and (2) 100%. Such amount will
vest and be payable in cash at the end of the original performance period
associated with the corresponding, except that such award will no longer be
subject to performance-based vesting conditions and will otherwise be subject
to and payable on the same terms and conditions (including "double-trigger"
vesting provisions) as are set forth in the corresponding Southwestern
Double-Trigger PCU Award agreement, except that such award will no longer be
subject to performance-based vesting conditions.
Chesapeake Actions
Chesapeake will take all actions that are necessary for the treatment of
Southwestern incentive awards pursuant to the section above, including the
reservation, issuance and listing of Chesapeake Common Stock as necessary to
effect the transactions contemplated by the section above. If registration of
any plan interests in any Southwestern benefit plan or the shares of
Chesapeake Common Stock issuable in satisfaction of any Southwestern incentive
awards following the Effective Time (and giving effect to the section above)
is required under the Securities Act, Chesapeake will file with the SEC as
soon as reasonably practicable on or after the closing date a registration
statement on Form S-8 with respect to such plan interests or shares of
Chesapeake Common Stock, and will use its reasonable best efforts to maintain
the effectiveness of such registration statement for so long as the relevant
Southwestern benefit plan or Southwestern incentive awards remain outstanding
or in effect and such registration of interests therein or the shares of
Chesapeake Common Stock issuable thereunder continues to be required. With
respect to those individuals who will be subject to the reporting requirements
under Section 16(a) of the Exchange Act subsequent to the Effective Time,
where applicable, Chesapeake will administer the Southwestern incentive awards
assumed pursuant to the section above in a manner that complies with Rule
16b-3 promulgated under the Exchange Act.
Payment for Securities; Exchange
Prior to the closing, Chesapeake has agreed to enter into an agreement with
Chesapeake's or Southwestern's transfer agent to act as agent for the holders
of Southwestern Common Stock in connection
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with the Merger (the "Exchange Agent"). On the closing date and prior to the
filing of the certificate of merger, Chesapeake has agreed to deposit with the
Exchange Agent, for the benefit of the holders of Eligible Shares of
Southwestern Common Stock, the number of shares of Chesapeake Common Stock
distributable as Merger Consideration pursuant to the Merger Agreement and
sufficient cash to make delivery of any payments in lieu of fractional shares.
Chesapeake has also agreed to make available to the Exchange Agent, from time
to time as needed, cash sufficient to pay certain dividends and other
distributions on shares of Chesapeake Common Stock issuable as Merger
Consideration. Chesapeake or the Surviving Corporation will pay all charges
and expenses, including those of the Exchange Agent, in connection with the
exchange of shares pursuant to the Merger Agreement.
Certificates
As soon as practicable after the Effective Time, Chesapeake has agreed to
cause the Exchange Agent to deliver to each record holder of Southwestern
Common Stock represented by a certificate, as of immediately prior to the
Effective Time, a letter of transmittal and instructions for use in effecting
the surrender of Southwestern Common Stock Certificates for payment of the
Merger Consideration. Upon surrender to the Exchange Agent of a Southwestern
Common Stock Certificate (or an affidavit of loss in lieu of the certificate),
together with the letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, and such other customary
documents as may be reasonably required by the Exchange Agent, the holder of
such Southwestern Common Stock Certificate will be entitled to receive in
exchange therefor (A) the number of Chesapeake Common Stock (which will be in
uncertificated book-entry form) representing, in the aggregate, the whole
number of shares of Chesapeake Common Stock, if any, that such holder has the
right to receive pursuant to the Merger Agreement (after taking into account
all Eligible Shares of Southwestern Common Stock then held by such holder) and
(B) a check or wire transfer in an aggregate amount equal to the cash payable
in lieu of any fractional shares of Chesapeake Common Stock and dividends and
other distributions on the shares of Chesapeake Common Stock issuable as
Merger Consideration, subject to applicable provisions of the Merger Agreement.
Non-DTC Book-Entry Shares
As soon as practicable after the Effective Time, Chesapeake has agreed to
cause the Exchange Agent to deliver to each record holder, as of immediately
prior to the Effective Time, of Southwestern book-entry shares not held
through DTC, (A) a statement reflecting the number of shares of Chesapeake
Common Stock (which will be in uncertificated book-entry form) representing,
in the aggregate, the whole number of shares of Chesapeake Common Stock, if
any, that such holder has the right to receive pursuant to the Merger
Agreement (after taking into account all Eligible Shares of Southwestern
Common Stock held by such holder immediately prior to the Effective Time) and
(B) a check or wire transfer in an aggregate amount equal to the cash payable
in lieu of any fractional shares of Chesapeake Common Stock and dividends and
other distributions on the shares of Chesapeake Common Stock issuable as
Merger Consideration to which such holder is entitled, subject to applicable
provisions of the Merger Agreement.
DTC Book-Entry Shares
With respect to Southwestern book-entry shares held through DTC, Chesapeake
and Southwestern have agreed to cooperate to establish procedures with the
Exchange Agent and DTC to ensure the Exchange Agent will transmit to DTC or
its nominees as soon as reasonably practicable on or after the closing date,
upon surrender of Eligible Shares held of record by DTC or its nominees in
accordance with DTC's customary surrender procedures, the Merger Consideration,
the cash to be paid in lieu of any fractional shares of Chesapeake Common
Stock and any dividends and other distributions on the shares of Chesapeake
Common Stock issuable as Merger Consideration (as subject to applicable
provisions of the Merger Agreement), in each case, that DTC has the right to
receive pursuant to the Merger Agreement.
No Interest
No interest will be paid or accrued on the Merger Consideration or any other
amount payable in respect of any shares of Southwestern Common Stock eligible
to receive the Merger Consideration pursuant to the Merger Agreement.
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Termination of Rights
All Merger Consideration (including any dividends and other distributions with
respect to the shares of Chesapeake Common Stock issuable as Merger
Consideration and any cash payable in lieu of fractional shares of Chesapeake
Common Stock) paid upon the surrender of and in exchange for Eligible Shares
of Southwestern Common Stock will be deemed to have been paid in full
satisfaction of all rights pertaining to such Southwestern Common Stock. At
the Effective Time, the stock transfer books of the Surviving Corporation will
be closed immediately with respect to shares outstanding prior to the
Effective Time, and there will be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of
Southwestern Common Stock that were outstanding immediately prior to the
Effective Time.
Termination of Exchange Fund
Any portion of the Exchange Fund that remains undistributed to the former
shareholders of Southwestern on the one hundred eightieth day after the
closing date, will be delivered to Chesapeake immediately prior to the
Effective Time, for those shareholders who have not received the Merger
Consideration, any cash payable in lieu of fractional shares of Chesapeake
Common Stock and any dividends or other distributions with respect to
Chesapeake Common Stock, in each case without interest.
No Liability
None of the Surviving Corporation, Chesapeake, Merger Sub Inc, Merger Sub LLC
or the Exchange Agent will be liable to any holder of Southwestern Common
Stock for any amount of Merger Consideration properly delivered to a public
official pursuant to any applicable abandoned property, escheat, or similar
law.
Lost, Stolen, or Destroyed Certificates
If any Southwestern Common Stock Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Southwestern Common Stock Certificate to be lost, stolen or destroyed
and, if reasonably required by Chesapeake or the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Southwestern Common Stock Certificate the
Merger Consideration payable in respect of the Eligible Share of Southwestern
Common Stock formerly represented by such certificate, any cash payable in
lieu of fractional shares of Chesapeake Common Stock to which the holder
thereof is entitled and any dividends and other distributions on the shares of
Chesapeake Common Stock issuable as Merger Consideration to which the holder
thereof is entitled.
Dividends or Other Distributions with Respect to Unexchanged Shares of
Chesapeake Common Stock
No dividends or other distributions declared or made with respect to shares of
Chesapeake Common Stock with a record date after the Effective Time shall be
paid to the holder of any Eligible Shares of Southwestern Common Stock
immediately prior to the Effective Time represented by an unsurrendered
certificate with respect to the whole shares of Chesapeake Common Stock that
such holder would be entitled to receive upon surrender of such certificate
and no cash payment in lieu of fractional shares of Chesapeake Common Stock
shall be paid to any such holder, in each case until such holder surrenders
such certificate in accordance with the terms of the Merger Agreement (or an
affidavit of loss in lieu of the certificate as provided in the Merger
Agreement). Following surrender of any such certificate (or an affidavit of
loss in lieu of the certificate as provided in the Merger Agreement) (together
with the letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other customary documents
as may be reasonably required by the Exchange Agent), there shall be paid to
such holder of whole shares of Chesapeake Common Stock issuable in exchange
therefor, without interest, (i) promptly after the time of such surrender (and
delivery of such duly completed and validly executed letter of transmittal
with such other customary documents), the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Chesapeake Common Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to such surrender and
delivery and a payment date subsequent to such
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surrender and delivery payable with respect to such whole shares of Chesapeake
Common Stock. For purposes of dividends or other distributions in respect of
shares of Chesapeake Common Stock, all whole shares of Chesapeake Common Stock
to be issued pursuant to the Merger shall be as if such whole shares of
Chesapeake Common Stock were issued and outstanding as of the Effective Time.
No Fractional Shares of Chesapeake Common Stock
No fractional shares or certificates or scrip representing fractional shares
of Chesapeake Common Stock will be issued upon the exchange of Eligible Shares
of Southwestern Common Stock, no holder of Eligible Shares of Southwestern
Common Stock immediately prior to the Effective Time shall have any right to
vote or have any other rights of a shareholder of Chesapeake or a holder of
shares of Chesapeake Common Stock in respect of the fractional shares such
holder would otherwise be entitled to receive. Each holder of shares of
Southwestern Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Chesapeake Common Stock
(after taking into account all Eligible Shares of Southwestern Common Stock
formerly represented by certificates and book-entry shares held by such holder
immediately prior to the Effective Time) will receive, in lieu of such
fractional shares of Chesapeake Common Stock, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of
Chesapeake Common Stock multiplied by (ii) the volume weighted average price
of Chesapeake Common Stock for the five consecutive trading days ending
immediately prior to the closing date as reported by Bloomberg, L.P. or, if
not reported thereby, by another authoritative source mutually selected by
Chesapeake and Southwestern.
No Appraisal Rights
In accordance with Section 262 of the DGCL, no appraisal rights will be
available to holders of Southwestern Common Stock in connection with the
Merger.
Withholding Taxes
Chesapeake, Merger Sub Inc, the Surviving Corporation, Merger Sub LLC and the
Exchange Agent are entitled to deduct and withhold from any amounts otherwise
payable to any Southwestern stockholder pursuant to the Merger Agreement any
amount required to be deducted and withheld with respect to the making of such
payment under applicable law and will pay the amount deducted or withheld to
the appropriate taxing authority in accordance with applicable law.
Chesapeake, Merger Sub Inc, the Surviving Corporation, Merger Sub LLC and the
Exchange Agent, as the case may be, have agreed to reasonably cooperate in
good faith to minimize any such deduction or withholding, and, except in the
case of withholding required under applicable law in respect of any
consideration payable pursuant the Merger Agreement, the relevant withholding
party shall use reasonable best efforts to provide prior written notice to
Southwestern promptly after it determines withholding is required under the
Merger Agreement. To the extent such amounts are so properly deducted or
withheld and paid over to the relevant taxing authority by the Exchange Agent,
the Surviving Corporation, Merger Sub Inc, Merger Sub LLC or Chesapeake, as
the case may be, such deducted or withheld amounts will be treated for all
purposes of the Merger Agreement as having been paid to the Southwestern
stockholder to whom such amounts would have been paid absent such deduction or
withholding by the Exchange Agent, the Surviving Corporation, Merger Sub Inc,
Merger Sub LLC or Chesapeake, as the case may be.
Representations and Warranties
The Merger Agreement contains customary representations and warranties by
Southwestern, Chesapeake, Merger Sub Inc and Merger Sub LLC. Certain of the
representations and warranties are subject to specified exceptions and
qualifications contained in the Merger Agreement, in forms, reports,
certifications, schedules, statements and documents filed with or furnished to
the SEC by Southwestern or Chesapeake, as applicable, from December 31, 2021
and prior to January 10, 2024 or in the disclosure letters delivered by
Southwestern and Chesapeake to each other in connection with the Merger
Agreement. These representations and warranties relate to, among other things:
.
organization, good standing and power to conduct business;
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.
capitalization, including regarding:
.
the number of shares of common stock, preferred stock and/or other capital
stock of Southwestern and Chesapeake issued, outstanding and/or reserved for
issuance, and that such stock has been duly authorized and validly issued;
.
the absence of options, warrants, pre-emptive rights and other rights giving
any persons the right to acquire, or requiring Southwestern or its
subsidiaries and Chesapeake and its subsidiaries to sell, any securities of
Southwestern or its subsidiaries or Chesapeake and its subsidiaries or any
securities convertible into or exchangeable or exercisable for, or giving any
person a right to subscribe for or acquire, any such securities;
.
the absence of obligations of each of Southwestern or its subsidiaries and
Chesapeake and its subsidiaries to redeem or otherwise acquire any securities
of it or its affiliates or any securities convertible into or exchangeable or
exercisable for, or giving any person a right to subscribe for or acquire, any
such securities;
.
the absence of securities that are convertible into or exchangeable or
exercisable for, voting or equity securities of Southwestern or its
subsidiaries or Chesapeake and its subsidiaries;
.
the absence of any shareholders agreements, voting trusts or other agreements,
other than disclosed agreements;
.
the absence of any interests in any material joint venture or, directly or
indirectly, equity securities or other similar equity interests in any person
or obligations, whether contingent or otherwise, to consummate any material
additional investment in any person other than disclosed agreements;
.
corporate authority and approval relating to the execution, delivery and
performance of the Merger Agreement, including regarding the approval by the
Southwestern Board and Chesapeake Board of the Merger Agreement and the
transactions contemplated by the Merger Agreement;
.
the absence of a default or adverse change in the rights or obligations under
any provision of any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, permit, franchise or license to which
Southwestern or any of its subsidiaries or Chesapeake or any of its
subsidiaries are a party or violation of Southwestern's or Chesapeake's
organizational documents as a result of entering into, delivering and
performing under the Merger Agreement and consummating the Merger;
.
governmental filings, notices, reports, registrations, approvals, consents,
ratifications, permits, permissions, waivers or expirations of waiting periods
or authorizations required in connection with the execution, delivery and
performance of the Merger Agreement and the completion of the Merger;
.
filings with the SEC since December 31, 2021, and the financial statements
included therein;
.
compliance with the applicable requirements under the Securities Act, the
Exchange Act and the Sarbanes-Oxley Act 2002;
.
preparation of financial statements in accordance with GAAP;
.
establishment and maintenance of a system of internal controls sufficient to
provide reasonable assurance regarding the reliability of financial reporting
and the absence of any significant deficiency or material weakness in the
design or operation of internal controls of financial reporting;
.
the absence since December 31, 2022, of any material adverse effect (as
defined below) with respect to Southwestern or Chesapeake, as applicable or
any material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by Southwestern or
Chesapeake, as applicable, or any of its subsidiaries, whether or not covered
by insurance;
.
the conduct of business in the ordinary course of business since December 31,
2022;
.
the absence of certain undisclosed liabilities;
.
accuracy of information provided for inclusion in this proxy statement/prospectu
s;
.
certain consents and permissions of third parties required to conduct the
business of Southwestern and its subsidiaries and Chesapeake and its
subsidiaries;
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.
compliance with applicable laws, including applicable anti-corruption and
export-import laws, the absence of governmental investigations and the
possession of and compliance with licenses and permits necessary for the
conduct of business;
.
compensation and benefits;
.
labor matters;
.
tax matters;
.
the absence of certain legal proceedings, investigations and governmental
orders against Southwestern or any of its subsidiaries or Chesapeake or any of
its subsidiaries;
.
intellectual property;
.
privacy and cybersecurity;
.
oil and gas matters;
.
environmental matters;
.
real property and rights-of-way;
.
material contracts;
.
derivative transactions;
.
insurance;
.
opinion of financial advisor;
.
the absence of any undisclosed broker's or finder's fees; and
.
the absence of any undisclosed related party transactions.
The Merger Agreement also contains additional representations and warranties
by Chesapeake, Merger Sub Inc and Merger Sub LLC relating to the following,
among other things:
.
ownership of shares of Southwestern Common Stock; and
.
the conduct of the business of Merger Sub Inc and Merger Sub LLC.
Definition of Material Adverse Effect
A "material adverse effect" means, when used with respect to Southwestern or
Chesapeake, any fact, circumstance, effect, change, event or development that
(a) would prevent, materially delay or materially impair the ability of such
party or its subsidiaries to consummate the transactions contemplated by the
Merger Agreement or (b) has, or would have, a material adverse effect on the
financial condition, business, or results of operations of such party and its
subsidiaries, taken as a whole; provided, however, that with respect to the
foregoing clause (b) only, no effect (by itself or when aggregated or taken
together with any and all other effects) to the extent directly or indirectly
resulting from, arising out of, attributable to, or related to any of the
following shall be deemed to be or constitute a "material adverse effect" or
shall be taken into account when determining whether a "material adverse
effect" has occurred or may, would or could occur:
.
general economic conditions (or changes in such conditions) or conditions in
the U.S. or global economies generally;
.
conditions (or changes in such conditions) in the securities markets, credit
markets, commodity markets, currency markets or other financial markets,
including changes in interest rates and changes in exchange rates for the
currencies of any countries and any suspension of trading in securities
(whether equity, debt, derivative or hybrid securities) generally on any
securities exchange or over-the-counter market;
.
conditions (or changes in such conditions) in the oil and gas exploration,
development or production industry (including changes in commodity prices,
general market prices and regulatory changes affecting the industry);
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.
political conditions (or changes in such conditions) or acts of war, sabotage
or terrorism (including any escalation or general worsening of any such acts
of war, sabotage or terrorism);
.
earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wildfires or
other natural disasters, pandemics, epidemics or other widespread health
crises or weather conditions;
.
effects resulting from the negotiation, execution and announcement of the
Merger Agreement or the pendency or consummation of the Merger and the other
transactions contemplated by the Merger Agreement, including the impact
thereof on the relationship of such party and its subsidiaries with customers,
suppliers, partners, employees or governmental bodies, agencies, officials or
authorities (other than with respect to any representation or warranty that is
intended to address the consequences of the execution or delivery of the
Merger Agreement or the announcement or consummation of the Merger and the
other transactions contemplated by the Merger Agreement);
.
the execution and delivery of or compliance with the terms of, or the taking
of any action or failure to take any action which action or failure to act is
requested in writing by Chesapeake or expressly permitted or required by, the
Merger Agreement (except for certain obligations under the Merger Agreement to
operate in the ordinary course (or similar obligations));
.
litigation brought by any holder of Southwestern Common Stock against
Southwestern or holder of Chesapeake Common Stock against Chesapeake, or
against any of their respective subsidiaries and/or respective directors or
officers relating to the Merger and any of the other transactions contemplated
by the Merger Agreement;
.
changes in law or other legal or regulatory conditions, or the interpretation
thereof, or changes in GAAP or other accounting standards (or the
interpretation thereof), or that result from any action taken for the purpose
of complying with any of the foregoing;
.
any Remedy Action (as defined below) or any effects arising due to antitrust
law in relation to the transactions; or
.
any changes in such party's stock price or the trading volume of such party's
stock, or any failure by such party to meet any analysts' estimates or
expectations of such party's revenue, earnings or other financial performance
or results of operations for any period, or any failure by such party or any
of its subsidiaries to meet any internal or published budgets, plans or
forecasts of its revenues, earnings or other financial performance or results
of operations (it being understood that the facts or occurrences giving rise
to or contributing to such changes or failures may constitute, or be taken
into account in determining whether there has been or will be, a material
adverse effect).
Notwithstanding the foregoing, if such effects directly or indirectly
resulting from, arising out of, attributable to or related to the matters
described in the first five bullets directly above or the ninth bullet
directly above disproportionately adversely affect such party and its
subsidiaries, taken as a whole, as compared to other similarly situated
industry participants operating in the oil and gas exploration, development or
production industry, in which case such adverse effects (if any) will be taken
into account when determining whether a "material adverse effect" has occurred
or may, would or could occur solely to the extent they are disproportionate.
A "Southwestern material adverse effect" means a material adverse effect with
respect to each of Southwestern and its subsidiaries, taken as a whole, and a
"Chesapeake material adverse effect" means a material adverse effect with
respect to Chesapeake and its subsidiaries, taken as a whole.
Interim Operations of Southwestern and Chesapeake Pending the Merger
Interim Operations of Southwestern
Southwestern has agreed that, subject to certain exceptions set forth in the
Merger Agreement, except as provided in the disclosure letter it delivered to
Chesapeake in connection with the Merger Agreement, as permitted, contemplated
or required by the Merger Agreement, as required by applicable law, or as
otherwise consented to by Chesapeake in writing (which consent will not be
unreasonably withheld, delayed or conditioned), until the earlier of the
Effective Time and the termination of the Merger Agreement, it will,
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and will cause each of its subsidiaries to use reasonable best efforts to
conduct its business in the ordinary course, including by using reasonable
best efforts to preserve substantially intact its present business
organization, goodwill and assets, to keep available the services of its
current officers and employees and preserve its existing relationships with
governmental entities and its significant customers, suppliers, licensors,
licensees, distributors, lessors and others having significant business
dealings with Southwestern.
In addition, Southwestern has further agreed that, subject to certain
exceptions set forth in the Merger Agreement and except as set forth in the
disclosure letter it delivered to Chesapeake in connection with the Merger
Agreement, as permitted, contemplated or required under the Merger Agreement,
as required by applicable law, or otherwise consented to by Chesapeake in
writing (which consent will not be unreasonably withheld, delayed or
conditioned), until the earlier of the Effective Time and the termination of
the Merger Agreement, Southwestern will not, and will not permit its
subsidiaries to:
.
declare, set aside or pay any dividends on, or make any other distribution in
respect of any outstanding capital stock of, or other equity interests in,
Southwestern or its subsidiaries, except for dividends and distributions by a
direct or indirect wholly owned subsidiary of Southwestern to Southwestern or
another direct or indirect wholly owned subsidiary of Southwestern;
.
split, combine, exchange, subdivide, recapitalize or reclassify any capital
stock of, or other equity interests in, or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for equity interests in Southwestern or any of its subsidiaries;
.
purchase, redeem or otherwise acquire, or offer to purchase, redeem or
otherwise acquire, any capital stock of, or other equity interests in,
Southwestern or any subsidiary of Southwestern, except as required by the
terms of any capital stock or equity interest of a subsidiary or in respect of
any Southwestern incentive awards outstanding as of January 10, 2024 in
accordance with the terms of the Southwestern equity plan and applicable award
agreements;
.
offer, issue, deliver, grant or sell, or authorize or propose to offer, issue,
deliver, grant or sell, any capital stock of, or other equity interests in,
Southwestern or any of its subsidiaries or any securities convertible into, or
any rights, warrants or options to acquire, any such capital stock or equity
interests, other than (i) the delivery of Southwestern Common Stock upon the
exercise, vesting or settlement of any Southwestern incentive awards
outstanding on January 10, 2024 or granted after January 10, 2024 in
compliance with the Merger Agreement in accordance with the terms of the
Southwestern equity plan and applicable award agreements; and (ii) issuances
by a wholly owned subsidiary of Southwestern of such subsidiary's capital
stock or other equity interests to Southwestern or any other wholly owned
subsidiary of Southwestern;
.
amend or propose to amend the Southwestern Certificate of Incorporation or the
Southwestern Bylaws or amend or propose to amend the organizational documents
of any of Southwestern's subsidiaries (other than ministerial changes);
.
merge, consolidate, combine or amalgamate with any person or effect any
division transaction, in each case, other than between wholly owned
subsidiaries of Southwestern or acquire or agree to acquire (including by
merging or consolidating with, purchasing any equity interest in or a
substantial portion of the assets of, licensing, or by any other manner), any
assets, properties or any business or any corporation, partnership,
association or other business organization or division thereof, in each case
other than acquisitions for which the consideration is less than $50 million
in the aggregate;
.
sell, lease, swap, exchange, transfer, farmout, license, encumber (other than
encumbrances permitted by the Merger Agreement), abandon, permit to lapse,
discontinue or otherwise dispose of, or agree to sell, lease, swap, exchange,
transfer, farmout, license, encumber (other than encumbrances permitted by the
Merger Agreement), abandon, permit to lapse, discontinue or otherwise dispose
of, any material portion of its assets or properties, other than (i) sales,
leases, exchanges or dispositions for which the consideration is less than $20
million in the aggregate (or as otherwise permitted in the Merger Agreement);
(ii) the sale of hydrocarbons and rights thereto in the ordinary course; (iii)
among Southwestern and its wholly owned subsidiaries or among wholly owned
subsidiaries of Southwestern; (iv) sales or dispositions of excess, obsolete
or worthless equipment in the ordinary course; or (v) asset swaps the fair
market value of which are less than, (x) for those entered in the ordinary
course, $20,000,000 individually and $100,000,000 in the aggregate or (y) in
all other cases,
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$10,000,000 in the aggregate; with respect to relinquishment or abandonment,
as required by law, permit or any applicable contract; or for the expiration
of any oil and gas lease in accordance with its terms;
.
authorize, recommend, propose, enter into, adopt a plan or announce an
intention to adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Southwestern or any
of its subsidiaries, other than such transactions among wholly owned
subsidiaries of Southwestern;
.
change in any material respect its financial accounting principles, practices
or methods that would materially affect the consolidated assets, liabilities
or results of operations of Southwestern and its subsidiaries, except as
required by GAAP or applicable law;
.
(i) make, change or revoke any material tax election or accounting method, but
excluding any election that must be made periodically and is made consistent
with past practice, (ii) file any material amended tax return, (iii) except to
the extent otherwise required by applicable law, file any material tax return
other than on a basis consistent with past practice, (iv) consent to any
extension or waiver of the limitation period applicable to any material claim
or assessment in respect of material taxes, (v) enter into any material tax
allocation, sharing or indemnity agreement, any material tax holiday agreement
or other similar agreement with respect to taxes, (vi) enter into any closing
agreement with respect to material taxes, (vii) settle or compromise any
material tax proceeding, or (viii) surrender any right to claim a material tax
refund, offset or other reduction in tax liability;
.
except as required by applicable law or by the terms of any Southwestern
benefit plan existing as of the date hereof, (A) grant any increases in the
compensation or benefits payable or to become payable to any of its current or
former directors, officers, employees or other individual service providers,
other than (1) salary or wage increases made in the ordinary course with
respect to employees (other than Southwestern's named executive officers) and
service providers (not to exceed 4% in the aggregate) or (2) any increases
provided to a newly promoted employee as permitted hereunder (and so long as
such newly promoted employee's compensation and other terms and conditions of
employment are substantially comparable to those of the employee that he or
she is replacing); (B) take any action to accelerate the vesting or lapsing of
restrictions or payment, or fund or in any other way secure the payment, of
compensation or benefits; (C) grant any new equity-based or equity-linked
awards, or Southwestern Performance Cash Unit Awards or other long-term
compensation awards, amend or modify the terms of any outstanding equity-based
or equity-linked awards, or Southwestern Performance Cash Unit Awards or other
long-term compensation or benefits awards or approve treatment of outstanding
equity awards or Southwestern Performance Cash Unit Awards in connection with
the transactions that is inconsistent with the treatment contemplated by the
Merger Agreement; (D) other than in the ordinary course, pay or agree to pay
to any current or former director, officer, employee or other service provider
any pension, retirement allowance or other benefit not required by the terms
of any Southwestern benefit plan existing as of the date hereof; (E) enter
into any new, or materially amend any existing, employment or severance
agreement or, except in the ordinary course, any termination agreement, in any
case with any current or former director, officer, vice-president or higher
level employee or service provider except for entry into offer letters with
newly hired employees on a form that has previously been provided by
Chesapeake to Southwestern or a form that is substantially similar thereto;
(F) establish or adopt any benefit or compensation plan, policy, program,
agreement or arrangement that was not in existence prior to January 10, 2024
but that would be a Southwestern benefit plan if in effect on January 10,
2024, or amend or terminate any Southwestern benefit plan in existence on
January 10, 2024, other than
de minimis
administrative amendments that do not have the effect of enhancing any
benefits thereunder or otherwise resulting in increased costs to Southwestern;
or any of its Subsidiaries except for (i) changes to the contractual terms of
health and welfare plans made in the ordinary course that do not materially
increase the cost to Chesapeake and its Subsidiaries, or (ii) arrangements
necessary to effectuate any expressly permitted actions under the Merger
Agreement; (G) hire or promote any employee or engage any other service
provider (who is a natural person) who is (or would be) an executive officer
or who has (or would have) an annualized base salary in excess of $300,000
(except for the hire or promotion of an employee as is reasonably necessary to
replace any employee, so long as the new employee's compensation and other
terms and conditions of employment are
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substantially comparable to those of the employee being replaced); (H)
terminate the employment of any executive officer other than for cause; or (I)
enter into, amend or terminate any collective bargaining agreement with any
labor union, works council or labor organization;
.
(i) incur, create, assume, repurchase or offer to repurchase any indebtedness
or guarantee any such indebtedness of another person or (ii) create any
encumbrances on any property or assets of Southwestern or any of its
subsidiaries in connection with any indebtedness thereof, other than
encumbrances permitted by the Merger Agreement, provided that the foregoing
clauses (i) and (ii) shall not restrict (1) the incurrence or repayment of
indebtedness under Southwestern's existing credit facility in the ordinary
course, (2) the incurrence or repayment of indebtedness by Southwestern that
is owed to any wholly owned subsidiary of Southwestern or by any subsidiary of
Southwestern that is owed to Southwestern or a wholly owned subsidiary of
Southwestern, (3) the incurrence or assumption of indebtedness in connection
with any acquisition permitted by the Merger Agreement, (4) the incurrence of
additional indebtedness in an amount not to exceed (x) at any time on or prior
to June 30, 2024, $50,000,000, and (y) at any time after June 30, 2024, an
additional $50,000,000 (for an aggregate permitted amount of $100,000,000),
(5) the incurrence of any indebtedness (such new indebtedness, the "Company
Refinancing Indebtedness") that replaces, renews, extends, refinances or
refunds existing indebtedness (other than in respect of Southwestern's
existing credit facility) (such existing indebtedness, the "Company Refinanced
Indebtedness") (including indebtedness incurred to repay or refinance related
fees, premiums and expenses) and the repurchase or repayment of such Company
Refinanced Indebtedness; provided that (A) such Company Refinancing
Indebtedness does not contain covenants and events of default that are more
restrictive in any material respect than those under the Company Refinanced
Indebtedness as in effect on the date hereof, (B) such Company Refinancing
Indebtedness does not contain terms or provisions that prohibit or restrict
the transactions contemplated by the terms of this Agreement except for
encumbrances or restrictions that are no more restrictive in any material
respect than those under the Company Refinanced Indebtedness, and (C) to the
extent the Company Refinanced Indebtedness is unsecured and/or subordinated
(including in right of payment) to any other indebtedness of Southwestern,
such Company Refinancing Indebtedness is unsecured and/or subordinated
(including in right of payment) to such other indebtedness on terms at least
as favorable to the holders of such senior indebtedness as those contained in
the documentation governing the Company Refinanced Indebtedness, (6) the
repurchase or repayment of indebtedness within one year of its maturity date
or (7) the creation of any encumbrance securing any indebtedness permitted by
the foregoing clauses (1), (2), (3) or, (4) or (5);
.
other than in the ordinary course, enter into any contract that would be a
Company Contract (as defined in the Merger Agreement), if it were in effect on
January 10, 2024, modify, amend, terminate or assign, or waive or assign any
rights under, any Company Contract (including the renewal of an existing
Company Contract on substantially the same terms in the ordinary course), or
enter into a material derivative transaction except to remain in compliance
with Southwestern's existing credit facility;
.
other than in the ordinary course or with respect to amounts that are not
material to such party and its subsidiaries, taken as a whole, cancel, modify
or waive any debts or claims held by Southwestern or any of its subsidiaries
or waive any rights held by Southwestern or any of its subsidiaries;
.
waive, release, assign, settle or compromise or offer or propose to waive,
release, assign, settle or compromise, any material proceeding (excluding any
proceeding in respect of taxes) other than (i) the settlement of such
proceedings involving only the payment of monetary damages by Southwestern or
any of its subsidiaries of any amount not exceeding $3,000,000 individually or
$10,000,000 in the aggregate and (ii) as would not result in any material
restriction on future activity or conduct or a finding or admission of a
violation of law; except that Southwestern will be permitted to settle any
transaction litigation in accordance with the Merger Agreement;
.
make or commit to make any capital expenditures that are, in the aggregate for
any fiscal quarter, greater than 115% of the aggregate amount of capital
expenditures (excluding capitalized interest, which is set forth on
Southwestern's disclosure letter) contemplated for such fiscal quarter by
Southwestern's annual capital expenditure budget as set forth in the
disclosure letter Southwestern delivered to Chesapeake in connection with the
Merger Agreement, except for capital expenditures to
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repair damage resulting from insured casualty events or capital expenditures
required on an emergency basis or for the safety of individuals, assets or the
environments in which individuals perform work for Southwestern and its
subsidiaries (provided that Southwestern will notify Chesapeake of any such
emergency expenditure as soon as reasonably practicable) or delayed capital
expenditures from a previous fiscal quarter's capital expenditure budget in
the ordinary course;
.
take any action, cause any action to be taken, knowingly fail to take any
action or knowingly fail to cause any action to be taken, which action or
failure to act would prevent or impede, or would be reasonably likely to
prevent or impede, the Integrated Mergers, taken together, from qualifying as
a reorganization within the meaning of Section 368(a) of the Code;
.
fail to maintain in full force and effect in all material respects, or fail to
replace or renew, the insurance policies of Southwestern and its subsidiaries
at a level at least comparable to levels as of January 10, 2024, or otherwise
in a manner inconsistent with past practice; or
.
agree to take any action described above.
Interim Operations of Chesapeake
Chesapeake has agreed that, subject to certain exceptions set forth in the
Merger Agreement, the disclosure letter Chesapeake delivered to Southwestern
in connection with the Merger Agreement, any actions required by applicable
law, or otherwise consented to by Southwestern in writing (which consent will
not be unreasonably withheld, delayed or conditioned) until the earlier of the
Effective Time and the termination of the Merger Agreement pursuant to the
Merger Agreement, it will, and will cause each of its subsidiaries to, use
reasonable best efforts to conduct its business in the ordinary course,
including by using reasonable best efforts to preserve substantially intact
its present business organization, goodwill and assets, to keep available the
services of its current officers and employees and preserve its existing
relationships with governmental entities and its significant customers,
suppliers, licensors, licensees, distributors, lessors and others having
significant business dealings with it.
In addition, Chesapeake has further agreed that, subject to certain exceptions
set forth in the Merger Agreement, the disclosure letter Chesapeake delivered
to Southwestern in connection with the Merger Agreement, as required by the
Merger Agreement, as required by applicable law, or otherwise consented to by
Southwestern in writing (which consent will not be unreasonably withheld,
delayed or conditioned), until the earlier of the Effective Time and the
termination of the Merger Agreement, Chesapeake will not, and will not permit
its subsidiaries to (in each case whether directly or indirectly or by Merger,
consolidation, division, operation of law or otherwise):
.
declare, set aside or pay any dividends on, or make any other distribution in
respect of any outstanding capital stock of, or other equity interests in,
Chesapeake or its subsidiaries, except for (i) regular quarterly cash
dividends payable by Chesapeake in the ordinary course (and pursuant to the
formula set forth in Chesapeake's dividend policy which is set forth on the
disclosure letter Chesapeake delivered to Southwestern (which, for avoidance
of doubt, excluding any special dividends)) and (ii) dividends and
distributions by a direct or indirect wholly owned subsidiary of Chesapeake to
Chesapeake or another direct or indirect wholly owned subsidiary of Chesapeake;
.
split, combine, exchange, subdivide, recapitalize or reclassify any capital
stock of, or other equity interests in, or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for equity interests in Chesapeake or any of its subsidiaries;
.
purchase, redeem or otherwise acquire, or offer to purchase, redeem or
otherwise acquire, any capital stock of, or other equity interests in,
Chesapeake, or any subsidiary of Chesapeake, except as required by the terms
of any capital stock or equity interest of a subsidiary or in respect of any
equity awards outstanding as of January 10, 2024, or issued after such date in
accordance with the terms of the Merger Agreement in accordance with the terms
of Chesapeake's stock plans and applicable award agreements;
.
offer, issue, deliver, grant or sell, or authorize or propose to offer, issue,
deliver, grant or sell, any capital stock of, or other equity interests in,
Chesapeake or any of its Subsidiaries or any securities convertible into, or
any rights, warrants or options to acquire, any such capital stock or equity
interests,
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other than: (A) the delivery of Chesapeake Common Stock upon the exercise,
vesting or settlement of any equity awards outstanding as of January 10, 2024
or granted after January 10, 2024 in compliance with the Merger Agreement in
accordance with the terms of the Chesapeake stock plans (or any successor
equity compensation plans) and applicable award agreements; (B) any equity
awards issued in the ordinary course after the date hereof under the
Chesapeake stock plans (or any successor equity compensation plans) as
otherwise allowed under the terms of the Merger Agreement; (C) the issuance of
shares of Chesapeake Common Stock upon the exercise of Chesapeake warrants
outstanding on January 10, 2024; (D) the issuance of Reserved Shares (as
defined in the Merger Agreement) and Reserved Warrants (as defined in the
Merger Agreement) to satisfy general unsecured claims; and (E) issuances by a
wholly owned subsidiary of Chesapeake of such subsidiary's capital stock or
other equity interests to Chesapeake or any other wholly owned subsidiary of
Chesapeake;
.
amend or propose to amend the Chesapeake Charter or Chesapeake Bylaws or amend
or propose to amend the organizational documents of any of Chesapeake's
subsidiaries (other than ministerial changes);
.
(A) merge, consolidate, combine or amalgamate with any person or effect any
division transaction, in each case, other than between wholly owned
subsidiaries of Chesapeake or (B) acquire or agree to acquire or make an
investment in (including by merging or consolidating with, purchasing any
equity interest in or a substantial portion of the assets of, licensing, or by
any other manner), any assets, properties or any business or any corporation,
partnership, association or other business organization or division thereof,
in each case, other than acquisitions for which the consideration is less than
$750,000,000 in the aggregate;
.
sell, lease, swap, exchange, transfer, farmout, license, encumber (other than
Permitted Encumbrances (as defined in the Merger Agreement)), abandon, permit
to lapse, discontinue or otherwise dispose of, or agree to sell, lease, swap,
exchange, transfer, farmout, license, Encumber (other than Permitted
Encumbrances), abandon, permit to lapse, discontinue or otherwise dispose of,
any material portion of its assets or properties, other than sales, leases,
exchanges or dispositions for which the consideration is less than
$750,000,000, in the aggregate;
.
authorize, recommend, propose, enter into, adopt a plan or announce an
intention to adopt a plan of complete or partial liquidation or dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of Chesapeake or any of its subsidiaries, other than such transactions among
wholly owned subsidiaries of Chesapeake;
.
change in any material respect its financial accounting principles, practices
or methods that would materially affect the consolidated assets, liabilities
or results of operations of Chesapeake and its subsidiaries, except as
required by GAAP or applicable law;
.
(A) make, change or revoke any material tax election or accounting method, but
excluding any election that must be made periodically and is made consistent
with past practice, (B) file any material amended tax return, (C) except to
the extent otherwise required by applicable law, file any material tax return
other than on a basis consistent with past practice, (D) consent to any
extension or waiver of the limitation period applicable to any material claim
or assessment in respect of material taxes, (E) enter into any material tax
allocation, sharing or indemnity agreement, any material tax holiday agreement
or other similar agreement with respect to taxes, (F) enter into any closing
agreement with respect to material taxes, (G) settle or compromise any
material tax proceeding, or (H) surrender any right to claim a material tax
refund, offset or other reduction in tax liability;
.
(A) incur, create, assume, repurchase or offer to repurchase any indebtedness
or guarantee any such indebtedness of another person or (B) create any
encumbrances on any property or assets of Chesapeake or any of its
subsidiaries in connection with any indebtedness thereof, other than Permitted
Encumbrances (as defined in the Merger Agreement); provided, however, that the
foregoing clauses (A) and (B) shall not restrict (1) the incurrence or
repayment of indebtedness under the Chesapeake credit facility in the ordinary
course, (2) the incurrence or repayment of indebtedness by Chesapeake that is
owed to any wholly owned subsidiary of Chesapeake or by any subsidiary of
Chesapeake that is owed to Chesapeake or a wholly owned subsidiary of
Chesapeake, (3) the incurrence or assumption of indebtedness in connection
with any acquisition of any person, assets or properties,
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(4) the incurrence of additional indebtedness in an amount not to exceed (x)
at any time on or prior to June 30, 2024, $50,000,000, and (y) at any time
after June 30, 2024, an additional $50,000,000 (for an aggregate permitted
amount of $100,000,000), (5) the incurrence of any indebtedness (such new
indebtedness, the "Parent Refinancing Indebtedness") that replaces, renews,
extends, refinances or refunds existing indebtedness (other than in respect of
the Chesapeake credit facility) (such existing indebtedness, the "Parent
Refinanced Indebtedness") (including indebtedness incurred to repay or
refinance related fees, premiums and expenses) and the repurchase or repayment
of such Parent Refinanced Indebtedness; provided that (A) such Parent
Refinancing Indebtedness does not contain covenants and events of default that
are more restrictive in any material respect than those under the Parent
Refinanced Indebtedness as in effect on the date hereof, (B) such Parent
Refinancing Indebtedness does not contain terms or provisions that prohibit or
restrict the transactions contemplated by the terms of the Merger Agreement
except for encumbrances or restrictions that are no more restrictive in any
material respect than those under the Parent Refinanced Indebtedness, and (C)
to the extent the Parent Refinanced Indebtedness is unsecured and/or
subordinated (including in right of payment) to any other indebtedness of
Chesapeake, such Parent Refinancing Indebtedness is unsecured and/or
subordinated (including in right of payment) to such other indebtedness on
terms at least as favorable to the holders of such senior indebtedness as
those contained in the documentation governing the Parent Refinanced
Indebtedness, (6) the incurrence of any indebtedness pursuant to the Debt
Financing (as defined in the Merger Agreement); (7) the repurchase or
repayment of indebtedness within one year of its maturity date or (8) the
creation of any encumbrance securing indebtedness permitted by the foregoing
clauses (1), (2), (3), (4), (5) or (6);
.
other than in the ordinary course or with respect to amounts that are not
material to such party and its subsidiaries, taken as a whole, cancel, modify
or waive any debts or claims held by Chesapeake or any of its subsidiaries or
waive any rights held by Chesapeake or any of its subsidiaries;
.
other than (1) in the ordinary course or (2) in respect of any Parent
Contracts (as defined in the Merger Agreement) or derivative transactions
which do not exceed $750,000,000 in the aggregate, (A) enter into any contract
that would be a Parent Contract if it were in effect on the date of the Merger
Agreement, (B) modify, amend, terminate or assign, or waive or assign any
rights under, any Parent Contract (other than the renewal of an existing
Parent Contract on substantially the same terms), or (C) except to the extent
necessary to remain in compliance with the Chesapeake credit facility, enter
into any material derivative transaction;
.
waive, release, assign, settle or compromise or offer or propose to waive,
release, assign, settle or compromise, any proceeding (excluding any
proceeding in respect of taxes) other than (A) the settlement of such
proceedings involving only the payment of monetary damages by Chesapeake or
any of its subsidiaries of any amount not exceeding $3,000,000 individually or
$10,000,000 in the aggregate and (B) as would not result in any restriction on
future activity or conduct or a finding or admission of a violation of law;
provided, that Chesapeake shall be permitted to settle any transaction
litigation in accordance with the Merger Agreement;
.
make or commit to make any capital expenditures that are, in the aggregate,
greater than 115% of the aggregate amount of capital expenditures contemplated
for such fiscal quarter by Chesapeake's capital expenditure budget as set
forth in the disclosure letter delivered by Chesapeake to Southwestern, except
for capital expenditures to repair damage resulting from insured casualty
events or capital expenditures required on an emergency basis or for the
safety of individuals, assets or the environments in which individuals perform
work for Chesapeake and its subsidiaries (provided that the Chesapeake shall
notify Southwestern of any such emergency expenditure as soon as reasonably
practicable) or delayed capital expenditures from a previous fiscal quarter's
capital expenditure budget in the ordinary course;
.
take any action, cause any action to be taken, knowingly fail to take any
action or knowingly fail to cause any action to be taken, which action or
failure to act would prevent or impede, or would be reasonably likely to
prevent or impede, the Integrated Mergers, from qualifying as a reorganization
within the meaning of Section 368(a) of the Code;
.
fail to maintain in full force and effect in all material respects, or fail to
replace or renew, the insurance policies of Chesapeake and its subsidiaries at
a level at least comparable to current levels or otherwise in a manner
inconsistent with past practice; or
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.
agree to take any action described above.
No Solicitation; Change of Recommendation
Southwestern has agreed that, from and after January 10, 2024, and until the
earlier of the Effective Time and termination of the Merger Agreement pursuant
to the terms of the Merger Agreement, Southwestern and its officers and
directors will and will cause Southwestern's subsidiaries and its and their
controlled affiliates and respective officers and directors to, and will use
their reasonable best efforts to cause the other representatives to
immediately cease, and cause to be terminated, any solicitation of, discussion
or negotiations with any person conducted prior to January 10, 2024 by
Southwestern or any of its subsidiaries, their respective controlled
affiliates or representatives with respect to any inquiry, proposal or offer
that relates to, constitutes, or could reasonably be expected to lead to, a
Southwestern Competing Proposal. Southwestern will, promptly following the
execution and delivery of the Merger Agreement, terminate any physical or
electronic data room relating to any potential Southwestern Competing Proposal.
Southwestern has also agreed that, from and after January 10, 2024, and until
the earlier of the Effective Time and termination of the Merger Agreement
pursuant to the terms of the Merger Agreement, Southwestern and its officers
and directors will not, and will cause Southwestern's subsidiaries and its and
their respective controlled affiliates and respective officers and directors
to, and will use their reasonable best efforts to cause other representatives
not to, directly or indirectly:
.
initiate, solicit, seek, propose, knowingly encourage, or knowingly facilitate
(including by way of furnishing non-public information) any inquiry regarding
the making, submission or announcement by any person (other than Chesapeake or
its subsidiaries) of any proposal or offer, including any proposal or offer to
Southwestern's stockholders that constitutes, or could reasonably be expected
to lead to, a Southwestern Competing Proposal;
.
engage in, continue or otherwise participate in any discussions or
negotiations with any person with respect to, relating to, or in furtherance
of a Southwestern Competing Proposal or any inquiry, proposal or offer that
could reasonably be expected to lead to a Southwestern Competing Proposal;
.
furnish or afford access to any material non-public information regarding
Southwestern or its subsidiaries to any person (other than Chesapeake and its
subsidiaries) in connection with, for the purpose of soliciting, initiating,
knowingly encouraging or knowingly facilitating, or in response to any
Southwestern Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Southwestern Competing Proposal;
.
approve, adopt, recommend, agree to enter into, or propose to approve, adopt,
recommend, agree to or enter into, any inquiry, proposal or offer that
constitutes, or could reasonably be expected to lead to a Southwestern
Alternative Acquisition Agreement;
.
enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a Southwestern Competing Proposal or that would require, or would
reasonably be expected to require, Southwestern to abandon, terminate or fail
to consummate the Integrated Mergers or any other transaction contemplated by
the Merger Agreement;
.
waive or release any person from, forebear in the enforcement of, or amend or
terminate any standstill agreement or any standstill provisions of any other
contract; provided that if Southwestern (acting under the direction of the
Southwestern Board) determines in good faith after consultation with
Southwestern's outside legal counsel that the failure to waive a particular
standstill provision would be inconsistent with the relevant directors'
fiduciary duties under applicable law, then Southwestern may waive such
standstill provision, solely to the extent necessary to permit a third party
to make and pursue a non-public Southwestern Competing Proposal that
Southwestern reasonably believes is likely to lead to a Southwestern Superior
Proposal;
.
submit any competing proposal to the vote of Southwestern stockholders; or
.
resolve or agree to take any of the actions described above.
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From and after January 10, 2024, Southwestern has agreed to promptly (and in
any event within twenty-four hours) notify Chesapeake in writing of the
receipt by Southwestern of any Southwestern Competing Proposal or any proposal
or offer with respect to (or that could reasonably be expected to lead to) a
Southwestern Competing Proposal made on or after January 10, 2024, any request
for information or data relating to Southwestern or any of its subsidiaries
made by any person in connection with (or that could reasonably be expected to
lead to) a Southwestern Competing Proposal or any request for discussions or
negotiations with Southwestern or a representative of Southwestern relating to
(or that could reasonably be expected to lead to) a Southwestern Competing
Proposal, and Southwestern will notify Chesapeake of the identity of the
person making or submitting such request, inquiry, proposal or offer and
provide to Chesapeake (i) a copy of any such request, inquiry, proposal or
offer made in writing provided to Southwestern or any of its subsidiaries or
any of its and their respective representatives of (ii) if any such request,
inquiry, proposal or offer is not made in writing, a written summary of such
request, proposal or offer (including the material terms and conditions
thereof), in each case together with copies of any proposed transaction
agreements. Thereafter Southwestern has agreed to (i) keep Chesapeake
reasonably informed in writing on a current basis (and in any event within
twenty-four hours) regarding material changes to the status of any such
requests, inquiries, proposals or offers (including any amendments or changes
thereto, which, for the avoidance of doubt, shall include (among other things)
any changes to the form or amount of consideration) and will reasonably
apprise Chesapeake of the status of any such negotiations to the extent the
status changes in any material respect. Without limiting the foregoing,
Southwestern has agreed to notify Chesapeake if Southwestern determines to
engage in discussions or negotiations concerning a Southwestern Competing
Proposal.
Chesapeake has agreed that, from and after January 10, 2024, and until the
earlier of the Effective Time and termination of the Merger Agreement pursuant
to the terms of the Merger Agreement, Chesapeake and its officers and
directors will and will cause Chesapeake's subsidiaries and its and their
controlled affiliates and respective officers and directors to, and will use
their reasonable best efforts to cause the other representatives to
immediately cease, and cause to be terminated, any solicitation of, discussion
or negotiations with any person conducted prior to January 10, 2024 by
Chesapeake or any of its subsidiaries, their respective controlled affiliates
or representatives with respect to any inquiry, proposal or offer that relates
to, constitutes, or could reasonably be expected to lead to, a Chesapeake
Competing Proposal. Chesapeake will, promptly following the execution and
delivery of the Merger Agreement, terminate any access to any physical or
electronic data room relating to any potential Chesapeake Competing Proposal.
Chesapeake has also agreed that, from and after January 10, 2024, and until
the earlier of the Effective Time and termination of the Merger Agreement
pursuant to the terms of the Merger Agreement, Chesapeake and its officers and
directors will not, and will cause Chesapeake's subsidiaries and its and their
respective controlled affiliates and respective officers and directors to, and
will use their reasonable best efforts to cause other representatives not to,
directly or indirectly:
.
initiate, solicit, seek, propose, knowingly encourage, or knowingly facilitate
(including by way of furnishing non-public information) any inquiry regarding
the making, submission or announcement by any person (other than Southwestern
or its subsidiaries) of any proposal or offer, including any proposal or offer
to Chesapeake's shareholders that constitutes, or could reasonably be expected
to lead to, a Chesapeake Competing Proposal;
.
engage in, continue or otherwise participate in any discussions or
negotiations with any person with respect to, relating to, or in furtherance
of a competing proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Chesapeake Competing Proposal;
.
furnish or afford access to any material non-public information regarding
Chesapeake or its subsidiaries to any person (other than Chesapeake and its
subsidiaries) in connection with, for the purpose of soliciting, initiating,
knowingly encouraging or knowingly facilitating, or in response to any
Chesapeake Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a competing proposal;
.
approve, adopt, recommend, agree to enter into, or propose to approve, adopt,
recommend, agree to or enter into, any inquiry, proposal or offer that
constitutes, or could reasonably be expected to lead to a "Chesapeake
Alternative Acquisition Agreement" (as defined in the Merger Agreement);
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.
enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a Chesapeake Competing Proposal or that would require, or would reasonably
be expected to require, Chesapeake to abandon, terminate or fail to consummate
the Integrated Mergers or any other transaction contemplated by the Merger
Agreement;
.
waive or release any person from, forebear in the enforcement of, or amend or
terminate any standstill agreement or any standstill provisions of any other
contract; provided that if Chesapeake (acting under the direction of the
Chesapeake Board) determines in good faith after consultation with
Chesapeake's outside legal counsel that the failure to waive a particular
standstill provision would be inconsistent with the relevant directors'
fiduciary duties under applicable law, then Chesapeake may waive such
standstill provision, solely to the extent necessary to permit a third party
to make and pursue a non-public Chesapeake Competing Proposal that Chesapeake
reasonably believes is likely to lead to a Chesapeake Superior Proposal;
.
submit any competing proposal to the vote of Chesapeake shareholders; or
.
resolve or agree to take any of the actions described above.
From and after January 10, 2024, Chesapeake has agreed to promptly (and in any
event within twenty-four hours) notify Southwestern in writing of the receipt
by Chesapeake of any competing proposal or any proposal or offer with respect
to (or that could reasonably be expected to lead to) a Chesapeake Competing
Proposal made on or after January 10, 2024, any request for information or
data relating to Chesapeake or any of its subsidiaries made by any person in
connection with (or that could reasonably be expected to lead to) a Chesapeake
Competing Proposal or any request for discussions or negotiations with
Chesapeake or a representative of Chesapeake relating to (or that could
reasonably be expected to lead to) a competing proposal, and Chesapeake will
notify Southwestern of the identity of the person making or submitting such
request, inquiry, proposal or offer and provide to Chesapeake (i) a copy of
any such request, inquiry, proposal or offer made in writing provided to
Chesapeake or any of its subsidiaries or any of its and their respective
representatives of (ii) if any such request, inquiry, proposal or offer is not
made in writing, a written summary of such request, proposal or offer
(including the material terms and conditions thereof), in each case together
with copies of any proposed transaction agreements. Thereafter, Chesapeake has
agreed to (i) keep Southwestern reasonably informed in writing on a current
basis (and in any event within twenty-four hours) regarding material changes
to the status of any such requests, inquiries, proposals or offers (including
any amendments or changes thereto, which, for the avoidance of doubt, shall
include (among other things) any changes to the form or amount of
consideration) and will reasonably apprise Southwestern of the status of any
such negotiations to the extent the status changes in any material respect.
Without limiting the foregoing, Chesapeake has agreed to notify Southwestern
if Chesapeake determines to engage in discussions or negotiations concerning a
Chesapeake Competing Proposal.
No Solicitation Exceptions
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, Southwestern and its representatives may (i) provide information
in response to a request therefor by a person who has made an unsolicited bona
fide written Southwestern Competing Proposal or any inquiry, proposal or offer
with respect to (or that could reasonably be expected to lead to) a written
Southwestern Competing Proposal after January 10, 2024 that did not result
from a breach of Southwestern's non-solicitation obligations if Southwestern
receives from the person so requesting such information an executed Acceptable
Confidentiality Agreement, it being understood that such Acceptable
Confidentiality Agreement and need not prohibit the making, or amendment, of a
competing proposal and shall not prohibit compliance by Southwestern with the
terms of the Merger Agreement, and Southwestern will promptly (and, in any
event, within twenty-four hours) disclose and provide copies of such
Acceptable Confidentiality Agreement any such information provided to such
person to Chesapeake to the extent not previously provided to Chesapeake; or
(ii) engage or participate in any discussions or negotiations with any person
who has made such an unsolicited bona fide written competing proposal after
January 10, 2024 that did not result from a breach of Southwestern's
non-solicitation obligations if and only to the extent that:
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.
prior to taking any action described in clause (i) or (ii) above, the
Southwestern Board determines in good faith after consultation with its
outside legal counsel that failure to take such action in light of the
competing proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Southwestern Board's fiduciary duties under
applicable law; and
.
in each such case referred to in clause (i) or (ii) above, the Southwestern
Board has determined in good faith based on the information then available and
after consultation with its financial advisor and outside legal counsel that
such Southwestern Competing Proposal either constitutes a Southwestern
Superior Proposal or is reasonably likely to result in a Southwestern Superior
Proposal, provided that, notwithstanding anything to the contrary in the terms
of the Merger Agreement, if Southwestern receives any competing proposal or
any inquiry, proposal or offer with respect to (or that could reasonably be
expected to lead to) a Southwestern Competing Proposal, Southwestern may seek
clarification of the terms and conditions thereof so as to determine whether
such competing proposal or any inquiry, proposal or offer with respect to (or
that could reasonably be expected to lead to) a Southwestern Competing
Proposal constitutes a Southwestern Superior Proposal or is reasonably likely
to result in a Southwestern Superior Proposal.
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, Chesapeake and its representatives may (i) provide information
in response to a request therefor by a person who has made an unsolicited bona
fide written competing proposal or any inquiry, proposal or offer with respect
to (or that could reasonably be expected to lead to) a written competing
proposal after January 10, 2024 that did not result from a breach of
Chesapeake's non-solicitation obligations if Chesapeake receives from the
person so requesting such information an Acceptable Confidentiality Agreement,
it being understood that such Acceptable Confidentiality Agreement need not
prohibit the making, or amendment, of a competing proposal and shall not
prohibit compliance by Chesapeake with the terms of the Merger Agreement, and
Chesapeake will promptly (and, in any event, within twenty-four hours)
disclose and provide copies of such Acceptable Confidentiality Agreement and
any such information provided to such person to Southwestern to the extent not
previously provided to Southwestern; or (ii) engage or participate in any
discussions or negotiations with any person who has made such an unsolicited
bona fide written competing proposal after January 10, 2024 that did not
result from a breach of Chesapeake's non-solicitation obligations if and only
to the extent that:
.
prior to taking any action described in clause (i) or (ii) above, the
Chesapeake Board determines in good faith after consultation with its outside
legal counsel that failure to take such action in light of the Chesapeake
Competing Proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Chesapeake Board's fiduciary duties under
applicable law; and
.
in each such case referred to in clause (i) or (ii) above, the Chesapeake
Board has determined in good faith based on the information then available and
after consultation with its financial advisor and outside legal counsel that
such competing proposal either constitutes a Chesapeake Superior Proposal or
is reasonably likely to result in a Chesapeake Superior Proposal, provided
that, notwithstanding anything to the contrary in the terms of the Merger
Agreement, if Chesapeake receives any competing proposal or any inquiry,
proposal or offer with respect to (or that could reasonably be expected to
lead to) a Chesapeake Competing Proposal, Chesapeake may seek clarification of
the terms and conditions thereof so as to determine whether such competing
proposal or any inquiry, proposal or offer with respect to (or that could
reasonably be expected to lead to) a Chesapeake Competing Proposal constitutes
a superior proposal or is reasonably likely to result in a Chesapeake Superior
Proposal.
Restrictions on Change of Recommendation
Subject to certain exceptions described below, the Southwestern Board,
including any committee of the Southwestern Board, may not:
.
withhold, withdraw, qualify or modify, or publicly propose or announce any
intention to withhold, withdraw, qualify or modify, in a manner adverse to
Chesapeake or Merger Sub Inc, its recommendation that Southwestern
stockholders approve the Merger Proposal;
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.
fail to include its recommendation that Southwestern stockholders approve the
Merger Proposal in this joint proxy statement/prospectus;
.
fail to publicly announce, within ten business days after a tender offer or
exchange offer relating to the equity securities of Southwestern shall have
been commenced by any third party other than Chesapeake and its affiliates
(and in no event later than one business day prior to the date of the
Southwestern Special Meeting, as it may be postponed or adjourned in
accordance with the terms of the Merger Agreement), a statement disclosing
that the Southwestern Board recommends rejection of such tender or exchange
offer (for the avoidance of doubt, the taking of no position or a neutral
position by the Southwestern Board in respect of the acceptance of any such
tender offer or exchange offer as of the end of such period shall constitute a
failure to publicly announce that the Southwestern Board recommends rejection
of such tender or exchange offer);
.
if requested by Chesapeake, fail to issue, within five business days after a
Southwestern Competing Proposal is publicly announced (and in no event later
than one business day prior to the date of the Southwestern Special Meeting,
as it may be postponed or adjourned in accordance with the terms of the Merger
Agreement), a press release reaffirming its recommendation that Southwestern
stockholders approve the Merger Proposal, which request may not be made more
than two times in respect of any specific competing proposal;
.
approve, recommend or declare advisable (or publicly propose to do so) any
Southwestern Competing Proposal;
.
approve, adopt, recommend, agree to or enter into, or propose or resolve to
approve, adopt, recommend, agree to or enter into, any alternative acquisition
agreement;
.
cause or permit Southwestern to enter into a Southwestern Alternative
Acquisition Agreement; or
.
publicly propose to take any of the actions described above.
Any of the actions described in the eight bullets directly above is referred
to herein as a "Southwestern change of recommendation."
Subject to certain exceptions described below, the Chesapeake Board, including
any committee of the Chesapeake Board, may not:
.
withhold, withdraw, qualify or modify, or publicly propose or announce any
intention to withhold, withdraw, qualify or modify, in a manner adverse to
Southwestern, its recommendation that Chesapeake shareholders approve the
Stock Issuance Proposal;
.
fail to include its recommendation that Chesapeake shareholders approve the
Stock Issuance Proposal in this joint proxy statement/prospectus;
.
fail to publicly announce, within ten business days after a tender offer or
exchange offer relating to the equity securities of Chesapeake shall have been
commenced by any third party other than Southwestern and its affiliates (and
in no event later than one business day prior to the date of the Chesapeake
Special Meeting, as it may be postponed or adjourned in accordance with the
terms of the Merger Agreement), a statement disclosing that the Chesapeake
Board recommends rejection of such tender or exchange offer (for the avoidance
of doubt, the taking of no position or a neutral position by the Chesapeake
Board in respect of the acceptance of any such tender offer or exchange offer
as of the end of such period shall constitute a failure to publicly announce
that the Chesapeake Board recommends rejection of such tender or exchange
offer);
.
if requested by Southwestern, fail to issue, within five business days after a
Chesapeake Competing Proposal is publicly announced (and in no event later
than one business day prior to the date of the Chesapeake Special Meeting, as
it may be postponed or adjourned in accordance with the terms of the Merger
Agreement), a press release reaffirming its recommendation that Chesapeake
shareholders approve the Stock Issuance Proposal, which request may not be
made more than two times in respect of any specific Chesapeake Competing
Proposal;
.
approve, recommend or declare advisable (or publicly propose to do so) any
Chesapeake Competing Proposal;
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.
approve, adopt, recommend, agree to or enter into, or propose or resolve to
approve, adopt, recommend, agree to or enter into, any Chesapeake Alternative
Acquisition Agreement;
.
cause or permit Chesapeake to enter into a Chesapeake Alternative Acquisition
Agreement; or
.
publicly propose to take any of the actions described above.
Any of the actions described in the eight bullets directly above is referred
to herein as a "Chesapeake change of recommendation."
Permitted Recommendation Change in Connection with a Superior Proposal
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, in response to a bona fide written competing proposal from a
third party that has not been withdrawn, was received after January 10, 2024,
was not solicited at any time following the execution of the Merger Agreement
and did not result from a breach of Southwestern's non-solicitation
obligations, the Southwestern Board may effect a change of recommendation or
terminate the Merger Agreement pursuant to the terms of the Merger Agreement
in response to a Southwestern Superior Proposal; provided, however, that such
change of recommendation or termination of the Merger Agreement, as applicable
may not be made unless and until:
.
the Southwestern Board determines in good faith after consultation with its
financial advisors and outside legal counsel that such Southwestern Competing
Proposal is a Southwestern Superior Proposal;
.
the Southwestern Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Southwestern Superior Proposal would be
inconsistent with the fiduciary duties owed by the Southwestern Board to the
stockholders of Southwestern under applicable law;
.
Southwestern provides Chesapeake written notice of such proposed action four
business days in advance, which notice will set forth in writing that the
Southwestern Board intends to take such action and will include the identity
of the person making such Southwestern Competing Proposal and will contain a
copy of such proposal and a draft of the definitive agreement to be entered
into in connection therewith (or, if not in writing, a written summary of the
material terms and conditions thereof);
.
during the four business day period commencing on the date of Chesapeake's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Southwestern negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Chesapeake (to the extent
Chesapeake wishes to negotiate) to permit Chesapeake to make such adjustments,
amendments or revisions to the terms of the Merger Agreement so that the
Southwestern Competing Proposal that is the subject of such notice ceases to
be a Southwestern Superior Proposal;
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Southwestern Board takes into account any
binding irrevocable adjustments, amendments or revisions to the terms of the
Merger Agreement proposed by Chesapeake in writing and any other information
offered by Chesapeake in response to the notice specified in the third bullet
point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the Southwestern Competing
Proposal remains a Southwestern Superior Proposal and that the failure to
effect a change of recommendation in response to such Southwestern Superior
Proposal would continue to be inconsistent with the fiduciary duties of the
directors under applicable law; provided that if there is any material
development with respect to such Southwestern Competing Proposal, Southwestern
shall, in each case, be required to deliver to Chesapeake an additional notice
consistent with that described in the third bullet point above and a new
negotiation period under the fourth bullet point above shall commence (except
that the original four business day notice period referred to in the fourth
bullet point above shall instead be equal to the longer of (1) two business
days and (2) the period remaining under the first and original four business
day notice period above, during which time Southwestern shall be required to
comply with the requirements of the fourth bullet point above and this bullet
point anew with respect to such additional notice (but substituting the time
periods therein with the foregoing extended period)); and
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.
in the case of Southwestern terminating the Merger Agreement to enter into a
definitive agreement with respect to a Southwestern Superior Proposal,
Southwestern shall have, prior to or contemporaneously with such termination,
paid, or cause the payment of, the termination fee.
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, in response to a bona fide written competing proposal from a
third party that has not been withdrawn, was received after January 10, 2024,
was not solicited at any time following the execution of the Merger Agreement
and did not result from a breach of Chesapeake's non-solicitation obligations,
the Chesapeake Board may effect a change of recommendation or terminate the
Merger Agreement pursuant to the terms of the Merger Agreement in response to
a Chesapeake Superior Proposal; provided, however, that such change of
recommendation or termination of the Merger Agreement, as applicable may not
be made unless and until:
.
the Chesapeake Board determines in good faith after consultation with its
financial advisors and outside legal counsel that such Chesapeake Competing
Proposal is a Chesapeake Superior Proposal;
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Chesapeake Superior Proposal would be
inconsistent with the fiduciary duties owed by the Chesapeake Board to the
shareholders of Chesapeake under applicable law;
.
Chesapeake provides Southwestern written notice of such proposed action four
business days in advance, which notice will set forth in writing that the
Chesapeake Board intends to take such action and will include the identity of
the person making such Chesapeake Competing Proposal and will contain a copy
of such proposal and a draft of the definitive agreement to be entered into in
connection therewith (or, if not in writing, a written summary of the material
terms and conditions thereof);
.
during the four business day period commencing on the date of Southwestern's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Southwestern negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Southwestern (to the extent
Southwestern wishes to negotiate) to permit Southwestern to make such
adjustments, amendments or revisions to the terms of the Merger Agreement so
that the Chesapeake Competing Proposal that is the subject of the notice
specified in the immediately preceding bullet point ceases to be a Chesapeake
Superior Proposal;
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Chesapeake Board takes into account any binding
irrevocable adjustments, amendments or revisions to the terms of the Merger
Agreement proposed by Southwestern in writing and any other information
offered by Southwestern in response to the notice specified in the third
bullet point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the Chesapeake Competing
Proposal remains a Chesapeake Superior Proposal and that the failure to effect
a change of recommendation in response to such Chesapeake Superior Proposal
would continue to be inconsistent with the fiduciary duties of the directors
under applicable law; provided that if there is any material development with
respect to such Chesapeake Competing Proposal, Chesapeake shall, in each case,
be required to deliver to Southwestern an additional notice consistent with
that described in the third bullet point above and a new negotiation period
under the fourth bullet point above shall commence (except that the original
four business day notice period referred to in the fourth bullet point above
shall instead be equal to the longer of (1) two business days and (2) the
period remaining under the first and original four business day notice period
above, during which time Chesapeake shall be required to comply with the
requirements of the fourth bullet point above and this bullet point anew with
respect to such additional notice (but substituting the time periods therein
with the foregoing extended period)); and
.
in the case of Chesapeake terminating the Merger Agreement to enter into a
definitive agreement with respect to a Chesapeake Superior Proposal,
Chesapeake shall have, prior to or contemporaneously with such termination,
paid, or cause the payment of, the termination fee.
Permitted Recommendation Change in Connection with Intervening Events
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, in response to a Southwestern Intervening Event that occurs or
arises after January 10, 2024 and that did not arise from or
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in connection with a material breach of the Merger Agreement by Southwestern,
the Southwestern Board may effect a change of recommendation; provided,
however, that such change of recommendation may not be made unless and until:
.
the Southwestern Board determines in good faith after consultation with its
financial advisors and outside legal counsel that a Southwestern Intervening
Event has occurred;
.
the Southwestern Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Southwestern Intervening Event would be
inconsistent with the fiduciary duties of the directors of the Southwestern
Board under applicable law;
.
Southwestern provides Chesapeake written notice of such proposed action and
the basis of such proposed action four business days in advance, which notice
will set forth in writing that the Southwestern Board intends to take such
action and includes the reasons therefor and a reasonable description of the
facts and circumstances of the Southwestern Intervening Event and the reasons
for the Southwestern Board's determination;
.
during the four business day period commencing on the date of Chesapeake's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Southwestern negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Chesapeake (to the extent
Chesapeake wishes to negotiate) to make such adjustments, amendments or
revisions to the terms of the Merger Agreement as would permit the
Southwestern Board not to effect a change of recommendation in response
thereto; and
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Southwestern Board takes into account any
binding irrevocable adjustments, amendments or revisions to the terms of the
Merger Agreement proposed by Chesapeake in writing and any other information
offered by Chesapeake in response to the notice specified in the third bullet
point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the failure to effect a
change of recommendation in response to such intervening event would continue
to be inconsistent with the fiduciary duties of the directors under applicable
law if such adjustments, amendments or revisions irrevocably offered in
writing by Chesapeake were to be given effect; provided that if there is any
material development with respect to such Southwestern Intervening Event,
Southwestern shall, in each case, be required to deliver to Chesapeake an
additional notice consistent with that described in the third bullet point
above and a new negotiation period under the fourth bullet point above shall
commence (except that the original four business day notice period referred to
in the third bullet point above shall instead be equal to the longer of (1)
two business days and (2) the period remaining under the first and original
four business day notice period of the third bullet point above, during which
time Southwestern shall be required to comply with the requirements of the
fourth bullet point above and this bullet point anew with respect to such
additional notice (but substituting the time periods therein with the
foregoing extended period)).
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, in response to a Chesapeake Intervening Event that occurs or
arises after January 10, 2024 and that did not arise from or in connection
with a material breach of the Merger Agreement by Chesapeake, the Chesapeake
Board may effect a change of recommendation; provided, however, that such
change of recommendation may not be made unless and until:
.
the Chesapeake Board determines in good faith after consultation with its
financial advisors and outside legal counsel that a Chesapeake Intervening
Event has occurred;
.
the Chesapeake Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a change
of recommendation in response to such Chesapeake Intervening Event would be
inconsistent with the fiduciary duties of the directors of the Chesapeake
Board under applicable law;
.
Chesapeake provides Southwestern written notice of such proposed action and
the basis of such proposed action four business days in advance which notice
will set forth in writing that the Chesapeake
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Board intends to take such action and includes the reasons therefor and a
reasonable description of the facts and circumstances of the Chesapeake
Intervening Event and the reasons for the Chesapeake Board's determination;
.
during the four business day period commencing on the date of Southwestern's
receipt of the notice described in the immediately preceding bullet point
(subject to any applicable extensions), Chesapeake negotiates (and causes its
officers, employees, financial advisors, outside legal counsel and other
representatives to negotiate) in good faith with Southwestern (to the extent
Southwestern wishes to negotiate) to make such adjustments, amendments or
revisions to the terms of the Merger Agreement as would permit the Chesapeake
Board not to effect a change of recommendation in response thereto; and
.
at the end of the four business day period, prior to taking action to effect a
change of recommendation, the Chesapeake Board takes into account any binding
irrevocable adjustments, amendments or revisions to the terms of the Merger
Agreement proposed by Southwestern in writing and any other information
offered by Southwestern in response to the notice specified in the third
bullet point above, and determines in good faith after consultation with its
financial advisors and outside legal counsel, that the failure to effect a
change of recommendation in response to such intervening event would continue
to be inconsistent with the fiduciary duties of the directors under applicable
law if such adjustments, amendments or revisions irrevocably offered in
writing by Southwestern were to be given effect; provided that if there is any
material development with respect to such Chesapeake Intervening Event,
Chesapeake shall, in each case, be required to deliver to Southwestern an
additional notice consistent with that described in the third bullet point
above and a new negotiation period under the fourth bullet point above shall
commence (except that the original four business day notice period referred to
in the third bullet point above shall instead be equal to the longer of (1)
two business days and (2) the period remaining under the first and original
four business day notice period of the third bullet point above, during which
time Chesapeake shall be required to comply with the requirements of the
fourth bullet point above and this bullet point anew with respect to such
additional notice (but substituting the time periods therein with the
foregoing extended period)).
Certain Permitted Disclosure
Prior to the time the Merger Proposal has been approved by Southwestern
stockholders, the Southwestern Board may, after consultation with its outside
legal counsel, make such disclosures as the Southwestern Board determines in
good faith are necessary to comply with Rule 14d-9 or Rule 14e-2(a)
promulgated under the Exchange Act or other disclosure required to be made in
this joint proxy statement/
prospectus by applicable U.S. federal securities laws; provided, however, that
if such disclosure by the Southwestern Board has the effect of withdrawing or
materially and adversely modifying the recommendation that Southwestern
stockholders approve the Merger Proposal, such disclosure will be deemed to be
a change of recommendation and Chesapeake shall have the right to terminate
the Merger Agreement in accordance with its terms.
Prior to the time the Stock Issuance Proposal has been approved by Chesapeake
shareholders, the Chesapeake Board may, after consultation with its outside
legal counsel, make such disclosures as the Chesapeake Board determines in
good faith are necessary to comply with Rule 14d-9 or Rule 14e-2(a)
promulgated under the Exchange Act or other disclosure required to be made in
this joint proxy statement/
prospectus by applicable U.S. federal securities laws; provided, however, that
if such disclosure by the Chesapeake Board has the effect of withdrawing or
materially and adversely modifying the recommendation that Chesapeake
shareholders approve the Stock Issuance Proposal, such disclosure will be
deemed to be a change of recommendation and Southwestern shall have the right
to terminate the Merger Agreement in accordance with its terms.
Certain Definitions Relating to No Solicitation and No Change of Recommendation
Covenants
A "Chesapeake Alternative Acquisition Agreement" means any letter of intent,
memorandum of understanding, agreement in principle, acquisition agreement,
merger agreement, option agreement, joint venture agreement, partnership
agreement or other agreement (other than an Acceptable Confidentiality
Agreement entered into in accordance with Section 6.4(b) of the Merger
Agreement) relating to a Chesapeake Competing Proposal.
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A "Chesapeake Competing Proposal" is any contract, proposal, offer or
indication of interest relating to any transaction or series of related
transactions (other than transactions only with Southwestern or any of its
subsidiaries) involving, directly or indirectly: (a) any acquisition (by asset
purchase, stock purchase, merger, or otherwise) by any person or group of any
business or assets of Chesapeake or any of its subsidiaries (including capital
stock of or ownership interest in any Subsidiary) that generated 20% or more
of Chesapeake's and its subsidiaries' assets (by fair market value), net
revenue or earnings before interest, taxes, depreciation and amortization for
the preceding twelve months, or any license, lease or long-term supply
agreement having a similar economic effect, (b) any acquisition by any person
resulting in, or proposal or offer, which if consummated would result in, any
person becoming the beneficial owner of directly or indirectly, in one or a
series of related transactions, 20% or more of the total voting power or of
any class of equity securities of Chesapeake or those of any of its
subsidiaries, or 20% or more of the consolidated total assets (including,
without limitation, equity securities of its subsidiaries) or (c) any merger,
amalgamation, consolidation, division, tender offer, exchange offer, deSPAC
transaction, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Chesapeake or any of
its subsidiaries.
A "Chesapeake Intervening Event" is a development, event, effect, state of
facts, condition, occurrence or change in circumstance that materially affects
the business or assets of Chesapeake and its subsidiaries (taken as a whole)
that occurs or arises after the date of the Merger Agreement that was not
known to or reasonably foreseeable by the Chesapeake Board as of the date of
the Merger Agreement (or, if known or reasonably foreseeable, the magnitude or
material consequences of which were not known or reasonably foreseeable by the
Chesapeake Board as of the date of the Merger Agreement); provided, however,
that in no event shall the following constitute a Chesapeake Intervening
Event: (i) the receipt, existence or terms of an actual or possible Chesapeake
Competing Proposal or Chesapeake Superior Proposal, (ii) any effect relating
to Chesapeake or any of its subsidiaries, (iii) any change, in and of itself,
in the price or trading volume of shares of Chesapeake Common Stock or
Southwestern Common Stock (it being understood that the underlying facts
giving rise or contributing to such change may be taken into account in
determining whether there has been a Chesapeake Intervening Event, to the
extent otherwise permitted by this definition), (iv) the fact that Chesapeake
or any of its subsidiaries exceeds (or fails to meet) internal or published
projections or guidance or any matter relating thereto or of consequence
thereof (it being understood that the underlying facts giving rise or
contributing to such change may be taken into account in determining whether
there has been a Chesapeake Intervening Event, to the extent otherwise
permitted by this definition) or, (v) conditions (or changes in such
conditions) in the oil and gas exploration and production industry (including
changes in commodity prices, general market prices and political or regulatory
changes affecting the industry or any changes in applicable law), constitute a
Chesapeake Intervening Event or (vi) any opportunity to acquire (by merger,
joint venture, partnership, consolidation, acquisition of stock or assets or
otherwise), directly or indirectly, any assets, securities, properties or
businesses from, or enter into any licensing, collaborating or similar
arrangements with, any other person.
A "Chesapeake Superior Proposal" means a bona fide Chesapeake Competing
Proposal that is not solicited after the date of the agreement (or otherwise
resulting from a breach of Section 6.4 of the Merger Agreement) by any person
or group to acquire, directly or indirectly, (a) businesses or assets of
Chesapeake or any of its subsidiaries (including capital stock of or ownership
interest in any subsidiary) that account for 50% or more of the fair market
value of such assets or that generated 50% or more of Chesapeake's and its
subsidiaries' net revenue or earnings before interest, taxes, depreciation and
amortization for the preceding twelve months, respectively, or (b) 50% or more
of the total voting power or of any class of equity securities of Chesapeake
or those of any of its subsidiaries, in each case whether by way of merger,
amalgamation, share exchange, tender offer, exchange offer, recapitalization,
consolidation, sale of assets or otherwise, that in the good faith
determination of the Chesapeake Board, (i) if consummated, would result in a
transaction more favorable to Chesapeake's shareholders (in their capacity as
such) than the Merger (after taking into account the time likely to be
required to consummate such proposal and any binding irrevocable adjustments
or revisions to the terms of the Merger Agreement offered by Southwestern in
response to such proposal or otherwise) and (ii) is reasonably likely to be
consummated on the terms proposed, in each case taking into account any legal,
financial, regulatory and shareholder approval requirements, including the
sources, availability and terms of any financing, financing market conditions
and the existence of a financing contingency, the likelihood of termination,
the timing of closing, the identity of the person or persons making the
proposal and any other aspects considered relevant by the Chesapeake Board.
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A "Southwestern Alternative Acquisition Agreement" means any letter of intent,
memorandum of understanding, agreement in principle, acquisition agreement,
merger agreement, option agreement, joint venture agreement, partnership
agreement or other agreement (other than an Acceptable Confidentiality
Agreement entered into in accordance with Section 6.3(b) of the Merger
Agreement) relating to a Southwestern Competing Proposal.
A "Southwestern Competing Proposal" means any contract, proposal, offer or
indication of interest relating to any transaction or series of related
transactions (other than transactions only with Chesapeake or any of its
subsidiaries) involving, directly or indirectly: (a) any acquisition (by asset
purchase, stock purchase, merger, or otherwise) by any person or group of any
business or assets of Southwestern or any of its subsidiaries (including
capital stock of or ownership interest in any subsidiary) that generated 20%
or more of Southwestern's and its subsidiaries' assets (by fair market value),
net revenue or earnings before interest, taxes, depreciation and amortization
for the preceding twelve months, or any license, lease or long-term supply
agreement having a similar economic effect, (b) any acquisition by any person
resulting in, or proposal or offer, which if consummated would result in, any
person becoming the beneficial owner of directly or indirectly, in one or a
series of related transactions, 20% or more of the total voting power or of
any class of equity securities of Southwestern or those of any of its
subsidiaries, or 20% or more of the consolidated total assets (including,
without limitation, equity securities of its subsidiaries) or (c) any merger,
amalgamation, consolidation, division, tender offer, exchange offer, deSPAC
transaction, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Southwestern or any
of its subsidiaries.
A "Southwestern Intervening Event" is a development, event, effect, state of
facts, condition, occurrence or change in circumstance that materially affects
the business or assets of Southwestern and its subsidiaries (taken as a whole)
that occurs or arises after the date of the Merger Agreement that was not
known to or reasonably foreseeable by the Southwestern Board as of the date of
the Merger Agreement (or, if known or reasonably foreseeable, the magnitude or
material consequences of which were not known or reasonably foreseeable by the
Southwestern Board as of the date of the Merger Agreement); provided, however,
that in no event shall the following constitute a Southwestern Intervening
Event: (i) the receipt, existence or terms of an actual or possible
Southwestern Competing Proposal or Southwestern Superior Proposal, (ii) any
effect relating to Chesapeake or any of its subsidiaries, (iii) any change, in
and of itself, in the price or trading volume of shares of Southwestern Common
Stock or Chesapeake Common Stock (it being understood that the underlying
facts giving rise or contributing to such change may be taken into account in
determining whether there has been a Southwestern Intervening Event, to the
extent otherwise permitted by this definition), (iv) the fact that
Southwestern or any of its subsidiaries exceeds (or fails to meet) internal or
published projections or guidance or any matter relating thereto or of
consequence thereof (it being understood that the underlying facts giving rise
or contributing to such change may be taken into account in determining
whether there has been a Southwestern Intervening Event, to the extent
otherwise permitted by this definition) or, (v) conditions (or changes in such
conditions) in the oil and gas exploration and production industry (including
changes in commodity prices, general market prices and political or regulatory
changes affecting the industry or any changes in applicable law), constitute a
Southwestern Intervening Event or (vi) any opportunity to acquire (by merger,
joint venture, partnership, consolidation, acquisition of stock or assets or
otherwise), directly or indirectly, any assets, securities, properties or
businesses from, or enter into any licensing, collaborating or similar
arrangements with, any other person.
A "Southwestern Superior Proposal" means a bona fide Southwestern Competing
Proposal that is not solicited after the date of the Merger Agreement (or
otherwise resulting from a breach of Section 6.3 of the Merger Agreement) by
any person or group (other than Chesapeake or any of its affiliates) to
acquire, directly or indirectly, (a) businesses or assets of Southwestern or
any of its subsidiaries (including capital stock of or ownership interest in
any subsidiary) that account for 50% or more of the fair market value of such
assets or that generated 50% or more of Southwestern's and its subsidiaries'
net revenue or earnings before interest, taxes, depreciation and amortization
for the preceding twelve months, respectively, or (b) 50% or more of the total
voting power or of any class of equity securities of Southwestern or those of
any of its subsidiaries, in each case whether by way of merger, amalgamation,
share exchange, tender offer, exchange offer, recapitalization, consolidation,
sale of assets or otherwise, that in the good faith determination of the
Southwestern Board, (i) if consummated, would result in a transaction more
favorable to Southwestern's stockholders (in their capacity as such) than the
Merger (after taking into account the time likely to be
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required to consummate such proposal and any binding irrevocable adjustments
or revisions to the terms of the agreement offered by Chesapeake in response
to such proposal or otherwise) and (ii) is reasonably likely to be consummated
on the terms proposed, in each case taking into account any legal, financial,
regulatory and shareholder approval requirements, including the sources,
availability and terms of any financing, financing market conditions and the
existence of a financing contingency, the likelihood of termination, the
timing of closing, the identity of the person or persons making the proposal
and any other aspects considered relevant by the Southwestern Board.
Preparation of Joint Proxy Statement/Prospectus and Registration Statement
The parties have agreed to promptly furnish to each other such data and
information relating to it, its subsidiaries (including, in the case of
Chesapeake, Merger Sub Inc and Merger Sub LLC) and the holders of its capital
stock, as the other party may reasonably request for the purpose of including
such data and information in this joint proxy statement/prospectus and any
amendments or supplements hereto.
Southwestern and Chesapeake have agreed to cooperate and each use their
respective reasonable best efforts to cause this joint proxy statement/prospectu
s and the registration statement, of which this joint proxy statement/prospectus
forms a part, to comply with the rules and regulations promulgated by the SEC
and to respond promptly to any comments of the SEC or its staff. Chesapeake
and Southwestern will each use its reasonable best efforts to cause the
registration statement, of which this joint proxy statement/
prospectus forms a part, to become effective under the Securities Act as soon
after such filing as reasonably practicable and Chesapeake will use reasonable
best efforts to keep the registration statement, of which this joint proxy
statement/prospectus forms a part, effective as long as is necessary to
consummate the Merger. Each of Southwestern and Chesapeake will advise the
other promptly after it receives any request by the SEC for amendment of this
joint proxy statement/prospectus or the registration statement, of which this
joint proxy statement/prospectus forms a part, or comments thereon and
responses thereto or any request by the SEC for additional information and
will provide each other with copies of all correspondence that is provided
between it, on one hand, and by the SEC on the other hand. Each of
Southwestern and Chesapeake has agreed to use reasonable best efforts to cause
all documents that it is responsible for filing with the SEC in connection
with the transactions contemplated by the Merger Agreement to comply as to
form and substance in all material respects with the applicable requirements
of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
Prior to filing the registration statement, of which this joint proxy
statement/prospectus forms a part (or any amendment or supplement thereto), or
filing or mailing this joint proxy statement/prospectus (or any amendment or
supplement thereto) or responding to any comments of the SEC with respect
thereto, each of Southwestern and Chesapeake has agreed to (i) provide the
other with a reasonable opportunity to review and comment on such document or
response (including the proposed final version of such document or response),
(ii) include in such document or response all comments reasonably and promptly
proposed by the other and (iii) not file or mail such document or respond to
the SEC prior to receiving the approval of the other, which approval will not
be unreasonably withheld, conditioned or delayed.
Chesapeake and Southwestern have agreed to make all necessary filings with
respect to the Merger and the transactions contemplated by the Merger
Agreement under the Securities Act, the Exchange Act and applicable "blue sky"
laws and the rules and regulations thereunder and the rules and regulations of
Nasdaq or the NYSE, as applicable. Each party will advise the other, promptly
after it receives notice thereof, of the time at which the registration
statement, of which this proxy statement/prospectus forms a part, has become
effective or any supplement or amendment has been filed, the issuance of any
stop or cease-trade order, or the suspension of the qualification of the
shares of Chesapeake Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction. Each of Southwestern and Chesapeake will
use reasonable best efforts to have any such or cease trade stop order or
suspension lifted, reversed or otherwise terminated.
If at any time prior to the Effective Time, any information relating to
Chesapeake or Southwestern, or any of their respective affiliates, officers or
directors, should be discovered by Chesapeake or Southwestern that should be
set forth in an amendment or supplement to the registration statement, of
which this joint proxy statement/prospectus forms a part, or this joint proxy
statement/prospectus, so that such documents would not include any
misstatement of a material fact or omit to state any material fact necessary
to make the
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statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information will promptly
notify the other party and an appropriate amendment or supplement describing
such information will be promptly filed with the SEC and, to the extent
required by applicable law, disseminated to the Southwestern stockholders and
the Chesapeake shareholders.
Shareholders Meetings
Southwestern has agreed to take all action necessary in accordance with
applicable laws and the organizational documents of Southwestern to duly give
notice of, convene and hold (in person or virtually, in accordance with
applicable law) a meeting of its stockholders for the purpose of obtaining the
approval of the Merger Proposal by Southwestern stockholders, to be held as
promptly as reasonably practicable after the clearance of this joint proxy
statement/prospectus by the SEC and the time that the registration statement,
of which this joint proxy statement/prospectus forms a part, is declared
effective by the SEC (and in any event will use commercially reasonable
efforts to convene such meeting within forty-five days thereof and no later
than five business days prior to the Outside Date). Except where a
Southwestern change of recommendation has been made as permitted in the Merger
Agreement, the Southwestern Board must recommend that the stockholders of
Southwestern vote in favor of the Merger Proposal and the Southwestern Board
must solicit from Southwestern stockholders proxies in favor of the Merger
Proposal, and this joint proxy statement/prospectus is required to include
such recommendation of the Southwestern Board. Southwestern has agreed to use
reasonable best efforts to obtain the approval of the Merger Proposal by the
Southwestern stockholders and submit the proposal to adopt the Merger
Agreement to the Southwestern stockholders at the Southwestern Special
Meeting. Southwestern (i) will be required to adjourn or postpone the
Southwestern Special Meeting to the extent necessary to ensure that any
legally required supplement or amendment to this joint proxy statement/prospectu
s are provided to the Southwestern stockholders or if, as of the time the
Southwestern Special Meeting is scheduled, there are insufficient shares of
Southwestern Common Stock represented to constitute a quorum necessary to
conduct business at the Southwestern Special Meeting, and (ii) may adjourn or
postpone the Southwestern Special Meeting with the written consent of
Chesapeake if, as of the time for which the Southwestern Special Meeting is
scheduled, there are insufficient shares of Southwestern Common Stock
represented to obtain the approval of the Merger Proposal. Notwithstanding the
foregoing, (i) unless otherwise agreed to by the parties, the Southwestern
Special Meeting will not be adjourned or postponed to a date that is more than
ten business days after the date for which the Southwestern Special Meeting
was previously scheduled except as required by applicable law, (ii) the
Southwestern Special Meeting will not be adjourned or postponed to a date on
or after five business days prior to the Outside Date, and (iii) no such
adjournment or postponement may have the effect of changing the record date
for determining the Southwestern stockholders entitled to notice of or to vote
at the Southwestern Special Meeting without the written consent of Chesapeake
(which consent will not be unreasonably withheld, conditioned or delayed).
If requested by Chesapeake, Southwestern will promptly provide all voting
tabulation reports relating to the Southwestern Special Meeting and will
otherwise keep Chesapeake reasonably informed regarding the status of the
solicitation and any material oral or written communications from or to
Southwestern's stockholders with respect thereto. Unless there has been a
change in recommendation, the parties have agreed to cooperate and use their
reasonable best efforts to defend against any efforts by any of Southwestern's
stockholders or any other person to prevent the approval of the Merger
Proposal by Southwestern stockholders.
Southwestern has agreed, in consultation with Chesapeake, to fix a record date
for determining the Southwestern stockholders entitled to notice of, and to
vote at, the Southwestern Special Meeting and Southwestern will not change
such record date or establish a different record date for the Southwestern
Special Meeting without the prior written consent of Chesapeake (which consent
will not be unreasonably withheld, conditioned or delayed). Without the prior
written consent of Chesapeake or as required by applicable law, (i) the Merger
Proposal will be the only matter (other than a non-binding advisory proposal
regarding compensation that may be paid or become payable to the named
executive officers of Southwestern in connection with the Merger and matters
of procedure, including any adjournment proposal) that Southwestern may
propose to be acted on by the Southwestern stockholders at the Southwestern
Special Meeting and Southwestern will not submit any other proposal to such
stockholders in connection with the Southwestern Special Meeting or otherwise
(including any proposal inconsistent with the adoption of the
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Merger Agreement or the consummation of the transactions contemplated thereby)
and (ii) Southwestern may not call any meeting of the Southwestern
stockholders (or solicit any other stockholder action by written consent)
other than the Southwestern Special Meeting.
Chesapeake has agreed to take all action necessary in accordance with
applicable laws and the organizational documents of Chesapeake to duly give
notice of, convene and hold (in person or virtually, in accordance with
applicable law) a meeting of its shareholders for the purpose of obtaining the
approval of the Stock Issuance Proposal by Chesapeake shareholders, (the
"Chesapeake Special Meeting") to be held as promptly as reasonably practicable
after the clearance of this joint proxy statement/prospectus by the SEC and
the time that the registration statement, of which this joint proxy
statement/prospectus forms a part, is declared effective by the SEC (and in
any event will use commercially reasonable efforts to convene such meeting
within forty-five days thereof and no later than five business days prior to
the Outside Date). Except where a Chesapeake change of recommendation has been
made as permitted in the Merger Agreement, the Chesapeake Board must recommend
that the shareholders of Chesapeake vote in favor of the Stock Issuance
Proposal and the Chesapeake Board must solicit from Chesapeake shareholders
proxies in favor of the Stock Issuance Proposal, and this joint proxy
statement/prospectus is required to include such recommendation of the
Chesapeake Board. Chesapeake has agreed to use reasonable best efforts to
obtain the approval of the Stock Issuance Proposal by the Chesapeake
shareholders and submit the Stock Issuance Proposal to the Chesapeake
shareholders at the Chesapeake Special Meeting. Chesapeake (i) will be
required to adjourn or postpone the Chesapeake Special Meeting to the extent
necessary to ensure that any legally required supplement or amendment to this
joint proxy statement/prospectus are provided to the Chesapeake shareholders
or if, as of the time the Chesapeake Special Meeting is scheduled, there are
insufficient shares of Chesapeake Common Stock represented to constitute a
quorum necessary to conduct business at the Chesapeake Special Meeting, and
(ii) may adjourn or postpone the Chesapeake Special Meeting with the written
consent of Southwestern if, as of the time for which the Chesapeake Special
Meeting is scheduled, there are insufficient shares of Chesapeake Common Stock
represented to obtain the approval of the Stock Issuance Proposal.
Notwithstanding the foregoing, (i) unless otherwise agreed to by the parties,
the Chesapeake Special Meeting will not be adjourned or postponed to a date
that is more than ten business days after the date for which the Chesapeake
Special Meeting was previously scheduled except as required by applicable law,
(ii) the Chesapeake Special Meeting will not be adjourned or postponed to a
date on or after five business days prior to the Outside Date, and (iii) no
such adjournment or postponement may have the effect of changing the record
date for determining the Chesapeake shareholders entitled to notice of or to
vote at the Chesapeake Special Meeting without the written consent of
Southwestern (which consent will not be unreasonably withheld, conditioned or
delayed).
If requested by Southwestern, Chesapeake will promptly provide all voting
tabulation reports relating to the Chesapeake Special Meeting and will
otherwise keep Southwestern reasonably informed regarding the status of the
solicitation and any material oral or written communications from or to
Chesapeake's shareholders with respect thereto. Unless there has been a change
in recommendation, the parties have agreed to cooperate and use their
reasonable best efforts to defend against any efforts by any of Chesapeake's
shareholders or any other person to prevent the approval of the Stock Issuance
Proposal by Chesapeake's shareholders.
Chesapeake has agreed, in consultation with Southwestern, to fix a record date
for determining the Chesapeake shareholders entitled to notice of, and to vote
at, the Chesapeake Special Meeting and Chesapeake will not change such record
date or establish a different record date for the Chesapeake Special Meeting
without the prior written consent of Southwestern (which consent will not be
unreasonably withheld, conditioned or delayed). Without the prior written
consent of Southwestern or as required by applicable law, (i) the Stock
Issuance Proposal will be the only matter (other than a non-binding advisory
proposal regarding compensation that may be paid or become payable to the
named executive officers of Chesapeake in connection with the Merger and
matters of procedure, including any adjournment proposal) that Chesapeake may
propose to be acted on by the Chesapeake shareholders at the Chesapeake
Special Meeting and Chesapeake will not submit any other proposal to such
shareholders in connection with the Chesapeake Special Meeting or otherwise
(including any proposal inconsistent with the adoption of the Merger Agreement
or the consummation of the transactions contemplated thereby) and (ii)
Chesapeake may not call any meeting of the Chesapeake shareholders (or solicit
any other shareholder action by written consent) other than the Chesapeake
Special Meeting.
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Southwestern and Chesapeake shall cooperate and use their reasonable best
efforts to set the record dates for and hold the Southwestern Special Meeting
and the Chesapeake Special Meeting, as applicable, on the same day and at
approximately the same time.
Access to Information
Subject to applicable law and certain other exceptions set forth in the Merger
Agreement, Southwestern and Chesapeake have each agreed to (and to cause its
subsidiaries to), upon reasonable advance written notice by the other, use
reasonable best efforts to furnish the other with all information concerning
itself, its subsidiaries, directors, officers and shareholders and such other
matters as may be reasonably necessary or advisable in connection with this
joint proxy statement/prospectus, the registration statement, of which this
joint proxy statement/prospectus forms a part, or any other statement, filing,
notice or application made by or on behalf of Chesapeake, Southwestern or any
of their respective subsidiaries to any third party or any governmental entity
in connection with the transactions contemplated by the Merger Agreement.
Southwestern and Chesapeake have agreed to, and to cause each of their
respective subsidiaries to, use reasonable best efforts to afford the other
party's officers and its representatives, during the period prior to the
earlier of the Effective Time and the termination of the Merger Agreement,
reasonable access, at reasonable times upon reasonable prior notice, to the
officers, key employees, agents, properties, offices and other facilities of
the other party and its subsidiaries and to their books, records, contracts
and documents, and to cause each of its subsidiaries to, furnish reasonably
promptly to such party and its representatives such information concerning its
and its subsidiaries' business, properties, contracts, records and personnel
as may be reasonably requested, from time to time, by or on behalf of the
other party, except that such access may be limited by either party to the
extent reasonably necessary for such party to comply with applicable law;
provided, further, that if any access is withheld pursuant to the preceding
proviso, the withholding party shall use commercially reasonable efforts to
seek an alternative means to provide the access to the withheld information in
a matter that does not violate any such law. Each party and its representatives
are required to conduct any such activities in such a manner as not to
interfere unreasonably with the business or operations of the other party or
its subsidiaries or otherwise cause any unreasonable interference with the
prompt and timely discharge by the employees of the other party or its
subsidiaries of their normal duties. However, the foregoing obligations are
subject to certain limitations as set forth in the Merger Agreement.
Confidentiality Agreement
The confidentiality agreement between Chesapeake and Southwestern survived the
execution and delivery of the Merger Agreement and applies to all information
furnished thereunder or pursuant to the Merger Agreement; provided that, for
the avoidance of doubt, the restrictions set forth in the confidentiality
agreement shall not limit the disclosure or dissemination of information
(including publicly) if required by law or requested by any governmental
entity, Financial Industry Regulatory Authority, the NYSE or Nasdaq. From and
after January 10, 2024 until the earlier of the Effective Time and termination
of the Merger Agreement in accordance with its terms, each party shall
continue to provide access to the other party and its representatives to the
data relating to the Merger and the other transactions contemplated by the
Merger Agreement maintained by or on behalf of it to which the other party and
its representatives were provided access prior to January 10, 2024.
HSR and Other Regulatory Approvals
Except for the filings and notifications made pursuant to antitrust laws,
promptly after following the execution of the Merger Agreement, the parties
have agreed to prepare and file with the appropriate governmental entities and
other third parties all authorizations, consents, notifications, certifications,
registrations, declarations and filings that are necessary in order to
consummate the transactions contemplated by the Merger Agreement and to
diligently and expeditiously prosecute, and cooperate fully with each other in
the prosecution of, such matters. However, in no event will either
Southwestern or Chesapeake or any of their respective affiliates be required
to pay any consideration to any third parties or give anything of value to
obtain any such person's authorization, approval, consent or waiver to
effectuate the transactions contemplated by the Merger Agreement, other than
filing, recordation or similar fees. Chesapeake and Southwestern will have the
right to review in advance and, to the extent reasonably practicable, each will
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consult with the other on and consider in good faith the views of the other in
connection with, all of the information relating to Chesapeake or
Southwestern, as applicable, and any of their respective subsidiaries or
affiliates, that appears in any filing made with, or written materials
submitted to, any third party or any governmental entity in connection with
the transactions contemplated by the Merger Agreement (including this joint
proxy statement/prospectus). Southwestern and its subsidiaries and affiliates
will not agree to any actions, restrictions or conditions with respect to
obtaining any consents, registrations, approvals, permits, expirations of
waiting periods or authorizations in connection with the transactions
contemplated by the Merger Agreement without the prior written consent of
Chesapeake (which consent may be withheld in Chesapeake's sole discretion).
Each of Chesapeake and Southwestern submitted the required HSR notifications
to the FTC and the DOJ on February 1, 2024. Chesapeake pulled its HSR filing
and refiled it on March 5, 2024. On April 4, 2024, Chesapeake and Southwestern
each received a Second Request from the FTC in connection with the FTC's
review of the Merger. Issuance of the Second Request extends the waiting
period imposed by the HSR Act until 30 days after Chesapeake and Southwestern
have each substantially complied with the Second Request, unless that period
is extended voluntarily by the parties or terminated sooner by the FTC.
Chesapeake and Southwestern will continue to work cooperatively with the FTC
in its review of the Merger, and now expect that the Merger will be completed
in the second half of 2024, subject to the fulfillment of the other closing
conditions, including approvals of Chesapeake and Southwestern shareholders.
Each party will use reasonable best efforts to obtain the expiration or
termination of any waiting period under the HSR Act applicable to the
transactions and bring about the closing as promptly as reasonably practicable
(and in any event before the outside date). In furtherance of the foregoing,
each party will (i) cooperate fully with the other party and furnish to it
such necessary information and reasonable assistance as it may reasonably
request in connection with its preparation of any required filings under the
HSR Act; (ii) use reasonable best efforts to respond appropriately as promptly
as reasonably practicable to any request for information in connection with
the transactions from any governmental entity under any antitrust law; (iii)
keep the other party apprised of any substantive communications with, and any
inquiries or requests for additional information from, any governmental entity
in connection with the transactions; (iv) provide copies to the other party of
all substantive written communications relating to the transactions to or from
any governmental entity, provided, that each party may redact or withhold
materials due to reasonable good-faith confidentiality or privilege concerns
or designate such communications as "outside counsel only material"; (v)
permit the other party a reasonable opportunity to review any proposed
substantive written communications to a governmental entity, and consider in
good faith the other party's comments thereon; (vi) not participate in any
substantive discussion with any governmental entity in relation to the
transactions without giving the other party reasonable notice and an
opportunity to participate; (vii) use reasonable efforts to share information
protected from disclosure under the attorney-client privilege, work product
doctrine, joint defense privilege or any other privilege pursuant to the terms
of the Merger Agreement so as to preserve any applicable privilege; and (viii)
not enter into any timing agreement with any governmental entity that would
reasonably be expected to extend beyond the Outside Date, without the prior
written consent of the other party.
In furtherance of the foregoing, the parties shall each use reasonable best
efforts to take, or cause to be taken, all actions and to do or cause to be
done, all things necessary, proper or advisable to consummate the transactions
as promptly as reasonably practicable (taking into account the time reasonably
needed to respond to and resolve concerns or requirements of applicable
regulators), including (i) proposing, negotiating, agreeing to, and effecting
the sale, leasing, licensing, divestiture or other disposition of any assets,
operations, businesses or interests of Southwestern or Chesapeake and their
respective subsidiaries and affiliates; (ii) terminating existing
relationships, contractual rights or obligations of Southwestern or Chesapeake
and their respective subsidiaries and affiliates; (iii) terminating any
venture or other arrangement of Southwestern or Chesapeake and their
respective subsidiaries and affiliates; (iv) creating any relationship,
contractual rights or obligations binding on Southwestern or Chesapeake and
their respective subsidiaries and affiliates; (v) effectuating any other
change or restructuring of Southwestern or Chesapeake and their respective
subsidiaries and affiliates; or (vi) agreeing to restrictions or actions that
after the closing would limit Chesapeake's or its subsidiaries' freedom of
action or operation (any such action, a "Remedy Action"), and, in connection
therewith, entering into appropriate agreements with or stipulating to the
entry of an order by any governmental entity; provided, however, that (x) any
Remedy Action shall be conditioned on the closing and (y) notwithstanding
anything to the contrary contained in the agreement, nothing in the
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Merger Agreement shall require Chesapeake or any of its subsidiaries or
affiliates to offer, propose, negotiate, commit to, agree to, effect or take
any Remedy Action that would, or would reasonably be expected to, either
individually or in the aggregate, have a material adverse effect on the
financial condition, business, assets, or results of operations of Chesapeake,
Southwestern and their respective subsidiaries, taken as a whole, provided,
however, that for this purpose, Chesapeake, Southwestern and their respective
subsidiaries, taken as a whole, shall be deemed a consolidated group of
entities of the size and scale of a hypothetical company that is 100% of the
size of Southwestern and its subsidiaries, taken as a whole, taking into
account the terms of any divestiture or other disposition of assets, as of the
date of this Agreement. Southwestern shall (and shall cause its subsidiaries
and affiliates to) take, or agree to take, any Remedy Action that Chesapeake
requests in writing, provided that such Remedy Action is conditioned on the
closing. Southwestern shall not (and shall cause its subsidiaries and
affiliates not to) offer, propose, negotiate, commit to, agree to, effect or
take any Remedy Action without Chesapeake's prior written consent. If a
proceeding is instituted by any governmental entity challenging the validity
or legality or seeking to restrain the consummation of the transactions, the
parties shall each use their reasonable best efforts to resist, resolve, or,
if necessary defend, such proceeding. Chesapeake shall, upon reasonable
consultation with Southwestern and in consideration of Southwestern's views in
good faith, and, subject to the penultimate sentence of Section 6.8(b) of the
Merger Agreement, control, lead and direct all actions, decisions and strategy
for, and make all final determinations as to the timing and appropriate course
of action with respect to, making and obtaining consents with or from
governmental entities in connection with the transactions and responding to
and defending any proceeding by or with any governmental entity in connection
with the transactions, including all matters relating to antitrust laws,
provided, however, that Chesapeake shall afford Southwestern a reasonable
opportunity to participate therein and shall consider the views of
Southwestern in good faith in connection with the foregoing.
Neither party shall take any action that would reasonably be expected to
prevent or materially delay the closing or the expiration or termination of
the waiting period under the HSR Act. In furtherance of the foregoing, each
party shall not, and shall cause its respective subsidiaries and affiliates
not to, acquire or merge with any person or portion thereof (or agree to do
the foregoing), if the entering into of a definitive agreement relating to or
the consummation of such transaction would reasonably be expected to (x)
materially delay the closing or the expiration or termination of the waiting
period under the HSR Act, (y) materially increase the risk of any governmental
entity instituting a proceeding seeking to prohibit the transactions, or (z)
materially increase the risk of any governmental entity entering an order
prohibiting the transactions.
Employee Matters
Chesapeake has agreed that, for a period of twelve months following the
closing date, (or, if earlier, the date of the applicable employee's
termination of employment with Chesapeake or one of its subsidiaries),
Chesapeake will cause each individual who was employed as of the closing date
by Southwestern or a subsidiary thereof (a "Southwestern employee") and who
remains employed by Chesapeake or any of its subsidiaries (including the
Surviving Corporation, Merger Sub LLC and their respective subsidiaries) to be
provided with (i) base salary or wages, as applicable that are no less
favorable than those provided to such Southwestern employee as of immediately
prior to the closing date; (ii) a total annual cash incentive opportunity that
is no less favorable than that provided to such Southwestern employee
immediately prior to the closing date; (iii) equity compensation or long-term
cash incentive compensation opportunity, as applicable, that is substantially
comparable to that provided to such Southwestern employee immediately prior to
the closing date, provided that the amount of such equity compensation or
long-term cash incentive compensation opportunity, as applicable, may be
adjusted to avoid duplication that otherwise may arise as a result of
differences in timing of grants by Southwestern prior to the closing date and
by Chesapeake following the closing date, provided further that such long-term
cash incentive compensation opportunity may instead be in the form of equity
compensation; and (iv) employee benefits (excluding for the avoidance of
doubt, incentives and equity compensation, which are covered above, and
severance benefits, which are covered below) at a level that is no less
favorable in the aggregate than either the employee benefits in effect for
such Southwestern employee immediately prior to the closing date or the
employee benefits provided to similarly situated employees of Chesapeake and
its subsidiaries. In the case of a Southwestern employee who is terminated
during the twelve-month period following closing, such Southwestern employee
will be eligible for severance benefits under and subject to the terms and
conditions of the Southwestern Energy
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Change in Control Severance Plan or, if applicable, such Southwestern
employee's individual severance agreement entered into with Southwestern.
Chesapeake has further agreed to, or to cause the Surviving Corporation and
its subsidiaries to, assume and honor their respective obligations under all
employment, severance, change in control, retention and other agreements, if
any, between Southwestern (or a subsidiary thereof) and a Southwestern
employee.
Chesapeake has agreed to, or to cause the Surviving Corporation and its
subsidiaries to, credit Southwestern employees for their service with
Southwestern and its subsidiaries for purposes of vesting, eligibility and
benefit accrual and for long-term disability coverage purposes under the
benefit plans of Chesapeake, the Surviving Corporation or any of their
subsidiaries covering Southwestern employees after the closing (other than any
defined benefit plan or retiree medical, dental, life or disability benefit
plan), except to the extent such credit would result in a duplication of
benefits.
Chesapeake has agreed to, or to cause the Surviving Corporation and its
subsidiaries to, take commercially reasonable efforts to (i) waive any
pre-existing condition limitations and/or waiting periods, active employment
requirements and requirements to show evidence of good health under the
applicable Chesapeake health and welfare benefit plans to the extent such
conditions, periods or requirements were satisfied or waived under the
corresponding Southwestern plans and (ii) give each Southwestern employee
credit towards applicable deductibles and annual out-of-pocket limits for
medical expenses incurred prior to the closing date.
Southwestern has agreed to terminate its 401(k) plan prior to Effective Time
if such termination is requested by Chesapeake in writing not less than ten
days prior to the Effective Time. If a Southwestern 401(k) plan is terminated
pursuant to Chesapeake's request, Chesapeake has agreed that Southwestern
employees shall be eligible to participate immediately after the closing in
Chesapeake's or one of its subsidiary's 401(k) plan and to cause such 401(k)
plan to accept rollovers of account balances (in cash and outstanding loan
notes) from Southwestern's 401(k) plans.
Indemnification; Directors' and Officers' Insurance
From the Effective Time and until the six year anniversary of the Effective
Time, Chesapeake and the Surviving Corporation have agreed to, jointly and
severally, indemnify, defend and hold harmless certain officers, directors and
employees of Southwestern and its subsidiaries (the "indemnified persons")
against costs and liabilities (including attorneys' and other professionals'
fees and expenses), arising, in whole or in part, out of the fact that such
person is or was a director, officer or employee of Southwestern or any of its
subsidiaries, a fiduciary under any Southwestern plan or any employee benefit
plan of Southwestern or any of its subsidiaries or is or was serving at the
request of Southwestern or any of its subsidiaries as a director, officer,
employee or agent of another entity or by reason of anything done or not done
by such person in any such capacity, whether pertaining to any act or omission
occurring or existing prior to or at, but not after, the closing (such
liabilities, the "indemnified liabilities"), including all indemnified
liabilities based in whole or in part on, or arising in whole or in part out
of, or pertaining to the Merger Agreement or the transactions contemplated by
the Merger Agreement, in each case to the fullest extent such person is
entitled to indemnification under applicable law.
Chesapeake and the Surviving Corporation agree that, until the six year
anniversary date of the Effective Time, neither Chesapeake nor the Surviving
Corporation shall amend, repeal or otherwise modify any provision in the
organizational documents of the Surviving Corporation or its subsidiaries in
any manner that would adversely affect the rights thereunder of any
indemnified person to indemnification, exculpation and advancement in respect
of the indemnified liabilities except to the extent required by applicable
law. Chesapeake has agreed to, and will cause its subsidiaries, including the
Surviving Corporation, to, fulfill and honor any indemnification, expense
advancement or exculpation agreements between Chesapeake, Southwestern or any
of their respective subsidiaries and any of their respective directors or
officers existing and in effect prior to the Effective Time.
Chesapeake and the Surviving Corporation will cause to be put in place, and
Chesapeake will fully prepay immediately prior to the closing, "tail"
insurance policies with a claims reporting or discovery period of at least six
years from the Effective Time in an amount and scope at least as favorable as
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Southwestern's existing policies with respect to matters, acts or omissions
existing or occurring at or prior to, or after, the Effective Time. In no
event will the aggregate cost of the directors' and officers' liability
insurance exceed during the tail period 300% of the current aggregate annual
premium paid by Southwestern for such purpose for the 2023 fiscal year,
provided, that if the cost of such insurance coverage exceeds such amount, the
Surviving Corporation will obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
Transaction Litigation
In the event of any litigation or other legal proceedings (but excluding any
proceeding under or related to antitrust laws, for which Section 6.8 of the
Merger Agreement shall control) by any governmental entity or other person
(other than the parties to the Merger Agreement) in relation to the Merger
Agreement, the Merger or other transactions contemplated by the Merger
Agreement that is commenced or, to the knowledge of Chesapeake or
Southwestern, is threatened against such party, the relevant party will notify
the other party of any such litigation and keep that party reasonably informed
of its status. Each party has agreed to give the other a reasonable
opportunity to participate in the defense or settlement of any transaction
litigation (at such other party's cost) and shall consider in good faith,
acting reasonably, the other party's advice with respect to such litigation;
provided, that the party that is subject to such litigation will not offer or
agree to settle any such litigation without the prior written consent of the
other party (which consent shall not be unreasonably withheld, conditioned or
delayed).
Public Announcements
No party to the Merger Agreement will, and each will use its reasonable best
efforts to cause its representatives not to, issue any public announcements or
make other public disclosures regarding the Merger Agreement or the
transactions contemplated thereby without the prior written approval of the
other party. Notwithstanding the foregoing, any party to the Merger Agreement,
its subsidiaries or their representatives may issue a public announcement or
other public disclosures (i) required by applicable law, (ii) required by the
rules of any stock exchange upon which such party's or its subsidiary's
capital stock is traded or (iii) consistent with the final form of the joint
press release announcing the Merger and the investor presentation given to
investors on the morning of January 10, 2024. However, in each case, such
party must use its reasonable best efforts to afford the other party an
opportunity to first review the content of the proposed disclosure and provide
reasonable comments thereon (which such comments shall be considered in good
faith by the disclosing party). The Merger Agreement does not restrict a
party's ability to communicate directly and confidentially with its employees
and does not require either party to consult with or obtain any approval from
any other party with respect to a public announcement or press release issued
in connection with the receipt and existence of a Southwestern Competing
Proposal or a Chesapeake Competing Proposal, as applicable, and matters
related thereto or a Southwestern change of recommendation or a Chesapeake
change of recommendation, other than as set forth in the Merger Agreement, as
applicable.
Advice on Certain Matters
Subject to compliance with applicable law, Southwestern and Chesapeake, as the
case may be, have agreed to confer on a regular basis with each other and will
promptly advise each other orally and in writing of any change or event
having, or which would be reasonably likely to have, individually or in the
aggregate, a Southwestern material adverse effect or a Chesapeake material
adverse effect, as the case may be. Except with respect to antitrust laws,
Southwestern and Chesapeake have agreed to promptly provide each other (or
their respective counsel) with copies of all filings made by such party or its
subsidiaries with the SEC or any other governmental entity in connection with
the Merger Agreement and the transactions contemplated by the Merger Agreement.
Financing Cooperation
Until the earlier of the closing and the termination of the Merger Agreement
pursuant to its terms, Southwestern has agreed to use commercially reasonable
efforts to provide, and will cause its subsidiaries and use commercially
reasonable efforts to cause its and their respective representatives to
provide, such cooperation, at Chesapeake's sole cost and expense, as may be
reasonably requested by Chesapeake in
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connection (i) with any evaluation or analysis of, or diligence with respect
to, the existing indebtedness of Southwestern or any of its subsidiaries,
including (a) reasonably promptly furnishing any pertinent and customary
information regarding Southwestern and its subsidiaries as may be reasonably
requested by Chesapeake relating to the existing indebtedness of Southwestern
or any of its subsidiaries (including using commercially reasonable efforts to
ensure that lenders and/or holders of the existing indebtedness of
Southwestern or any of its subsidiaries and their advisors and consultants
shall have sufficient access to Southwestern and its subsidiaries and its and
their respective representatives) and (b) upon reasonable notice and at
reasonable, mutually agreed times and locations, participating in meetings and
presentations with lenders and/or holders of the existing indebtedness of
Southwestern or any of its subsidiaries (in each case which shall be
telephonic or virtual meetings or sessions, as circumstances require) and (ii)
with any consents from or agreements with lenders or noteholders, or any
internal reorganization transactions, in each case with respect to the
assumption of the existing indebtedness of Southwestern by Chesapeake (other
than, for the avoidance of doubt, Southwestern's existing credit facility) and
the waiver of any requirement to consummate any redemption thereof.
Until the earlier of the closing and the termination of the Merger Agreement
under the terms of the Merger Agreement, Southwestern shall use commercially
reasonable efforts to provide, and shall cause its subsidiaries and use
commercially reasonable efforts to cause its and their respective
representatives to provide, such cooperation, at Chesapeake's sole cost and
expense, as may be reasonably requested by Chesapeake in connection with the
arrangement of any debt financing that may be arranged by Chesapeake or any of
its affiliates in connection with the transactions (the "Debt Financing"),
including by using commercially reasonable efforts to (i) upon reasonable
advance notice and at mutually agreeable times and locations, participate in a
reasonable number of bank meetings, due diligence sessions and similar
presentations to and with prospective arrangers, underwriters or lenders with
respect to the Debt Financing (including the parties to any commitment
letters, engagement letters, joinder agreements, indentures or credit
agreements entered into pursuant to or relating to any Debt Financing, the
"Debt Financing Sources") and rating agencies, including direct contact
between senior management and the other Representatives of Southwestern, on
the one hand, and the actual and potential Debt Financing Sources and ratings
agencies, on the other hand, (ii) furnish Chesapeake with such customary
historical financial and other factual information that is readily available
to, and in the form customarily prepared by, Southwestern and its subsidiaries
regarding Southwestern and its subsidiaries as may be reasonably requested by
Chesapeake's actual and potential Debt Financing Sources and is customarily
provided in connection with financings of the type contemplated by any Debt
Financing, (iii) reasonably assist with the preparation of (as applicable)
customary bank books, "road show presentations", information memoranda,
prospectuses, pricing term sheets, offering or private placement memoranda,
and other marketing materials or customary information packages (A) suitable
for use in a customary syndication process or "road show", in each case,
regarding the business, operations, financial condition and projections of
Southwestern (which prospectuses, offering or private placement memoranda or
other customary information for use in a "road show" will be in a form that
will enable the independent registered public accountants of Southwestern to
render a customary "comfort letter" (including customary "negative
assurances") on the closing date) or (B) reasonably requested by Chesapeake or
its financing sources in connection with the syndication or other marketing of
the Debt Financing (subject to advance review of and consultation with respect
to such use), (iv) reasonably assist with the preparation of any pledge and
security documents, any loan agreement, currency or interest hedging
agreement, other definitive financing documents for any Debt Financing,
including information in respect of the oil and gas reserves attributable to
the oil and gas properties of Southwestern and its subsidiaries and schedules
to the definitive documentation for any Debt Financing, or other certificates,
legal opinions delivered by counsel to Chesapeake or documents as may be
reasonably requested by Chesapeake and usual and customary for transactions of
the type contemplated by such Debt Financing, (v) reasonably facilitate the
pledging of collateral for any Debt Financing (including cooperation in
connection with the pay-off of existing indebtedness to the extent
contemplated by the Merger Agreement or the Debt Financing and the release of
related encumbrances and termination of security interests (including
delivering prepayment or termination notices as required by the terms of any
existing indebtedness and delivering customary payoff letters)) and (vi)
provide to Chesapeake and its Debt Financing Sources at least three business
days prior to the closing date all documentation and other information
required by governmental entities under applicable "know your customer" and
anti-money laundering rules and regulations to the extent reasonably requested
in writing by Chesapeake at least ten business days prior to the closing.
Chesapeake shall be permitted to disclose
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confidential information to any parties providing commitments for any Debt
Financing, rating agencies and prospective lenders during syndication of such
Debt Financing, subject to such parties providing commitments, rating agencies
and prospective lenders entering into customary confidentiality undertakings
for a syndication with respect to such information.
Notwithstanding anything in the Merger Agreement to the contrary, nothing
herein shall require (i) Southwestern, its subsidiaries or any of their
respective representatives to execute or enter into any certificate,
instrument, agreement or other document in connection with any Debt Financing
which will be effective prior to the closing, (ii) cooperation or other
actions or efforts on the part of Southwestern, any of its subsidiaries, or
any of their respective representatives, in connection with any Debt Financing
to the extent, in Southwestern's reasonable judgment, it would (A) interfere
unreasonably with the business or operations of Southwestern or its
subsidiaries, (B) subject any director, manager, officer or employee of
Southwestern or a subsidiary thereof to any actual or potential personal
liability or (C) result in a failure of any condition to the obligations of
the parties hereto to consummate the transactions, (iii) Southwestern or its
subsidiaries or any of their respective representatives to pay any commitment
or other fee or incur any other liability in connection with any Debt
Financing that is not reimbursed by Chesapeake, (iv) the board of directors or
similar governing body of any of Southwestern or its subsidiaries, prior to
the closing, to adopt resolutions approving, or otherwise approve, the
agreements, documents or instruments pursuant to which any Debt Financing is
made, (v) Southwestern and its subsidiaries to provide any access or
information if (A) doing so would reasonably be expected to violate any
fiduciary duty, applicable law or existing contract to which Southwestern or
such subsidiary is party, (B) doing so would reasonably be expected to result
in the loss of the ability to successfully assert attorney-client, work
product or similar privileges or (C) doing so would reasonably be expected to
violate any Southwestern policies regarding access to such books, contracts
and records or jeopardize the health and safety of any employee, independent
contract or other agent of Southwestern or any of its subsidiaries; provided,
that Southwestern and its subsidiaries shall, in the case of clauses (A)
through (C), use commercially reasonable efforts to make appropriate
substitute arrangements under circumstances in which the foregoing
restrictions do not apply, (vi) cooperation that would violate, or result in
the waiver of any benefit under the Merger Agreement, any other material
contract (not entered in contemplation hereof) or any law to which
Southwestern, any of its subsidiaries, or any of their respective
representatives, is a party or subject or (vii) Southwestern or its
subsidiaries or any of their respective representatives to prepare or provide
(and Chesapeake shall be solely responsible for) (A) pro forma financial
information, including pro forma cost savings, synergies, capitalization or
other pro forma adjustments in each case giving effect to the transactions
desired to be incorporated into any pro forma financial information in
connection with any Debt Financing, (B) any description of all or any
component of any Debt Financing, or (C) projections or other forward-looking
statements relating to all or any component of any debt financing. Chesapeake
shall be responsible for all fees and expenses related to any Debt Financing,
including the compensation of any contractor or advisor of Chesapeake or
Southwestern directly related to actions taken pursuant to the Merger
Agreement. Accordingly, notwithstanding anything to the contrary herein,
Chesapeake shall promptly, upon written request by Southwestern, reimburse
Southwestern for all reasonable and documented out-of-pocket costs and
expenses (including reasonable and documented compensation or other fees of
any contractor or advisor) incurred in connection with the Debt Financing
incurred by Southwestern and its subsidiaries and their respective
representatives in connection with the Debt Financing, including the
cooperation of Southwestern and the subsidiaries thereof contemplated by the
Merger Agreement, and shall indemnify and hold harmless Southwestern and its
subsidiaries and their respective representatives from and against any and all
losses, claims, damages, liabilities, judgments, obligations, causes of
action, payments, charges, fines, assessments and costs and expenses
(including reasonable attorneys' fees, legal and other expenses incurred in
connection therewith) suffered or incurred by any of them in connection with
the terms of the Merger Agreement, the arrangement of the Debt Financing or
any information used in connection therewith, in each case, except to the
extent suffered or incurred as a result of the gross negligence, bad faith or
willful misconduct by Southwestern or any of its subsidiaries or, in each
case, their respective representatives.
Notwithstanding anything to the contrary herein, the condition set forth in
Section 7.2(b) of the Merger Agreement as it applies to Southwestern's
obligations under this paragraph, shall be deemed satisfied unless (i)
Southwestern has failed to satisfy its obligations under the Merger Agreement
in any material respect, (ii) Chesapeake has notified Southwestern of such
failure in writing a reasonably sufficient amount of time prior to the closing
date to afford Southwestern with a reasonable opportunity to cure
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such failure and (iii) such failure has been the primary cause of Chesapeake's
failure to consummate any Debt Financing. Chesapeake acknowledges and agrees
that obtaining any Debt Financing is not a condition to closing. If any Debt
Financing has not been obtained, Chesapeake shall continue to be obligated,
until such time as the Agreement is terminated in accordance with the terms of
the Merger Agreement and subject to the waiver or fulfillment of the
conditions set forth in the Merger Agreement, to complete the transactions
contemplated by the Merger Agreement.
Reasonable Best Efforts; Notification
Subject to the terms and conditions of the Merger Agreement regarding consents
and other matters related to antitrust laws, Chesapeake and Southwestern have
agreed to use reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other in doing, all things necessary, proper or advisable to consummate and
make effective, as promptly as reasonably practicable, the Merger and the
other transactions contemplated by the Merger Agreement.
Chesapeake and Southwestern have agreed, subject to applicable law and as
otherwise required by any governmental entity and subject to the terms of the
Merger Agreement regarding consents and other matters related to antitrust
laws, to keep the other apprised of the status of matters relating to the
completion of the Merger, including promptly furnishing the other with copies
of notices or other communications received by Chesapeake or Southwestern, as
applicable, or any of its subsidiaries, from any third party or any
governmental entity with respect to the transactions contemplated by the
Merger Agreement (including those alleging that the approval or consent of
such person is or may be required in connection with the transactions
contemplated by the Merger Agreement). The parties have agreed to give each
other prompt notice upon becoming aware of any condition, event or
circumstance that will result in the closing conditions under the Merger
Agreement not being met, or the failure of such party to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the Merger Agreement.
Section 16 Matters
Prior to the Effective Time, Chesapeake, Merger Sub Inc, Merger Sub LLC and
Southwestern have agreed to take all such steps as may be reasonably required
to cause any dispositions of equity securities of Southwestern (including
derivative securities) or acquisitions of equity securities of Chesapeake
(including derivative securities) in connection with the Merger Agreement by
each individual who is subject to the reporting requirements of Section 16(a)
of the Exchange Act with respect to Southwestern, or will become subject to
such reporting requirements with respect to Chesapeake, to be exempt under
Rule 16b-3 under the Exchange Act, to the extent permitted by applicable laws.
Stock Exchange Listing and Delistings
Chesapeake has agreed to take all action necessary to cause the shares of
Chesapeake Common Stock to be issued in the Merger to be approved for listing
on the Nasdaq prior to the Effective Time, subject to official notice of
issuance.
Prior to the closing date, Southwestern has agreed to cooperate with
Chesapeake and use reasonable best efforts to take, or cause to be taken, all
actions, and do or cause to be done all things, reasonably necessary, proper
or advisable on its part under applicable law and rules and policies of the
NYSE to enable the delisting by the Surviving Corporation of the shares of
Southwestern Common Stock from the NYSE and the deregistration of the shares
of Southwestern Common Stock under the Exchange Act as promptly as practicable
after the Effective Time, and in any event no more than ten days after the
Effective Time. If the Surviving Corporation is required to file any quarterly
or annual report pursuant to the Exchange Act by a filing deadline that is
imposed by the Exchange Act and that falls on a date within the fifteen days
following the closing date, Southwestern is required make available to
Chesapeake, at least five business days prior to the closing date, a
substantially final draft of any such annual or quarterly report reasonably
likely to be required to be filed during such period.
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Treatment of Indebtedness
As of March 31, 2024, Southwestern had approximately $4.0 billion of debt
outstanding, consisting principally of senior notes maturing in various
increments from 2025 to 2032 and $270 million of borrowings under its
revolving credit facility, which matures in 2027.
As of March 31, 2024, Chesapeake had no borrowings outstanding under its
revolving credit facility and $1.95 billion of senior notes maturing in
various increments from 2026 and 2029.
For a description of Southwestern's and Chesapeake's existing indebtedness,
see Southwestern's
Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed
on May 2, 2024
, and Chesapeake's
Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed
on April 30, 2024
, each of which is incorporated by reference into this joint proxy
statement/prospectus. Please see "
Where You Can Find More Information
" for additional information.
Southwestern and its subsidiaries have agreed to deliver to Chesapeake at
least two business days prior to the closing date a copy of a payoff letter,
setting forth the total amounts payable pursuant to Southwestern's existing
credit facility to fully satisfy all principal, interest, fees, costs and
expenses owed to each holder of indebtedness under Southwestern's existing
credit facility as of the anticipated closing date (and the daily accrual
thereafter), together with appropriate wire instructions, and the agreement
from the administrative agent under Southwestern's existing credit facility
that upon payment in full of all such amounts owed to such holders, all
indebtedness under Southwestern's existing credit facility shall be
irrevocably discharged and satisfied in full, the Loan Documents (as defined
in Southwestern's existing credit facility) shall be terminated with respect
to Southwestern and its subsidiaries that are borrowers or guarantors thereof
and all liens on Southwestern and its subsidiaries and their respective assets
and equity securing Southwestern's existing credit facility shall be
immediately released and terminated, together with any applicable documents
reasonably necessary to evidence the release and termination of all liens on
Southwestern and its subsidiaries and their respective assets and equity
securing, and any guarantees by Southwestern and its subsidiaries in respect
of Southwestern's existing credit facility. Southwestern has also agreed to
reasonably cooperate with Chesapeake in replacing any letters of credit issued
pursuant to Southwestern's existing credit facility evidencing the above
referenced indebtedness or obligations.
Tax Matters
Each of Chesapeake, Merger Sub Inc, Merger Sub LLC and Southwestern has agreed
to (and has agreed to cause each of their respective subsidiaries to) use its
reasonable best efforts to cause the Integrated Mergers, taken together, to
qualify, and has agreed not to take or knowingly fail to take (and will cause
each of their respective subsidiaries not to take or knowingly fail to take)
any actions that would or would reasonably be expected to, prevent or impede
the Integrated Mergers, taken together, from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Code. Each of Chesapeake, Merger
Sub Inc and Merger Sub LLC and Southwestern has agreed to notify the other
party promptly after becoming aware of any reason to believe that the
Integrated Mergers, taken together, may not qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. Each of Chesapeake, Merger
Sub Inc, Merger Sub LLC and Southwestern will comply (and will cause its
respective subsidiaries to comply) with all representations, warranties and
covenants contained in the Parent Tax Certificate (as defined below) and
Company Tax Certificate (as defined below), respectively, to the extent
necessary to cause the Integrated Mergers, taken together, to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
The parties to the Merger Agreement agreed to adopt the Merger Agreement as a
"plan of reorganization" for purposes of Sections 354 and 361 of the Code and
within the meaning of U.S. Treasury regulations Sections 1.368-2(g) and
1.368-3(a).
Chesapeake and Southwestern have agreed to cooperate to facilitate the
issuance of the opinion described the Merger Agreement and any other opinions
to be filed in connection with the registration statement, of which this joint
proxy statement/prospectus forms a part or this joint proxy statement/
prospectus regarding the U.S. federal income tax treatment of the Integrated
Mergers. In connection therewith, (i) Chesapeake has agreed to deliver to
Kirkland & Ellis LLP and/or Latham & Watkins LLP (or other applicable legal
counsel), as applicable, a duly executed certificate containing such
representations, warranties
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and covenants as shall be reasonably necessary or appropriate to enable the
relevant counsel to render the opinion described in the Merger Agreement and
any opinions to be filed in connection with the declaration of effectiveness
of the registration statement, of which this joint proxy statement/prospectus
forms a part or this joint proxy statement/prospectus regarding the U.S.
federal income tax treatment of the Integrated Mergers, taken together (the
"Parent Tax Certificate"), and (ii) Southwestern has agreed to deliver to
Kirkland & Ellis LLP and/or Latham & Watkins LLP (or other applicable legal
counsel), as applicable a duly executed certificate containing such
representations, warranties and covenants as shall be reasonably necessary or
appropriate to enable the relevant counsel to render the opinion described in
the Merger Agreement and any opinions to be filed in connection with the
declaration of effectiveness of the registration statement, of which this
joint proxy statement/prospectus forms a part or this joint proxy statement/
prospectus regarding the U.S. federal income tax treatment of the Integrated
Mergers, taken together (the "Company Tax Certificate"), in each case, dated
as of the closing date (and such additional dates as may be necessary in
connection with the preparation, filing and delivery of the registration
statement, of which this joint proxy statement forms a part or this joint
proxy statement/prospectus). Chesapeake and Southwestern have agreed to
provide such other information as reasonably requested by Kirkland & Ellis LLP
and/or Latham & Watkins LLP (or other applicable legal counsel), as
applicable, for purposes of rendering the opinion described in the Merger
Agreement and any opinions to be filed in connection with the declaration of
effectiveness of the registration statement, of which this joint proxy
statement/prospectus forms a part of or this joint proxy statement/prospectus.
Takeover Laws
Each party to the Merger Agreement has agreed that it will not take any action
that would cause the transactions contemplated by the Merger Agreement to be
subject to the requirements imposed by any "fair price," "moratorium,"
"control share acquisition," "business combination" or any other anti-takeover
statute or similar statute enacted under applicable law, including Section 203
of the DGCL, and each of them will take all reasonable steps within its
control to exempt (or ensure the continued exemption of) the transactions
contemplated by the Merger Agreement from any such takeover law of any state
that purports to apply to the Merger Agreement or the transactions
contemplated by the Merger Agreement.
Obligations of Merger Sub Inc and Merger Sub LLC
Chesapeake has agreed to take all action necessary to cause Merger Sub Inc and
Merger Sub LLC to perform its respective obligations under the Merger
Agreement and the LLC Sub Merger Agreement and to consummate the transactions
contemplated hereby, including the Integrated Mergers, upon the terms and
subject to the conditions set forth in the Merger Agreement and the LLC Sub
Merger Agreement.
Transfer Taxes
The parties to the Merger Agreement have agreed that all transfer, sales, use,
stamp, registration or other similar taxes (but not including any income,
franchise or similar taxes) ("transfer taxes") imposed with respect to the
Merger, taken together, or the transfer of shares of Southwestern Common Stock
pursuant to the Merger, taken together, will be borne by the Surviving
Corporation. The parties have agreed to cooperate, in good faith, in the
filing of any tax returns with respect to such transfer taxes and the
minimization, to the extent reasonably permissible under applicable law, of
the amount of any such transfer taxes.
Derivative Contracts; Hedging Matters
Until the earlier of the closing and the termination of the Merger Agreement
in accordance with its terms, each party shall use commercially reasonable
efforts to cooperate with the other party as reasonably requested by the other
party, in connection with the development of a post-closing hedging strategy
for Chesapeake and the mechanics for implementing that strategy, including,
without limitation, the amendment, assignment, termination or novation of any
derivative transaction (including any commodity hedging arrangement or related
contract) of Southwestern or any of its subsidiaries on terms that are
reasonably requested by Chesapeake and effective at and conditioned upon the
closing. Each party shall be responsible for its own costs and expenses in
connection with the foregoing. Notwithstanding the foregoing,
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among other potential reasons, any such requested cooperation under the terms
of the Merger Agreement will not be considered commercially reasonable if it
would materially or unreasonably interfere with the operations of the party
(or any of its subsidiaries) requested to provide such cooperation.
Conditions to the Completion of the Merger
Mutual Conditions
The respective obligations of each of the parties to the Merger Agreement to
consummate the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which may be waived
jointly by the parties, in whole or in part, to the extent permitted by
applicable law:
.
Shareholder Approvals
. The Merger Proposal must have been approved in accordance with applicable
law and the Southwestern and Chesapeake organizational documents, as
applicable.
.
Regulatory Approval
. All waiting periods (and any extensions thereof) applicable to the
transactions contemplated by the Merger Agreement under the HSR Act, and any
commitment to, or agreement (including any timing agreement) with, any
governmental entity to delay the consummation of, or not to consummate before
a certain date, the transactions must have expired or been terminated.
.
No Injunctions or Restraints
. No law shall be in effect restraining, enjoining, making illegal or
unlawful, or otherwise prohibiting the consummation of the transactions (it
being understood for avoidance of doubt that an HSR Reservation Notice shall
not constitute such a law).
.
Effectiveness of the Registration Statement
. The registration statement, of which this joint proxy statement/prospectus
forms a part, must have been declared effective by the SEC under the
Securities Act and must not be the subject of any stop order or proceedings
seeking a stop order.
.
Nasdaq Listing
. The shares of Chesapeake Common Stock issuable to holders of Southwestern
Common Stock pursuant to the Merger Agreement must have been approved for
listing on Nasdaq, upon official notice of issuance.
Additional Conditions to the Obligations of Chesapeake and Merger Sub Inc
The obligations of Chesapeake and Merger Sub Inc to consummate the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived exclusively by Chesapeake, in
whole or in part, to the extent permitted by applicable law:
.
certain representations and warranties of Southwestern set forth in the Merger
Agreement regarding organization, standing and power, capital structure,
authority, absence of certain changes or events and brokers must have been
true and correct as of January 10, 2024 and must be true and correct as of the
closing date, as though made on and as of the closing date (except, with
respect to certain representations and warranties regarding capital stock, for
any de minimis inaccuracies) (except that representations and warranties that
speak as of a specified date or period of time must have been true and correct
only as of such date or period of time);
.
certain other representations and warranties of Southwestern set forth in the
Merger Agreement relating to capital structure must have been true and correct
in all material respects as of January 10, 2024 and must be true and correct
in all material respects as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct in all
material respects only as of such date or period of time);
.
all other representations and warranties of Southwestern set forth in the
Merger Agreement must have been true and correct as of January 10, 2024 and
must be true and correct as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct only as of
such date or period of time), except where the failure of such representations
and warranties to be so true and correct (without regard to qualification or
exceptions contained therein as to "materiality," "in all material respects"
or "Southwestern material adverse effect") would not reasonably be expected to
have, individually or in the aggregate, a Southwestern material adverse effect;
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.
Southwestern must have performed, or complied with, in all material respects,
all agreements and covenants required to be performed or complied with by it
under the Merger Agreement at or prior to the Effective Time; and
.
Chesapeake must have received a certificate of Southwestern signed by an
executive officer of Southwestern, dated as of the closing date, confirming
that the conditions in the four bullets above have been satisfied.
Additional Conditions to the Obligations of Southwestern
The obligation of Southwestern to consummate the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived exclusively by Southwestern, in whole or in
part, to the extent permitted by applicable law:
.
certain representations and warranties of Chesapeake, Merger Sub Inc, and
Merger Sub LLC set forth in the Merger Agreement regarding organization,
standing and power, capital structure, authority, absence of certain changes
or events and brokers must have been true and correct as of January 10, 2024
and must be true and correct as of the closing date, as though made on and as
of the closing date (except, with respect to certain representations and
warranties regarding capital stock, for any de minimis inaccuracies) (except
that representations and warranties that speak as of a specified date or
period of time must have been true and correct only as of such date or period
of time);
.
certain other representations and warranties of Chesapeake set forth in the
Merger Agreement relating to capital structure must have been true and correct
in all material respects as of January 10, 2024 and must be true and correct
in all material respects as of the closing date, as though made on and as of
the closing date (except that representations and warranties that speak as of
a specified date or period of time must have been true and correct in all
material respects only as of such date or period of time);
.
all other representations and warranties of Chesapeake, Merger Sub Inc, and
Merger Sub LLC set forth in the Merger Agreement must have been true and
correct as of January 10, 2024 and must be true and correct as of the closing
date, as though made on and as of the closing date (except that representations
and warranties that speak as of a specified date or period of time must have
been true and correct only as of such date or period of time), except where
the failure of such representations and warranties to be so true and correct
(without regard to qualification or exceptions contained therein as to
"materiality," "in all material respects" or "Chesapeake material adverse
effect") would not reasonably be expected to have, individually or in the
aggregate, a Chesapeake material adverse effect;
.
Chesapeake, Merger Sub Inc, and Merger Sub LLC each must have performed, or
complied with, in all material respects, all agreements and covenants required
to be performed or complied with by them under the Merger Agreement at or
prior to the Effective Time;
.
Southwestern must have received a certificate of Chesapeake signed by an
executive officer of Chesapeake, dated as of the closing date, confirming that
the conditions in the four bullets above have been satisfied; and
.
Southwestern must have received an opinion from Kirkland & Ellis LLP (or other
legal counsel selected by Southwestern and reasonably satisfactory to
Chesapeake), in form and substance reasonably satisfactory to Southwestern,
dated as of the closing date, to the effect that, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion, the
Integrated Mergers, taken together, will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code. In rendering the opinion described
in Section 7.3(d) of the Merger Agreement, Kirkland & Ellis LLP (or other
applicable legal counsel) shall have received and may rely upon the Parent Tax
Certificate and the Company Tax Certificate and such other information
reasonably requested by and provided to it by Southwestern or Chesapeake for
purposes of rendering such opinion.
Frustration of Closing Conditions
None of the parties to the Merger Agreement may rely, either as a basis for
not consummating the Merger or for terminating the Merger Agreement, on the
failure of any condition set forth above, as the
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case may be, to be satisfied if such failure was caused by such party's breach
in any material respect of any provision of the Merger Agreement.
Termination
Termination Rights
Chesapeake and Southwestern may terminate the Merger Agreement and abandon the
Merger and the other transactions prior to the Effective Time by mutual
written consent of Chesapeake and Southwestern.
The Merger Agreement may also be terminated by either Chesapeake or
Southwestern prior to the Effective Time in any of the following situations:
.
if any law permanently restraining, enjoining, making illegal or unlawful, or
otherwise prohibiting the consummation of the transactions contemplated by the
Merger Agreement has become final and nonappealable, provided that the right
to terminate the Merger Agreement as described in this bullet will not be
available to any party whose material breach of any covenant or agreement
under the Merger Agreement has been the primary cause of or resulted in the
action or event described in this bullet occurring;
.
if the Merger has not been consummated on or before 5:00 p.m. Central Time on
January 10, 2025 (such date, the "Outside Date"); provided, however, that if
five days prior to the Outside Date, all of the conditions to closing as
provided in the Merger Agreement have been satisfied or waived, except for
certain closing conditions relating to regulatory approval (solely if the
applicable law relates to any antitrust law) and conditions to be satisfied at
the closing (so long as such conditions remain capable of being satisfied),
the Outside Date will be automatically extended to July 10, 2025, which later
date shall thereafter be deemed the Outside Date; provided, however, that if
five days prior to such extended date, all of the conditions to closing have
been satisfied or waived, other than certain closing conditions relating to
regulatory approval (solely if the applicable law relates to any antitrust
law) and conditions to be satisfied at the closing (so long as such conditions
remain capable of being satisfied), the Outside Date shall automatically be
extended to January 10, 2026, which later date shall thereafter be deemed the
Outside Date; provided, further, however, that the right to terminate the
Merger Agreement pursuant to this bullet will not be available to any party
whose material breach of any covenant or agreement under the Merger Agreement
has been the primary cause of or resulted in the failure of the Merger to be
consummated to on or before such date;
.
in the event of a breach by the other party of any representation, warranty,
covenant or other agreement contained in the Merger Agreement that would give
rise to the failure of an applicable closing condition (and such breach is not
curable prior to the Outside Date, or if curable prior to the Outside Date,
has not been cured by the earlier of (i) thirty days after the giving of
written notice to the breaching party of such breach and (ii) two business
days prior to the Outside Date) (a "terminable breach"), so long as the
terminating party is not then in terminable breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement;
.
if the Southwestern stockholders do not approve the Merger Proposal upon a
vote held at a duly held Southwestern Special Meeting, or at any adjournment
or postponement of the Southwestern Special Meeting; or
.
if the Chesapeake shareholders do not approve the Stock Issuance Proposal upon
a vote held at a duly held Chesapeake Special Meeting, or at any adjournment
or postponement of the Chesapeake Special Meeting.
In addition, the Merger Agreement may be terminated by Chesapeake in the
following situations:
.
if prior to, but not after, the approval of the Merger Proposal by
Southwestern stockholders, (i) the Southwestern Board has effected a change of
recommendation (whether or not such change of recommendation is permitted by
the Merger Agreement) or (ii) Southwestern has willfully and materially
breached its non-solicitation obligations under the Merger Agreement, in a
manner that materially impedes, interferes with or prevents the consummation
of the transaction on or before the Outside Date; or
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.
if prior to, but not after, the time the Chesapeake shareholder approval is
obtained, in order to enter into a definitive agreement with respect to a
Chesapeake Superior Proposal; provided, however, that (i) Chesapeake has
received a Chesapeake Superior Proposal after January 10, 2024 that did not
result from a its non-solicitation obligations under the Merger Agreement,
(ii) Chesapeake has complied with such non-soliciation obligations with
respect to such Chesapeake Superior Proposal, (iii) the Chesapeake Board has
authorized Chesapeake to enter into, and Chesapeake substantially concurrently
enters into, a definitive written agreement providing for such Chesapeake
Superior Proposal (it being agreed that Chesapeake may enter into such
definitive written agreement concurrently with any such termination), and (iv)
Chesapeake shall have contemporaneously with such termination paid
Southwestern the termination fee pursuant to the terms of the Merger Agreement.
In addition, the Merger Agreement may be terminated by Southwestern in the
following situations:
.
if prior to, but not after, the time the Chesapeake shareholder approval is
obtained, (i) the Chesapeake Board or a committee thereof has effected a
Chesapeake change of recommendation (whether or not such Chesapeake change of
recommendation is permitted by the agreement) or (ii) Chesapeake has willfully
and materially breached its non-solicitation obligations under the Merger
Agreement, in a manner that materially impedes, interferes with or prevents
the consummation of the transaction on or before the Outside Date; or
.
if prior to, but not after, the time the Southwestern stockholder approval is
obtained, in order to enter into a definitive agreement with respect to a
Southwestern Superior Proposal; provided, however, that (i) Southwestern has
received a Southwestern Superior Proposal after January 10, 2024 that did not
result from a breach of its non-solicitation obligations under the Merger
Agreement, (ii) Southwestern has complied with such solicitation obligations
with respect to such Southwestern Superior Proposal, (iii) the Southwestern
Board has authorized Southwestern to enter into, and Southwestern
substantially concurrently enters into, a definitive written agreement
providing for such Southwestern Superior Proposal (it being agreed that
Southwestern may enter into such definitive written agreement concurrently
with any such termination), and (iv) Southwestern shall have contemporaneously
with such termination paid Chesapeake the termination fee pursuant to the
terms of the Merger Agreement.
Termination Fee and Expenses Payable by Southwestern
The Merger Agreement requires Southwestern to pay Chesapeake a termination fee
of $260 million if:
.
Chesapeake terminates the Merger Agreement due to a Southwestern change of
recommendation or Southwestern's willful and material breach of its
non-solicitation obligations;
.
Chesapeake or Southwestern terminates the Merger Agreement due to a failure to
consummate the Merger before the applicable Outside Date or due to failure to
obtain Southwestern stockholder approval at a time when Chesapeake would have
been entitled to terminate the Merger Agreement due to a Southwestern change
of recommendation;
.
Southwestern terminates the Merger Agreement to enter into a definitive
agreement with respect to a Southwestern Superior Proposal; or
.
(i) (A) Chesapeake or Southwestern terminates the Merger Agreement due to the
failure to obtain Southwestern stockholder approval or failure to consummate
the Merger before the applicable Outside Date at a time when the Merger
Agreement could have been terminated due to the failure to obtain Southwestern
stockholder approval, and on or before the date of any such termination a
competing proposal was publicly announced or publicly disclosed and not
publicly withdrawn without qualification at least seven business days prior to
the Southwestern Special Meeting or (B) Southwestern terminates the Merger
Agreement due to a failure to consummate the Merger by the Outside Date at a
time when Chesapeake would be permitted to terminate the Merger Agreement due
to a Southwestern terminable breach or Chesapeake terminates the Merger
Agreement due to a Southwestern terminable breach and following the execution
of the Merger Agreement and on or before the date of any such termination a
competing proposal has been announced, disclosed or
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otherwise communicated to the Southwestern Board and not withdrawn without
qualification at least seven business days prior to the date of such
termination and (ii) within twelve months of the date of such termination,
Southwestern enters into a definitive agreement with respect to a competing
proposal (or publicly approves or recommends to the Southwestern stockholders
or otherwise does not oppose, in the case of a tender or exchange offer, a
competing proposal) or consummates a competing proposal. For purposes of this
paragraph, any reference in the definition of competing proposal to "20% or
more" will be deemed to be a reference to "more than 50%."
.
The Merger Agreement requires Southwestern to pay Chesapeake $55.6 million in
respect of Chesapeake's costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement if
Southwestern or Chesapeake terminates the Merger Agreement due to a failure to
obtain Southwestern stockholder approval.
Termination Fee and Expenses Payable by Chesapeake
The Merger Agreement requires Chesapeake to pay Southwestern a termination fee
of $389 million if:
.
Southwestern terminates the Merger Agreement due to a Chesapeake change of
recommendation or Chesapeake's willful and material breach of its
non-solicitation obligations;
.
Chesapeake or Southwestern terminates the Merger Agreement due to a failure to
consummate the Merger before the applicable Outside Date or due to failure to
obtain Chesapeake shareholder approval at a time when Southwestern would have
been entitled to terminate the Merger Agreement due to a Chesapeake change of
recommendation;
.
Chesapeake terminates the Merger Agreement to enter into a definitive
agreement with respect to a Chesapeake Superior Proposal;
.
(i) (A) Chesapeake or Southwestern terminates the Merger Agreement due to the
failure to obtain Chesapeake shareholder approval or failure to consummate the
Merger before the applicable Outside Date at a time when the Merger Agreement
could have been terminated due to the failure to obtain Chesapeake shareholder
approval, and on or before the date of any such termination a competing
proposal was publicly announced or publicly disclosed and not publicly
withdrawn without qualification at least seven business days prior to the
Chesapeake Special Meeting or (B) Chesapeake terminates the Merger Agreement
due to a failure to consummate the Merger by the Outside Date at a time when
Southwestern would be permitted to terminate the Merger Agreement due to a
Chesapeake terminable breach or Southwestern terminates the Merger Agreement
due to a Chesapeake terminable breach and following the execution of the
Merger Agreement and on or before the date of any such termination a competing
proposal has been announced, disclosed or otherwise communicated to the
Chesapeake Board and not withdrawn without qualification at least seven
business days prior to the date of such termination and (ii) within twelve
months of the date of such termination, Chesapeake enters into a definitive
agreement with respect to a competing proposal (or publicly approves or
recommends to the Chesapeake shareholders or otherwise does not oppose, in the
case of a tender or exchange offer, a competing proposal) or consummates a
competing proposal. For purposes of this paragraph, any reference in the
definition of competing proposal to "20% or more" will be deemed to be a
reference to "more than 50%."
.
The Merger Agreement requires Chesapeake to pay Southwestern expenses of
$37.25 million in respect of Southwestern's costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated by the
Merger Agreement if Chesapeake or Southwestern terminates the Merger Agreement
due to a failure to obtain Chesapeake shareholder approval.
Certain Limitations and Other Agreements related to Termination Fee
In connection with the provisions of the Merger Agreement regarding the
termination fee payable by Southwestern or Chesapeake, Southwestern and
Chesapeake have agreed that (i) in no event will Chesapeake or Southwestern be
entitled to receive more than one payment of the termination fee or expenses,
as applicable. Notwithstanding anything in the Merger Agreement to the
contrary, the payment of expenses shall not relieve the other party of any
subsequent obligation to pay the termination fee, as applicable; provided that
a party may credit any prior expenses paid against the amount of any
termination fee required
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to be paid and (ii) the termination fees are not intended to be a penalty but
rather is liquidated damages in a reasonable amount that will compensate
Chesapeake or Southwestern, as applicable, in the circumstances in which such
termination fee is due and payable and which do not involve fraud or willful
and material breach, for the efforts and resources expended and opportunities
forgone while negotiating the Merger Agreement and in reliance on the
agreement and on the expectation of the consummation of the transactions
contemplated by the Merger Agreement, which amount would otherwise be
impossible to calculate with precision.
Effect of Termination
In the event of termination of the Merger Agreement pursuant to the provisions
described in the section entitled "
The Merger Agreement - Termination
" beginning on page 190, the Merger Agreement (other than certain provisions
as set forth in the Merger Agreement) will become void and of no effect with
no liability on the part of any party to the Merger Agreement. However, except
as otherwise expressly provided in the Merger Agreement, no termination of the
Merger Agreement will relieve any party to the Merger Agreement of any
liability or damages to the other parties resulting from any willful and
material breach of obligation of any of its representations, warranties,
covenants, agreements or obligations under the Merger Agreement or fraud; in
which case the non-breaching party shall be entitled to all rights and
remedies available at law or in equity.
Expenses
Except as otherwise provided in the Merger Agreement, whether or not the
Merger is completed, all costs and expenses incurred in connection with the
Merger Agreement, the Merger and the other transactions contemplated by the
Merger Agreement will be paid by the party incurring the expense.
Notwithstanding the foregoing, Chesapeake and Southwestern have agreed to each
be responsible for the payment of 50% of the HSR filing fee applicable to the
Merger.
Specific Performance; Remedies
The parties to the Merger Agreement have agreed that each will be entitled to
seek an injunction or injunctions, or any other appropriate form of specific
performance or equitable relief, to prevent breaches of the Merger Agreement
and to enforce specifically the terms and provisions of the Merger Agreement.
The parties accordingly have agreed that the non-breaching party will be
entitled to injunctive and other equitable relief and the alleged breaching
party will not raise any objections to the availability of the equitable
remedy of specific performance to prevent or restrain breaches or threatened
breaches of, or enforce compliance with, the covenants and obligations of such
party under the Merger Agreement.
No Third-Party Beneficiaries
Nothing in the Merger Agreement, express or implied, is intended to or confers
upon any person other than Chesapeake, Southwestern, Merger Sub Inc, and
Merger Sub LLC any right, benefit or remedy of any nature whatsoever under or
by reason of the Merger Agreement, except:
.
from and after the Effective Time, the rights of the holders of shares of
Southwestern Common Stock and Southwestern incentive awards to receive the
Merger Consideration; and
.
the right of the indemnified persons to enforce the obligations described
under "
The Merger Agreement - Indemnification; Directors' and Officers' Insurance
" beginning on page 181.
Amendment
The Merger Agreement may be amended in writing at any time; however, after the
approval by Southwestern stockholders of the Merger Proposal, no amendment may
be made that requires further approval by Southwestern stockholders under
applicable law unless such further approval is first obtained. Subject to the
debt financing sources-related provisions in the Merger Agreement, the Merger
Agreement may not be amended except by an instrument in writing signed by an
executive officer of each of the parties.
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Governing Law
Subject to the debt financing sources-related provisions in the Merger
Agreement, the Merger Agreement, and all claims or causes of action (whether
in contract or tort) that may be based upon, arise out of or relate to the
Merger Agreement, or the negotiation, execution or performance of the Merger
Agreement, are governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to the principles of conflicts of law
thereof.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On January 10, 2024, Chesapeake Energy Corporation ("Chesapeake") entered into
an Agreement and Plan of Merger (the "Merger Agreement") with Southwestern
Energy Company ("Southwestern"), Hulk Merger Sub, Inc., a newly formed, wholly
owned subsidiary of the Chesapeake ("Merger Sub Inc"), and Hulk LLC Sub, LLC,
a newly formed, wholly owned subsidiary of Chesapeake ("Merger Sub LLC").
Subject to the terms and conditions of the Merger Agreement, Merger Sub Inc
will be merged with and into Southwestern (the "Merger"), with Southwestern
surviving as a wholly owned subsidiary of Chesapeake (the "Surviving
Corporation"). At the effective time of the Merger (the "Effective Time"),
each share of Southwestern common stock, par value $0.01 per share
("Southwestern Common Stock"), issued and outstanding immediately prior to the
Effective Time (excluding certain shares held by Southwestern as treasury
shares, or by Chesapeake, Merger Sub Inc or Merger Sub LLC, and certain equity
awards of Southwestern) will convert into the right to receive 0.0867 (the
"Exchange Ratio") of a share of Chesapeake common stock, par value $0.01 per
share ("Chesapeake Common Stock") (the "Merger Consideration"). No fractional
shares of Chesapeake Common Stock will be issued in the Merger, and holders of
shares of Southwestern Common Stock will receive cash in lieu of fractional
shares of Chesapeake Common Stock, if any, in accordance with the terms of the
Merger Agreement. Immediately following the Effective Time, the Surviving
Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC
continuing as the surviving entity and as a direct wholly owned subsidiary of
Chesapeake.
The following unaudited pro forma condensed combined balance sheet (the "pro
forma balance sheet") and unaudited pro forma condensed combined statement of
operations (the "pro forma statement of operations" and together with the pro
forma balance sheet the "pro forma condensed combined financial statements")
are derived from the historical consolidated financial statements of
Chesapeake and Southwestern and have been adjusted to give effect to the
Merger and the divestiture of Chesapeake's Eagle Ford assets (the "Eagle Ford
Divestitures") described below:
.
On January 17, 2023, Chesapeake entered into an agreement to sell a portion of
its Eagle Ford assets to WildFire Energy I LLC for approximately $1.425
billion, subject to post-closing adjustments. This transaction closed on March
20, 2023 (with an effective date of October 1, 2022).
.
On February 17, 2023, Chesapeake entered into an agreement to sell a portion
of its Eagle Ford assets to INEOS Energy for approximately $1.4 billion,
subject to post-closing adjustments. This transaction closed on April 28, 2023
(with an effective date of October 1, 2022).
.
On August 11, 2023, Chesapeake entered into an agreement to sell the final
portion of its remaining Eagle Ford assets to SilverBow Resources, Inc. for
approximately $700 million, subject to post-closing adjustments. Subject to
the satisfaction of certain commodity price triggers, Chesapeake may receive
up to an additional $50 million cash consideration shortly following the first
anniversary of the transaction close date. This transaction closed on November
30, 2023 (with an effective date of February 1, 2023).
The unaudited pro forma balance sheet as of March 31, 2024 combines the
historical balance sheets of Chesapeake and Southwestern as of March 31, 2024,
and gives effect to the Merger as if it had been completed on March 31, 2024.
The pro forma balance sheet is not adjusted for the Eagle Ford Divestitures as
those had been completed and reflected in Chesapeake's historical balance
sheet as of March 31, 2024. The unaudited pro forma statement of operations
for the three months ended March 31, 2024 and the year ended December 31,
2023, combine the historical consolidated statements of operations of
Chesapeake (giving effect to the Eagle Ford Divestitures) and Southwestern,
with the effects of the Merger as if each transaction had been completed on
January 1, 2023.
The unaudited pro forma condensed combined financial statements reflect the
following pro forma adjustments related to the Merger, based on available
information and certain assumptions that management believes are reasonable.
.
the Merger will be accounted for using the acquisition method of accounting,
with Chesapeake identified as the accounting acquirer;
195
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.
Certain reclassification adjustments to conform Southwestern's historical
financial presentation to Chesapeake's financial statement presentation;
.
the assumption of liabilities by Chesapeake for any remaining transaction-relate
d expenses to be incurred; and
.
the estimated tax impact of pro forma adjustments.
The pro forma condensed combined financial statements have been developed from
and should be read in conjunction with:
.
the accompanying notes to the unaudited pro forma condensed combined financial
information;
.
the historical audited consolidated financial statements of Chesapeake as of
and for the year ended December 31, 2023, included in Chesapeake's
Annual Report on Form 10-K filed on February 21, 2024;
.
the historical audited consolidated financial statements for Southwestern as
of and for the year ended December 31, 2023, included in Southwestern's
Annual Report on Form 10-K filed on February 22, 2024;
.
the historical unaudited condensed consolidated financial statements of
Chesapeake as of and for the three months ended March 31, 2024, included in
Chesapeake's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed on
April 30, 2024;
.
the historical unaudited condensed consolidated financial statements of
Southwestern as of and for the three months ended March 31, 2024, included in
Southwestern's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed on
May 2, 2024
; and
.
other information relating to Chesapeake and Southwestern contained in or
incorporated by reference in this joint proxy statement/prospectus.
The pro forma condensed combined financial statements are presented to reflect
the Merger and the Eagle Ford Divestitures for illustrative purposes only, and
they do not represent what Chesapeake's results of operations would have been
had the Merger and the Eagle Ford Divestitures occurred on the date noted
above, nor do they purport to project the future results of operations of the
combined company following the transactions. The pro forma condensed combined
financial statements are intended to provide information about the continuing
impact of the transactions as if they had been consummated earlier. The pro
forma adjustments are based on available information and certain assumptions
that management believes are factually supportable as of the date of
preparation as further described below. In the opinion of management, all
adjustments necessary to present fairly the pro forma condensed combined
financial statements have been made.
Chesapeake and Southwestern anticipate that certain non-recurring charges will
be incurred in connection with the Merger, the substantial majority of which
consist of employee retention costs, fees paid to financial, legal and
accounting advisors, integration costs and filing fees. Any such charge could
affect the future results of the post-acquisition company in the period in
which such charges are incurred; however, these costs are not expected to be
incurred in any period beyond twelve months from the closing date of the
merger. Accordingly, the pro forma condensed combined financial statements
reflect an estimated accrual for the effects of these non-recurring charges,
which are not included in the historical financial statements of Chesapeake or
Southwestern for the period presented.
The pro forma condensed combined financial statements do not include the
realization of any cost savings from operating efficiencies, synergies or
other restructuring activities that might result from the Merger. Further,
there may be additional charges related to the restructuring or other
integration activities resulting from the Merger, the timing, nature and
amount of which management cannot identify as of the date of this joint proxy
statement/prospectus, and thus, such charges are not reflected in the pro
forma condensed combined financial statements.
As of the date of this joint proxy statement/prospectus, Chesapeake has used
currently available information to determine preliminary fair value estimates
for the Merger Consideration and its allocation to
196
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the Southwestern tangible assets and identifiable intangible assets acquired
and liabilities assumed. Until the Merger is completed, Chesapeake and
Southwestern are limited in their ability to share certain information.
Therefore, Chesapeake estimated the fair value of Southwestern's assets and
liabilities based on reviews of Southwestern's SEC filings, preliminary
valuation studies, allowed discussions with Southwestern's management and
other due diligence procedures. The assumptions and estimates used to
determine the preliminary purchase price allocation and fair value adjustments
are described in the notes accompanying the pro forma condensed combined
financial statements.
The final determination of the fair value of Southwestern's assets and
liabilities will be based on the actual net tangible and intangible assets and
liabilities of Southwestern that exist as of the closing date of the Merger
and, therefore, cannot be made prior to the completion of the Merger. In
addition, the value of the consideration to be paid by Chesapeake upon the
consummation of the Merger will be determined based on the closing price of
Chesapeake's Common Stock on the closing date of the Merger.
As a result of the foregoing, the pro forma adjustments are preliminary and
subject to change as additional information becomes available and additional
analysis is performed. The preliminary pro forma adjustments have been made
solely for the purpose of providing the pro forma condensed combined financial
statements presented herein. Any increases or decreases in the fair value of
assets acquired and liabilities assumed upon completion of the final valuation
will result in adjustments to the pro forma balance sheet and if applicable,
the pro forma statements of operations. The final purchase price allocation
may be materially different than that reflected in the preliminary purchase
price allocation presented herein.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 2024
($ IN MILLIONS)
Transaction
Adjustments
Chesapeake Southwestern Reclass Pro Pro
Historical Historical Adjustments Forma Forma
(Note Adjustments Combined
3) (Note
3)
Assets
Current
assets:
Cash and cash $ 1,179 $ 29 $ - $ (270 (b $ 938
equivalents ) )
Restricted 75 - - - 75
cash
Accounts 314 491 - - 805
receivable, net
Short-term 592 640 - - 1,232
derivative assets
Other current 218 91 - - 309
assets
Total current 2,378 1,251 - (270 3,359
assets )
Property and
equipment:
Natural gas and oil properties,
successful efforts method
Proved natural gas 11,827 - 36,271 (a (25,031 (c 23,067
and oil properties ) ) )
Unproved 1,799 - 2,037 (a 319 (c 4,155
properties ) )
Other property 499 - 573 (a (394 (c 678
and equipment ) ) )
Total property 14,125 - 38,881 (25,106 27,900
and equipment )
Less: accumulated (4,068 - (30,784 (a 30,784 (c (4,068
depreciation, depletion ) ) ) ) )
and
amortization
Total property and 10,057 - 8,097 5,678 23,832
equipment, net
Natural gas and oil - 38,308 (38,308 (a - -
properties, using the full ) )
cost method, including
$2,037 million
as of March 31,
2024 excluded from
amortization
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Transaction
Adjustments
Chesapeake Southwestern Reclass Pro Pro
Historical Historical Adjustments Forma Forma
(Note Adjustments Combined
3) (Note
3)
Other - 573 (573 (a - -
) )
Less: Accumulated depreciation, - (30,784 30,784 (a
depletion and amortization ) )
Total property and - 8,097 (8,097 - -
equipment, net )
Operating - 144 (144 (a - -
lease assets ) )
Long-term 46 131 - - 177
derivative assets
Deferred income 926 674 - (1,452 (d 148
tax assets ) )
Other long-term 611 101 144 (a (14 (b 842
assets ) ) )
Total $ 14,018 $ 10,398 $ - $ 3,942 $ 28,358
assets
Liabilities and
stockholders' equity
Current
liabilities:
Current portion $ - $ 389 $ - $ (1 (c $ 388
of long-term debt ) )
Accounts 317 1,299 - - 1,616
payable
Taxes - 123 (123 (a -
payable ) )
Interest - 26 (26 (a -
payable ) )
Accrued 41 - 26 (a - 67
interest )
Short-term derivative 5 116 - - 121
liabilities
Current operating - 43 (43 (a -
lease liabilities ) )
Other current 657 28 166 (a 127 (e 978
liabilities ) )
Total current 1,020 2,024 - 126 3,170
liabilities
Long-term 2,025 3,609 - (182 (c 5,182
debt, net ) )
(270 (b
) )
Long-term operating - 100 (100 (a -
lease liabilities ) )
Long-term derivative 1 75 - - 76
liabilities
Asset retirement 269 - 115 (a - 384
obligations, net of current )
portion
Other long-term 21 224 100 (a - 230
liabilities )
(115 (a
) )
Total 3,336 6,032 - (326 9,042
liabilities )
Contingencies
and commitments
Stockholders'
equity:
Common 1 12 - (12 (f 2
stock ) )
1 (g
)
Additional 5,758 7,199 - (7,199 (f 14,544
paid-in capital ) )
- - - 8,760 (g
)
- - - 26 (e
)
Retained 4,923 (2,517 - 2,517 (f 4,770
earnings ) )
- - - (153 (e
) )
Accumulated other - (1 - 1 (f -
comprehensive loss ) )
Common stock - (327 - 327 (f -
in treasury ) )
Total stockholders' 10,682 4,366 - 4,268 19,316
equity
Total liabilities and $ 14,018 $ 10,398 $ - $ 3,942 $ 28,358
stockholders' equity
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2024
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Transaction
Adjustments
Chesapeake Southwestern Reclass Pro Pro
Historical Historical Adjustments Forma Forma
(Note Adjustments Combined
3) (Note
3)
Revenues
and other:
Natural gas, $ 589 $ - $ 840 (a $ - $ 1,429
oil and NGL )
Gas 584 (584 (a - -
sales ) )
Oil 82 (82 (a - -
sales ) )
NGL 174 (174 (a - -
sales ) )
Marketing 312 579 - - 891
Natural gas and 172 - 126 (a - 298
oil derivatives )
Other - (2 2 (a - -
) )
Gains on sales of 8 - - - 8
assets and other
Total revenues 1,081 1,417 128 - 2,626
and other
Operating
expenses:
Production 59 - 85 (a - 144
)
Operating - 417 (417 (a - -
expenses ) )
Gathering, processing 173 - 332 (a - 505
and transportation )
Severance and ad 29 - 45 (a - 74
valorem taxes )
Exploration 2 - - - 2
Marketing 323 588 - - 911
General and 47 56 4 (a - 107
administrative )
Merger-related - 9 (9 (a - -
expenses ) )
Depreciation, depletion 399 262 - 135 (q 796
and amortization )
Impairments - 2,093 - (2,093 (r -
) )
Taxes, other than - 49 (49 (a - -
income taxes ) )
Other operating 17 - 2 (a - 28
expense )
9 (a
)
Total operating 1,049 3,474 2 (1,958 2,567
expenses )
Income (loss) 32 (2,057 126 1,958 59
from operations )
Other income
(expense):
Interest (19 (59 24 (a 12 (s (42
expense ) ) ) ) )
Other interest - (3 3 (a - -
charges ) )
Interest - 27 (27 (a - -
capitalized ) )
Gains on - 126 (126 (a
Derivatives ) )
Other 20 1 - - 21
income
Total other 1 92 (126 12 (21
income (expense) ) )
Income (loss) 33 (1,965 - 1,970 38
before income taxes )
Deferred - (430 430 (a - -
) )
Income tax expense 7 - (430 (a 453 (u 30
(benefit) ) ) )
Net income $ 26 $ (1,535 $ - $ 1,517 $ 8
(loss) )
Earnings per
common share:
Basic $ 0.20 $ 0.03
Diluted $ 0.18 $ 0.03
Weighted average
common and common
equivalent shares
outstanding
(in
thousands):
Basic 130,893 101,072 (v 231,965
)
Diluted 141,752 101,072 (v 242,824
)
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2023
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Chesapeake WildFire Ineos SilverBow Chesapeake Southw
Historical Divestiture Divestiture Divestiture Pro Histo
- - - Forma
Pro Pro Pro
Forma Forma Forma
Adjustments Adjustments Adjustments
Revenues
and
other:
Natural $ 3,547 $ (154 (h $ (242 (h $ (368 (h $ 2,783 $
gas, ) ) ) ) ) )
oil
and
NGL
Gas 3
sales
Oil
sales
NGL
sales
Marketing 2,500 (51 (i (1,044 (i (500 (i 905 2
) ) ) ) ) )
Natural 1,728 (43 (j (53 (j (30 (j 1,602
gas ) ) ) ) ) )
and
oil
derivatives
Other - - - - -
Gains 946 (337 (k (470 (k (140 (k (1
on ) ) ) ) ) ) )
sales
of
assets
and
other
Total 8,721 (585 (1,809 (1,038 5,289 6
revenues ) ) )
and
other
Operating
expenses:
Production 356 (20 (l (37 (l (33 (l 266
) ) ) ) ) )
Operating - - 1
expenses
Gathering, 853 (3 (m (68 (m (86 (m 696
processing ) ) ) ) ) )
and
transportation
Severance 167 (10 (n (16 (n (22 (n 119
and ) ) ) ) ) )
ad
valorem
taxes
Exploration 27 - - - 27
Marketing 2,499 (51 (i (1,044 (i (500 (i 904 2
) ) ) ) ) )
General 127 - - - 127
and
administrative
Separation 5 - - - 5
and
other
termination
costs
Depreciation, 1,527 - (8 (o (25 (o 1,494 1
depletion ) ) ) )
and
amortization
Impairments - - - - - 1
Taxes, - - - - -
other
than
income
taxes
Other 18 - - - 18
operating
expense
(income)
Total 5,579 (84 (1,173 (666 3,656 7
operating ) ) )
expenses
Income 3,142 (501 (636 (372 1,633
(loss) ) ) )
from
operations
Other
income
(expense):
Interest (104 - - - (104
expense ) )
Other - - - - -
interest
charges
Interest - - - - -
capitalized
Losses - - - - -
on
purchases,
exchanges
or
extinguishments
of
debt
Gains - - - - - 2
on
Derivatives
Other 79 - - - 79
income
Total (25 - - - (25 2
other ) )
income
(expense)
Income 3,117 (501 (636 (372 1,608 1
(loss) ) ) )
before
income
taxes
Current - - - - -
Deferred - - - - -
Income 698 (115 (p (146 (p (86 (p 351
tax ) ) ) ) ) )
expense
(benefit)
Net $ 2,419 $ (386 $ (490 $ (286 $ 1,257 $ 1
income ) ) )
(loss)
Earnings
per
common
share:
Basic $ 18.21
Diluted $ 16.92
Weighted
average
common
and
common
equivalent
shares
outstanding
(in
thousands):
Basic 132,840
Diluted 142,976
Transaction
Adjustments
estern Reclass Pro Pro
rical Adjustments Forma Forma
(Note Adjustments Combined
3) (Note
3)
- $ 4,170 (a $ - $ 6,953
)
,089 (3,089 (a - -
) )
379 (379 (a - -
) )
702 (702 (a - -
) )
,355 - - 3,260
- 2,433 (a - 4,035
)
(3 3 (a - -
) )
- - - (1
)
,522 2,436 - 14,247
- 369 (a - 635
)
,717 (1,717 (a - -
) )
- 1,348 (a - 2,044
)
- 230 (a - 349
)
- - - 27
,331 - - 3,235
187 14 (a - 328
)
- - - 5
,307 - 528 (q 3,329
)
,710 - (1,710 (r -
) )
244 (244 (a
) )
- 3 (a 153 (e 174
) )
,496 3 (1,029 10,126
)
(974 2,433 1,029 4,121
)
(246 104 (a (46 (s (292
) ) ) ) )
(11 11 (a - -
) )
115 (115 (a - -
) )
(19 - 19 (t -
) )
,433 (2,433 (a
) )
2 - - 81
,274 (2,433 (27 (211
) ) )
,300 - 1,002 3,910
(5 5 (a - -
) )
(252 252 (a - -
) )
- (257 (a 230 (u 324
) ) )
,557 $ - $ 772 $ 3,586
$ 15.33
$ 14.69
101,072 (v 233,912
)
101,072 (v 244,048
)
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1. Basis of Presentation
The unaudited pro forma condensed combined financial information has been
derived from the historical consolidated financial statements of Chesapeake
and Southwestern, as well as Chesapeake's historical financial records and
gives pro forma effect to the events that are directly attributable to the
Merger and the Eagle Ford Divestitures and factually supportable. Certain of
Southwestern's historical amounts have been reclassified to conform to
Chesapeake's financial statement presentation. The unaudited pro forma
condensed combined balance sheet as of March 31, 2024 gives effect to the
Merger as if the Merger had been completed on March 31, 2024. The unaudited
pro forma condensed combined statement of operations for the three months
ended March 31, 2024 and the year ended December 31, 2023, give effect to the
Merger and the Eagle Ford Divestitures as if these transactions had been
completed on January 1, 2023.
The unaudited pro forma condensed combined financial statements reflect pro
forma adjustments that are described in the accompanying notes and are based
on available information and certain assumptions that Chesapeake believes are
reasonable; however, actual results may differ from those reflected in these
statements. In Chesapeake's opinion, all adjustments that are necessary to
present fairly the pro forma information have been made. The following pro
forma condensed combined financial statements do not purport to represent what
the combined company's financial position or results of operations would have
been if the transactions had actually occurred on the dates indicated above,
nor are they indicative of Chesapeake's future financial position or results
of operations. These pro forma condensed combined financial statements and the
accompanying notes should be read in conjunction with the previously filed
consolidated financial statements and related notes of Chesapeake and
Southwestern for the periods presented.
The unaudited pro forma condensed combined financial information includes
adjustments to conform Southwestern's accounting policies to Chesapeake's
accounting policies, including adjusting Southwestern's natural gas and oil
properties to the successful efforts method. Southwestern follows the full
cost pool method of accounting for natural gas and oil properties, while
Chesapeake follows the successful efforts method of accounting for natural gas
and oil properties. Certain costs that are expensed under the successful
efforts method are capitalized under the full cost method, including
unsuccessful exploration drilling costs, geological and geophysical costs,
delay rentals on leases and general and administrative expenses directly
related to exploration and development activities. Under the full cost method
of accounting, property acquisition costs, costs of wells, related equipment
and facilities and future development costs are all included in a single full
cost pool, which is amortized on a units-of-production basis over total proved
reserves. Under the successful efforts method of accounting, property
acquisition costs are amortized on a units-of-production basis over total
proved reserves, while costs of wells and related equipment and facilities are
amortized on a units-of-production basis over proved developed reserves.
NOTE 2. Unaudited Pro Forma Condensed Combined Balance Sheet
The Merger will be accounted for using the acquisition method of accounting
for business combinations. The allocation of the preliminary estimated
purchase price is based upon management's estimates of and assumptions related
to the fair value of assets to be acquired and liabilities to be assumed as of
March 31, 2024 using currently available information. Due to the fact that the
unaudited pro forma condensed combined financial information has been prepared
based on these preliminary estimates, the final purchase price allocation and
the resulting effect on Chesapeake's financial position and results of
operations may differ significantly from the pro forma amounts included
herein. Chesapeake expects to finalize its allocation of the purchase
consideration as soon as practicable after completion of the Merger.
The preliminary purchase price allocation is subject to change due to several
factors, including, but not limited to:
.
changes in the estimated fair value of the Chesapeake Common Stock
consideration issued to Southwestern stockholders, based on Chesapeake's share
price at the closing date of the Merger;
.
changes in the estimated fair value of Southwestern's assets acquired and
liabilities assumed as of the closing date of the Merger, which could result
from changes in future natural gas and oil commodity prices, reserve
estimates, interest rates and other factors;
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.
the tax bases of Southwestern's assets and liabilities as of the closing date
of the Merger; and
.
the risk factors described in the section entitled "
Risk Factors
" beginning on page 49.
The preliminary fair value assessment of the assets acquired and liabilities
assumed expected to be recorded is as follows:
Preliminary
Purchase Price
Allocation
($ in millions)
Consideration:
Cash $ 270
(a)
Fair value of Chesapeake Common Stock issued 8,761
(b)
Total consideration $ 9,031
Fair Value of Assets Acquired:
Cash and cash equivalents $ 29
Other current assets 1,222
Proved natural gas and oil properties 11,240
Unproved properties 2,356
Other property and equipment 179
Other long-term assets 362
Amounts attributable to assets acquired 15,388
Fair Value of Liabilities Assumed:
Current liabilities $ 2,023
Long-term debt 3,156
Deferred tax liabilities 778
Other long-term liabilities 400
Amounts attributable to liabilities assumed 6,357
Total identifiable net assets $ 9,031
(a)
Reflects the repayment of $270 million outstanding on Southwestern's 2022
revolving credit facility, which will be repaid and retired upon closing of
the Merger.
(b)
Based on 101,071,752 shares of Chesapeake Common Stock at $86.68 per share
(closing price as of May 1, 2024).
Under the Merger Agreement, Southwestern stockholders will receive 0.0867
shares of Chesapeake Common Stock for each share of Southwestern Common Stock
issued and outstanding immediately prior to the effective time of the Merger.
In addition certain members of Southwestern's board of directors, management
team and other key employees with approximately 1,305,000 outstanding
restricted stock units ("RSU") and performance stock units ("PSU") will
receive 0.0867 shares of Chesapeake Common Stock for each RSU and PSU
outstanding under existing change in control agreements. This results in
Chesapeake issuing approximately 101.1 million shares of Chesapeake Common
Stock, or approximately $8.8 billion in value, (based on Chesapeake Common
Stock closing price as of May 1, 2024 of $86.68) as Merger Consideration.
From January 10, 2024, the last trading date before the public announcement of
the execution of the Merger Agreement, to May 1, 2024, the preliminary value
of the Merger Consideration to be issued increased by approximately $959
million, as a result of the increase in the share price for Chesapeake's
Common Stock from $77.18 to $86.68. The final value of the Merger
Consideration will be determined based on the actual number of shares of
Chesapeake Common Stock issued and the market price of Chesapeake Common Stock
upon close of the Merger. A 10 percent increase or decrease in the closing
price of Chesapeake
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TABLE OF CONTENTS
Common Stock, as compared to the May 1, 2024 closing price of $86.68, would
increase or decrease the Merger Consideration by approximately $876 million,
assuming all other factors are held constant.
NOTE 3. Pro Forma Adjustments
The following adjustments have been made to the accompanying unaudited pro
forma financial statements:
(a)
The following reclassifications conform Southwestern's historical financial
information to Chesapeake's financial statement presentation:
Southwestern Reclassification and Conforming Adjustments
Pro Forma Condensed Combined Balance Sheet as of March 31, 2024
.
Reclassification of approximately $38.3 billion of natural gas and oil
properties, using the full cost method, to proved and unproved natural gas and
oil properties under the successful efforts method of accounting of $36.3
billion and $2.0 billion, respectively.
.
Reclassification of approximately $30.8 billion from accumulated depreciation,
depletion and amortization under the full cost method of accounting to
accumulated depreciation, depletion and amortization under the successful
efforts method of accounting.
.
Reclassification of $573 million from other to other property and equipment to
conform Southwestern's presentation to Chesapeake's presentation.
.
Reclassification of $144 million from operating lease assets to other
long-term assets to conform Southwestern's presentation to Chesapeake's
presentation.
.
Reclassification of $123 million from taxes payable and approximately $43
million of current operating lease liabilities, respectively, to other current
liabilities to conform Southwestern's presentation to Chesapeake's
presentation.
.
Reclassification of $26 million from interest payable to accrued interest to
conform Southwestern's presentation to Chesapeake's presentation.
.
Reclassification of $100 million from long-term operating lease liabilities to
other long-term liabilities to conform Southwestern's presentation to
Chesapeake's presentation.
.
Reclassification of $115 million from other long-term liabilities to asset
retirement obligations, net of current portion to conform Southwestern's
presentation to Chesapeake's presentation.
Pro Forma Condensed Combined Statement of Operations for the Three Months
Ended March 31, 2024
.
Reclassification of $584 million of gas sales, $82 million of oil sales and
$174 million of NGL sales to natural gas, oil and NGL revenue, respectively,
to conform to Chesapeake's presentation of natural gas, oil and NGL revenue.
.
Reclassification of $126 million of gains on derivatives to natural gas and
oil derivatives to conform to Chesapeake's presentation of natural gas and oil
derivatives.
.
Reclassification of $2 million of other revenue to other operating expense
(income) to conform to Chesapeake's presentation of other operating expense
(income).
.
Reclassification of $9 million of Merger-related expenses to other operating
expense (income) to conform to Chesapeake's presentation of other operating
expense (income).
.
Reclassification of $332 million and $85 million from operating expenses to
gathering, processing and transportation expense and production expense,
respectively, to conform to Chesapeake's presentation of gathering, processing
and transportation expense and production expense.
.
Reclassification of $45 million and $4 million from taxes, other than income
taxes to severance and ad valorem taxes expense and general and administrative
expense, respectively, to conform to
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Chesapeake's presentation of severance and ad valorem taxes expense and
general and administrative expense.
.
Reclassification of $3 million from other interest charges and $27 million of
interest capitalized, respectively, to interest expense to conform to
Chesapeake's presentation of interest expense.
Pro Forma Combined Statement of Operations for the Year Ended December 31, 2023
.
Reclassification of $3,089 million of gas sales, $379 million of oil sales and
$702 million of NGL sales to natural gas, oil and NGL revenue, respectively,
to conform to Chesapeake's presentation of natural gas, oil and NGL revenue.
.
Reclassification of $2,433 million of gains on derivatives to natural gas and
oil derivatives gas sales to conform to Chesapeake's presentation of natural
gas and oil derivatives.
.
Reclassification of $3 million of other revenue to other operating expense
(income) to conform to Chesapeake's presentation of other operating expense
(income).
.
Reclassification of $1,348 million and $369 million from operating expenses to
gathering, processing and transportation expense and production expense,
respectively, to conform to Chesapeake's presentation of gathering, processing
and transportation expense and production expense.
.
Reclassification of $230 million and $14 million from taxes, other than income
taxes to severance and ad valorem taxes expense and general and administrative
expense, respectively, to conform to Chesapeake's presentation of severance
and ad valorem taxes expense and general and administrative expense.
.
Reclassification of $11 million from other interest charges and $115 million
of interest capitalized, respectively, to interest expense to conform to
Chesapeake's presentation of interest expense.
.
Reclassification of $5 million of current tax benefit and $252 million of
deferred income tax benefit to income tax expense (benefit) to conform to
Chesapeake's presentation of income tax expense (benefit).
(b)
Reflects the repayment of $270 million outstanding on Southwestern's 2022
revolving credit facility, which will be repaid and retired upon closing of
the Merger. Additionally, an adjustment was made to eliminate $14 million of
unamortized issuance expense associated with the 2022 revolving credit
facility as an adjustment to other long-term assets.
(c)
The allocation of the estimated fair value of consideration transferred (based
on the closing price of Chesapeake Common Stock as of May 1, 2024) to the
estimated fair value of the assets acquired and liabilities assumed resulted
in the following purchase price allocation adjustments:
.
Approximately $5.4 billion increase in Southwestern's net book basis of proved
natural gas and oil properties and other property and equipment, consisting of
approximately $25.0 billion decrease in the gross book value of proved natural
gas and oil properties, $394 million decrease in other property and equipment
and the elimination of approximately $30.8 billion of historical accumulated
depreciation to reflect the properties at fair value;
.
$319 million increase in Southwestern's unproved oil and natural gas
properties to reflect fair value;
.
$1 million decrease in current portion of long-term debt to record
Southwestern's 4.95% Senior Notes due January 2025 at fair value;
.
The following adjustments were made to reflect the pro forma changes to
long-term debt, net:
.
$197 million downward adjustment to record Southwestern's senior notes at fair
value;
.
$15 million adjustment to write-off historical deferred unamortized issuance
expense, premium and discount.
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(d)
The following adjustments were made to reflect the pro forma changes to
deferred tax assets:
.
$778 million adjustment to record the acquisition of a net deferred tax
liability. This is primarily the result of the purchase price allocated to the
acquired properties in excess of their acquired tax basis;
.
$674 million adjustment to eliminate Southwestern's historical deferred tax
asset.
(e)
The following adjustments were made to reflect nonrecurring transaction and
severance costs:
.
estimated non-recurring transaction costs of $100 million related to the
Merger, including underwriting, banking, legal and accounting fees that are
not capitalized as part of the transaction;
.
estimated nonrecurring severance costs of $23 million associated with the
accelerated vesting of certain Southwestern RSUs and PSUs;
.
estimated nonrecurring severance costs of $3 million associated with the
accelerated vesting of certain Chesapeake RSUs and PSUs;
.
estimated nonrecurring cash severance costs of $27 million for payments made
to certain executives of Southwestern and Chesapeake.
(f)
Reflects the elimination of Southwestern's historical equity balances in
accordance with the acquisition method of accounting.
(g)
Reflects the estimated increase in Chesapeake's Common Stock and additional
paid-in capital resulting from the issuance of Chesapeake Common Stock to
Southwestern's stockholders to effect the transaction as follows (in millions,
except share and per share amounts):
Shares of Chesapeake Common Stock issued 101,071,752
Closing price per share of Chesapeake Common Stock on May 1, 2024 $ 86.68
Total fair value of shares of Chesapeake Common Stock issued $ 8,761
Increase in Chesapeake Common Stock ($0.01 par value per share) as of March 31, 2024 $ 1
Increase in Chesapeake additional paid-in capital as of March 31, 2024 $ 8,760
(h)
Adjustment to reflect the reduction of natural gas, oil and NGL revenues
attributable to the Eagle Ford assets divested to WildFire, INEOS and
SilverBow Resources.
(i)
Adjustment to reflect the reduction of marketing revenues and marketing
expenses attributable to the Eagle Ford assets divested to WildFire, INEOS and
SilverBow Resources.
(j)
Adjustment to reflect the reduction of natural gas and oil derivatives
attributable to the Eagle Ford assets divested to WildFire, INEOS and
SilverBow Resources.
(k)
Adjustment to reflect the reduction of gains on sales of assets attributable
to the Eagle Ford assets divested to WildFire, INEOS and SilverBow Resources.
(l)
Adjustment to reflect the reduction of production expenses attributable to the
Eagle Ford assets divested to WildFire, INEOS and SilverBow Resources.
(m)
Adjustment to reflect the reduction of gathering, processing and transportation
attributable to the Eagle Ford assets divested to WildFire, INEOS and
SilverBow Resources.
(n)
Adjustment to reflect the reduction of severance and ad valorem taxes
attributable to the Eagle Ford assets divested to WildFire, INEOS and
SilverBow Resources.
(o)
Adjustment to reflect the reduction in depreciation, depletion and
amortization ("DD&A") expense based on the production volumes attributable to
the Eagle Ford assets divested to WildFire, INEOS and SilverBow Resources, and
the revision to Chesapeake's DD&A rate reflecting the reserve volumes and net
book value sold. DD&A is calculated using the unit of production method under
the successful efforts method of accounting.
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(p)
Reflects an adjustment to income taxes to record the estimated income tax
effects attributable to the Eagle Ford assets. The tax adjustment assumes a
forecasted blended Chesapeake statutory tax rate of 23%. The pro forma income
tax adjustments included in the pro forma statement of operations for the
three months ended March 31, 2024 and the year ended December 31, 2023 reflect
the income tax effects of the transaction accounting adjustments presented.
(q)
Adjustment to reflect the change to depreciation, depletion and amortization
calculated in accordance with the successful efforts method of accounting for
natural gas and oil properties, based on the preliminary purchase price
allocation.
(r)
Reflects the elimination of Southwestern's historical impairment charges
recorded under the ceiling test of the full cost method of accounting to
conform to Chesapeake's successful efforts method of accounting for natural
gas and oil properties.
(s)
Reflects approximately $12 million and $46 million in net decrease and net
increase in interest expense for the three months ended March 31, 2024 and the
year ended December 31, 2023, respectively, related to the repayment and
retirement of Southwestern's 2022 revolving credit facility and the fair value
adjustment of the unsecured senior notes and the change in capitalized
interest in accordance with the successful efforts method of accounting for
natural gas and oil properties.
(t)
Adjustment to eliminate loss related to the extinguishment of Southwestern's
7.75% Senior Notes due 2027.
(u)
Reflects an adjustment to income taxes to record the estimated income tax
effects of combining Chesapeake's and Southwestern's operations. The tax
adjustment assumes a forecasted blended Chesapeake statutory tax rate of 23%.
The pro forma income tax adjustments included in the pro forma statement of
operations for the three months ended March 31, 2024 and the year ended
December 31, 2023 reflects the income tax effects of the transaction
accounting adjustments presented. Because the tax rates used for these pro
forma financial statements are an estimate, the blended rate will likely vary
from the actual effective rate in periods subsequent to completion of the
merger.
(v)
Reflects Chesapeake's shares issued to Southwestern stockholders.
NOTE 4. Supplemental Pro Forma Oil and Natural Gas Reserves Information
The following tables present the estimated pro forma condensed combined net
proved developed and undeveloped oil, natural gas and NGL reserves as of
December 31, 2023, along with a summary of changes in the quantities of net
remaining proved reserves during the year ended December 31, 2023. The pro
forma reserve information set forth below gives effect to the Merger as if the
Merger had been completed on January 1, 2023. The supplemental pro forma oil
and natural gas reserves information have been prepared from Chesapeake's
previously filed historical reserve information included in its audited
financial statements as of and for the year ended December 31, 2023 and
Southwestern's previously filed historical reserve information included in its
audited financial statements as of and for the year ended December 31, 2023.
Oil (mmbbls)
Chesapeake Southwestern Pro Forma
Historical Historical Combined
As of December 31, 2022 198.4 83.4 281.8
Extensions, discoveries and other additions - 5.1 5.1
Revisions of previous estimates - (4.8 (4.8
) )
Production (7.7 (5.6 (13.3
) ) )
Sale of reserves-in-place (190.7 - (190.7
) )
Purchase of reserves-in-place - - -
As of December 31, 2023 - 78.1 78.1
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Oil (mmbbls)
Chesapeake Southwestern Pro Forma
Historical Historical Combined
Proved developed reserves:
December 31, 2022 157.2 41.1 198.3
December 31, 2023 - 38.6 38.6
Proved undeveloped reserves:
December 31, 2022 41.2 42.3 83.5
December 31, 2023 - 39.5 39.5
Natural Gas (bcf)
Chesapeake Southwestern Pro Forma
Historical Historical Combined
As of December 31, 2022 11,369 17,362 28,731
Extensions, discoveries and other additions 415 1,813 2,228
Revisions of previous estimates (325 (2,196 (2,521
) ) )
Production (1,266 (1,438 (2,704
) ) )
Sale of reserves-in-place (563 (350 (913
) ) )
Purchase of reserves-in-place 58 - 58
As of December 31, 2023 9,688 15,191 24,879
Proved developed reserves:
December 31, 2022 7,385 9,793 17,178
December 31, 2023 6,363 9,196 15,559
Proved undeveloped reserves:
December 31, 2022 3,984 7,569 11,553
December 31, 2023 3,325 5,995 9,320
Natural Gas Liquids (mmbbls)
Chesapeake Southwestern Pro Forma
Historical Historical Combined
As of December 31, 2022 73.9 627.1 701.0
Extensions, discoveries and other additions - 30.5 30.5
Revisions of previous estimates - 42.1 42.1
Production (3.8 (32.9 (36.7
) ) )
Sale of reserves-in-place (70.1 - (70.1
) )
Purchase of reserves-in-place - - -
As of December 31, 2023 - 666.8 666.8
Proved developed reserves:
December 31, 2022 58.9 350.8 409.7
December 31, 2023 - 363.0 363.0
Proved undeveloped reserves:
December 31, 2022 15.0 276.3 291.3
December 31, 2023 - 303.8 303.8
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Total Reserves (bcfe)
Chesapeake Southwestern Pro Forma
Historical Historical Combined
As of December 31, 2022 13,002 21,625 34,627
Extensions, discoveries and other additions 415 2,026 2,441
Revisions of previous estimates (325 (1,972 (2,297
) ) )
Production (1,335 (1,669 (3,004
) ) )
Sale of reserves-in-place (2,127 (350 (2,477
) ) )
Purchase of reserves-in-place 58 - 58
As of December 31, 2023 9,688 19,660 29,348
Proved developed reserves:
December 31, 2022 8,681 12,145 20,826
December 31, 2023 6,363 11,605 17,968
Proved undeveloped reserves:
December 31, 2022 4,321 9,480 13,801
December 31, 2023 3,325 8,055 11,380
The pro forma standardized measure of discounted future net cash flows
relating to proved oil, natural gas and NGL reserves as of December 31, 2023
is as follows (in millions):
As of December 31, 2023
Chesapeake Southwestern Pro Forma
Historical Historical Combined
Future cash inflows $ 14,659 $ 50,499 $ 65,158
Future production costs (3,326 (26,147 (29,473
) ) )
Future development costs (2,779 (6,558 (9,337
) ) )
Future income tax expense (174 (1,581 (1,755
) ) )
Future net cash flows 8,380 16,213 24,593
Less effect of a 10% discount factor (3,903 (8,900 (12,803
) ) )
Standardized measure of discounted future net cash flows $ 4,477 $ 7,313 $ 11,790
The changes in the pro forma standardized measure of discounted future net
cash flows relating to proved oil, natural gas and NGL reserves for the year
ended December 31, 2023 are as follows (in millions):
Chesapeake Southwestern Pro Forma
Historical Historical Combined
Standardized measure, $ 26,305 $ 37,588 $ 63,893
as of December 31, 2022
Sales of oil and natural gas produced, net of production (2,171 (2,123 (4,294
costs and gathering, processing and transportation ) ) )
Net changes in prices (23,535 (36,514 (60,049
and production costs ) ) )
Extensions and discoveries, net 182 63 245
of production and development
costs
Changes in estimated 346 1,005 1,351
future development costs
Previously estimated development 818 1,336 2,154
costs incurred during the period
Revisions of previous (205 (1,174 (1,379
quantity estimates ) ) )
Purchase of 77 - 77
reserves-in-place
Sales of (7,158 (710 (7,868
reserves-in-place ) ) )
Accretion 3,270 4,643 7,913
of discount
Net changes in 6,301 8,364 14,665
income taxes
Changes in production 247 (5,165 (4,918
rates and other ) )
Standardized measure, $ 4,477 $ 7,313 $ 11,790
as of December 31, 2023
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material U.S. federal income tax
consequences of the Integrated Mergers to U.S. holders (as defined below) who
exchange their Eligible Shares of Southwestern Common Stock for shares of
Chesapeake Common Stock (and cash in lieu of fractional shares of Chesapeake
Common Stock, if any) pursuant to the Merger. The following discussion is
based on the Code, U.S. Treasury regulations promulgated thereunder, judicial
interpretations thereof and published rulings and other positions of the IRS,
each as in effect as of the date hereof, and all of which are subject to
change or differing interpretations, possibly with retroactive effect. Any
such change or differing interpretation could affect the accuracy of the
statements and conclusions set forth herein.
This discussion is limited to U.S. holders that hold their Southwestern Common
Stock as a "capital asset" within the meaning of Section 1221 of the Code
(generally, property held for investment). This discussion is not a complete
description of all the U.S. federal income tax consequences of the Integrated
Mergers, nor does it describe any tax consequences of the Integrated Mergers
arising under the laws of any state, local or non-U.S. jurisdiction or under
any U.S. federal laws other than those pertaining to the income tax or the tax
consequences of owning or disposing of Chesapeake Common Stock received in the
Merger. Further, this discussion does not address all aspects of U.S. federal
income taxation that may be relevant to particular U.S. holders in light of
their individual circumstances (including the impact of the Medicare surtax on
certain net investment income) or to U.S. holders that are subject to special
treatment under the U.S. federal income tax laws, such as:
.
banks, insurance companies or other financial institutions;
.
partnerships or other pass-through entities for U.S. federal income tax
purposes or holders of interests therein;
.
tax-exempt or governmental organizations;
.
dealers in securities or traders in securities that elect to use a
mark-to-market method of accounting;
.
persons that hold Southwestern Common Stock as part of a straddle, hedge,
conversion transaction or other integrated investment or risk reduction
transaction;
.
persons that purchased or sell their shares of Southwestern Common Stock as
part of a wash sale;
.
certain former citizens or long-term residents of the United States or persons
whose functional currency is other than the U.S. dollar;
.
persons that are not U.S. holders;
.
persons who acquired their Southwestern Common Stock through the exercise of
employee stock options or otherwise as compensation or through a tax-qualified
retirement plan; and
.
persons who actually or constructively hold (or actually or constructively
held at any time during the five-year period ending on the date of the
Integrated Mergers) 5% or more of the shares of Southwestern Common Stock.
THE TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO A SOUTHWESTERN SHAREHOLDER
MAY BE COMPLEX AND WILL DEPEND ON SUCH HOLDER'S SPECIFIC SITUATION AND FACTORS
NOT WITHIN CHESAPEAKE'S OR SOUTHWESTERN'S CONTROL. ALL SOUTHWESTERN
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM IN THEIR PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX AND ANY U.S. FEDERAL, U.S. STATE OR LOCAL, NON-U.S. OR OTHER TAX
LAWS AND OF POTENTIAL CHANGES IN SUCH LAWS.
U.S. Holder Defined
For purposes of this discussion, a "U.S. holder" is a beneficial holder of
Southwestern Common Stock that, for U.S. federal income tax purposes, is or is
treated as:
.
an individual who is a citizen or resident of the United States;
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.
a corporation (or other entity treated as a corporation for U.S. federal
income tax purposes), created or organized in or under the laws of the United
States, any state thereof or the District of Columbia;
.
an estate the income of which is subject to U.S. federal income tax regardless
of its source; or
.
a trust (i) the administration of which is subject to the primary supervision
of a U.S. court and which has one or more "United States persons" (within the
meaning of Section 7701(a)(30) of the Code) who have the authority to control
all substantial decisions of the trust or (ii) which has made a valid election
under applicable U.S. Treasury regulations to be treated as a United States
person.
If a partnership (including any entity or arrangement treated as a partnership
for U.S. federal income tax purposes) holds Southwestern Common Stock, the tax
treatment of a partner in the partnership generally will depend upon the
status of the partner, the activities of the partnership and certain
determinations made at the partner level. Accordingly, if you are a partner in
a partnership (including an entity or arrangement treated as a partnership for
U.S. federal income tax purposes) that holds Southwestern Common Stock you
should consult your tax advisor regarding the tax consequences to you of the
Integrated Mergers.
Treatment of the Integrated Mergers
Assuming that the Integrated Mergers are completed as currently contemplated,
Chesapeake and Southwestern intend for the Integrated Mergers, taken together,
to qualify as a "reorganization" within the meaning of Section 368(a) of the
Code. It is a condition to Southwestern's obligation to complete the Merger
that it receive an opinion from Kirkland & Ellis LLP, or other legal counsel
selected by Southwestern and reasonably satisfactory to Chesapeake, dated as
of the closing date, to the effect that the Integrated Mergers, taken
together, will qualify as a "reorganization" within the meaning of Section
368(a) of the Code. The opinion will be based on representations from each of
Chesapeake and Southwestern and on customary factual assumptions, as well as
certain covenants and undertakings by Chesapeake and Southwestern. If any of
such representations, assumptions, covenants or undertakings is or becomes
incorrect, incomplete or inaccurate or is violated, the validity of the
opinion described above may be affected and the U.S. federal income tax
consequences of the Integrated Mergers could differ materially from those
described below. An opinion of counsel represents such counsel's best legal
judgment but is not binding on the IRS or any court, so there can be no
certainty that the IRS will not challenge the conclusion reflected in the
opinion or that a court will not sustain such a challenge. Neither Chesapeake
nor Southwestern intend to obtain a ruling from the IRS with respect to the
tax consequences of the Integrated Mergers as a "reorganization" within the
meaning of Section 368(a) of the Code. The following discussion, as it relates
to the U.S. holders, assumes the Integrated Mergers, taken together, will
qualify as a "reorganization" within the meaning of Section 368(a) of the Code
for U.S. federal income tax purposes. If a court determines that the
Integrated Mergers, taken together, are not treated as a "reorganization"
within the meaning of Section 368(a) of the Code, a U.S. holder generally
would recognize taxable gain or loss upon the exchange of Southwestern Common
Stock for Chesapeake Common Stock pursuant to the Merger.
U.S. Federal Income Tax Consequences of the Integrated Mergers to U.S. Holders
Assuming that the Integrated Mergers, taken together, are treated as described
above in "
Material U.S. Federal Income Tax Consequences - Treatment of the Integrated
Mergers
", the material U.S. federal income tax consequences of the Integrated Mergers
to U.S. holders will be as follows:
.
a U.S. holder generally will not recognize any gain or loss for U.S. federal
income tax purposes upon the exchange of Eligible Shares of Southwestern
Common Stock for shares of Chesapeake Common Stock pursuant to the Merger,
except with respect to any cash received in lieu of fractional shares of
Chesapeake Common Stock (as discussed below);
.
the aggregate tax basis of the shares of Chesapeake Common Stock received by a
U.S. holder in the Merger (including any fractional share of Chesapeake Common
Stock deemed received and exchanged for cash, as discussed below) will equal
the aggregate adjusted tax basis of such U.S. holder's Eligible Shares of
Southwestern Common Stock exchanged for such Chesapeake Common Stock; and
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.
the holding period of a U.S. holder in the Chesapeake Common Stock received in
exchange for Eligible Shares of Southwestern Common Stock (including any
fractional share of Chesapeake Common Stock deemed received and exchanged for
cash, as discussed below) will include the holding period of the Southwestern
Common Stock exchanged for such Chesapeake Common Stock.
If a U.S. holder acquired different blocks of Southwestern Common Stock at
different times or at different prices, such U.S. holder's basis and holding
period in its shares of Chesapeake Common Stock may be determined separately
with reference to each block of Southwestern Common Stock. Any such U.S.
holder should consult its tax advisor regarding the tax bases and holding
periods of the particular shares of Chesapeake Common Stock received pursuant
to the Merger.
A U.S. holder who receives cash in lieu of fractional shares of Chesapeake
Common Stock generally will be treated as having received such fractional
share pursuant to the Merger and then as having sold such fractional share of
Chesapeake Common Stock for cash. As a result, such U.S. holder generally will
recognize gain or loss equal to the difference between the amount of cash
received and the portion of the U.S. holder's aggregate adjusted tax basis in
its Southwestern Common Stock surrendered that is allocated to such fractional
share of Chesapeake Common Stock. Such gain or loss generally will be capital
gain or loss, and will be long-term capital gain or loss if the U.S. holder's
holding period in the fractional share of Chesapeake Common Stock deemed to be
received exceeds one year at the Effective Time of the Merger. The
deductibility of capital losses is subject to limitation.
ALL SOUTHWESTERN SHAREHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS ABOUT THE SPECIFIC TAX CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM
IN THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY U.S. FEDERAL, U.S. STATE OR LOCAL, NON-U.S. OR OTHER TAX LAWS AND OF
POTENTIAL CHANGES IN SUCH LAWS.
Information Reporting and Backup Withholding
Information returns may be required to be filed with the IRS in connection
with the Integrated Mergers. Further, the consideration payable to U.S.
holders in connection with the Merger may be subject to deduction or
withholding as required under applicable law. A U.S. holder may be subject to
U.S. backup withholding on any cash payments made pursuant to the Merger
unless such holder provides proof of an applicable exemption or a correct
taxpayer identification number and otherwise complies with the applicable
requirements of the backup withholding rules. Any amounts withheld under the
U.S. backup withholding rules or otherwise is not an additional tax and will
generally be allowed as a refund or credit against the U.S. holder's U.S.
federal income tax liability, if any, provided that the U.S. holder timely
furnishes the required information to the IRS.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE INTEGRATED MERGERS. IT IS NOT A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS THAT MAY BE
IMPORTANT TO A PARTICULAR U.S. HOLDER. ALL SOUTHWESTERN SHAREHOLDERS ARE
STRONGLY ENCOURAGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE INTEGRATED MERGERS TO THEM IN THEIR PARTICULAR
CIRCUMSTANCES, INCLUDING ANY TAX REPORTING REQUIREMENTS AND THE APPLICABILITY
AND EFFECT OF ANY U.S. FEDERAL, U.S. STATE OR LOCAL, NON-U.S. OR OTHER TAX
LAWS AND OF POTENTIAL CHANGES IN SUCH LAWS.
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COMPARISON OF RIGHTS OF SOUTHWESTERN SHAREHOLDERS AND CHESAPEAKE SHAREHOLDERS
If the Merger is completed, Southwestern shareholders will receive shares of
Chesapeake Common Stock.
Southwestern is a Delaware corporation subject to the DGCL, while Chesapeake
is an Oklahoma corporation subject to the OGCA. If the Merger is completed,
the rights of Southwestern shareholders who become Chesapeake shareholders
through the exchange of shares and the rights of Chesapeake shareholders will
be governed by the OGCA, the Chesapeake Charter and the Chesapeake Bylaws.
The following description summarizes certain material differences between the
rights of Southwestern shareholders and the rights of Chesapeake shareholders.
This does not purport to be a complete statement of all those differences, or
a complete description of the specific provisions referred to in this summary.
The identification of specific differences is not intended to indicate that
other equally significant or more significant differences do not exist.
Southwestern shareholders should read carefully the relevant provisions of the
OGCA, the Chesapeake Charter, the Chesapeake Bylaws, as well as the
Southwestern Certificate of Incorporation and the Southwestern Bylaws. Copies
of the documents referred to in this summary may be obtained as described
under "
Where You Can Find More Information
."
Southwestern Chesapeake
CAPITAL STOCK
Southwestern is The Chesapeake Charter
authorized to issue authorizes 450,000,000
2,500,000,000 shares of shares of common
common stock, par value stock, par value $0.01
$0.01 per share, and per share, and
10,000,000 shares of 45,000,000 shares of
preferred stock, $0.01 preferred stock, par
par value per share. value $0.01 per share.
As of the close of business on April 22, As of April 22, 2024 there
2024, Southwestern had 1,102,846,071 were 130,794,770 shares of
shares of Southwestern Common Stock and Chesapeake Common Stock
no shares of preferred stock issued and outstanding and warrants to
outstanding, which number of shares of purchase shares of Chesapeake
Southwestern Common Stock does not include Common Stock outstanding.
the shares of Southwestern Common Stock No shares of Chesapeake preferred
expected to be issued in the Merger. stock are outstanding.
RIGHTS OF PREFERRED STOCK
The Southwestern Board is expressly authorized to issue preferred stock The Chesapeake Board is authorized, subject to
in one or more classes series, and fix for each such class or series such limitations prescribed by law, to provide for
voting powers, full or limited, or no voting powers, and such designations, issuance of shares of preferred stock in one or
preferences and relative, participating, option or other special more series, to establish the number of shares to
rights and such qualifications, limitations thereof, as shall be stated and be included in each such series, and to fix the
expressed in the resolution or resolutions adopted by the Southwestern designations, powers, preferences, and rights
Board providing for the issuance of such class or series, without of the shares of each such series, and any
limitation, the authority to provide that any such class or series may be: qualifications, limitations or restrictions thereof.
.
subject to redemption
at such time
or times at such
price or prices;
.
entitled to receive
dividends (which may be
cumulative or non-cumulative)
at such rates, on such
conditions, and at such
times, and payable in
preference to, or in
relation to, the dividends
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Southwestern Chesapeake
payable on any
other class or
classes or any
other series;
.
entitled to such
rights upon
the dissolution
of, or upon
any distribution
of the
assets of,
Southwestern; or
.
convertible into, or
exchangeable for,
shares of any other
class or classes
of stock, or of
any other series
of the same or any
other series of
the same or any other
class or classes
of stock, of
Southwestern at such
price or prices or
at such rates of
exchange and with
such adjustments;
provided, however, that no shares of
any series of preferred stock shall be
issued without approval of Southwestern's
stockholders if (A) the voting
rights of the shares of such series
would be materially disproportionate
to the voting rights of the shares of
the Southwestern Common Stock or (B)
the shares of such series would be convertible
into a materially disproportionate
number of shares of Southwestern
Common Stock, in each case taking
into account the issue price of the
shares of such series and the fair
market value of the shares of common
stock at the time of such issuance.
VOTING RIGHTS
Each holder of shares The holders of
of Southwestern shares of Chesapeake
Common Stock Common Stock are
is entitled entitled to
to one vote for one vote for each
each share share of such
of Southwestern stock held by such
Common Stock holder upon all
held by the matters presented
stockholder on the to the Chesapeake
record date for shareholders.
any action, on The holders of
all matters Chesapeake Common
on which the Stock do not
stockholders are have cumulative
entitled to vote. voting rights.
The holders of
Southwestern
Common Stock
do not have cumulative
voting rights.
QUORUM
The Southwestern Bylaws provide that unless Chesapeake Bylaws provide
otherwise required by applicable law or the that a majority of the
Southwestern Certificate of Incorporation, the shares of stock of
holders of a majority of Southwestern's capital Chesapeake entitled to vote,
stock issued and outstanding and entitled to the holders of which are
vote thereat, present in person or represented present in person or
by proxy, shall constitute a quorum at all represented by proxy,
meetings of the stockholders for the transaction shall constitute a quorum
of business. A quorum, once established, shall for any meeting of the
not be broken by the withdrawal of enough shareholders of Chesapeake
votes to leave less than a quorum. If, or any adjournment
however, such quorum shall not be present or thereof. A quorum, once
represented at any meeting of the stockholders, established, shall not be
the Chair of the Board or the presiding broken by the withdrawal
officer of the meeting or a majority of the of enough votes to leave
stockholders entitled to vote thereat, present in less than a quorum.
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Southwestern Chesapeake
person or
represented by
proxy, shall
have power to
adjourn the
meeting from
time to time,
in a matter
provided in
Section 2.6 of
the Southwestern
Bylaws,
until a quorum
shall be
present and
represented.
SPECIAL MEETINGS OF SHAREHOLDERS
The Southwestern The Chesapeake Charter and the Chesapeake
Certificate Bylaws authorize the calling of a special
of Incorporation meeting of shareholders for any purpose or
provides that unless purposes, unless otherwise prescribed by the
otherwise required by OGCA and may be called only by (i) the chair
law, special of the board, the chief executive officer
meetings of or the president, (ii) the board of directors
stockholders, for any acting pursuant to a resolution adopted
purpose or purposes, by a majority of the directors then in office
may only be called by: or (iii) the corporate secretary at the
. written request or requests of holders of
the chair of the record of at least 35% of the voting power of
Southwestern Chesapeake's outstanding common stock.
Board, if Business transacted at any special meeting of
there is one, shareholders will be limited to the purposes
stated in Chesapeake's notice of meeting.
.
the president,
.
the secretary,
.
the Southwestern
Board, or
.
holders of 20%
or more of the
voting shares of
Southwestern.
The Southwestern
Bylaws
provide that
unless otherwise
required by
law or by the
Southwestern
Certificate
of Incorporation,
special
meetings of
stockholders,
for any purpose
or purposes,
may be called
by either:
.
the chair of the
Southwestern Board,
.
the president,
.
the secretary, or
.
the Southwestern
Board,
and shall be called by the secretary, subject to compliance
with the terms of the Southwestern Certificate of
Incorporation, upon the written request of holders having an
aggregate "Net Long Position" of not less than 20% of the
outstanding shares of Southwestern Common Stock as of the
date of such request. "Net long position" shall be determined
with respect to each requesting holder in accordance with
the definition thereof set forth in Rule 14e-4 under the
Securities Exchange Act of 1934, provided that (x) for purposes
of such definition, in determining such holder's "short
position," the reference in such Rule to "the date the
tender offer is first publicly announced or otherwise made
known by the bidder to the holders of the security to be
acquired" shall be the date of the relevant Special Meeting
Request (as defined therein) and the reference to the "highest
tender offer price or stated amount of the consideration
offered for the subject
security" shall
refer to the closing sales price
of the Southwestern
Common Stock on
the New York Stock
Exchange on such
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date (or, if such date is not a trading day, the next succeeding trading
day) and (y) the net long position of such holder shall be reduced by
the number of shares as to which such holder does not, or will not, have
the right to vote or direct the vote at the Special Meeting (as defined
therein) or as to which such holder has entered into any derivative or
other agreement, arrangement or understanding that hedges or transfers,
in whole or in part, directly or indirectly, any of the economic
consequences of ownership of such shares. Whether the requesting holders
have complied with the requirements of Article II and related provisions
of the Southwestern Bylaws shall be determined in good faith by the
Southwestern Board, which determination shall be conclusive and binding
on the Southwestern and the stockholders. At a special meeting of
stockholders, only such business shall be conducted as shall be specified
in the notice of the meeting (or any supplement thereto); provided that
nothing in the Southwestern Bylaws shall prohibit the Southwestern Board
from submitting matters to the stockholders at any special meeting.
A special meeting
shall not be held
pursuant to the
previous paragraph if:
.
the special meeting
request relates
to an item of business that is
not a proper subject
for stockholder
action under applicable law;
.
the special meeting request
is delivered during
the period commencing
ninety days prior to the
1st anniversary of the date
of the notice of annual
meeting for the immediately
preceding annual
meeting and ending on
the earlier of (x) the
date of the next annual
meeting and (y) thirty
calendar days after the
first anniversary of the
date of the immediately
preceding annual meeting;
.
an identical or
substantially similar
item (as determined in good faith
by the Southwestern
Board, a "Similar
Item"), other than the election
of directors, was presented at a
meeting of the
stockholders held not
more than twelve
months before the
special meeting
request is delivered;
.
a Similar Item was presented at a
meeting of stockholders
held not more
than ninety days
before the special
meeting request was delivered;
.
the election of
directors shall be
deemed a "Similar
Item" with respect to
all items of business
involving the
election or removal
of directors; or
.
a Similar Item is included
in Southwestern's notice
as an item of business
to be brought before a
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Southwestern meeting that
has been called by the time
the special meeting request
is delivered but not held.
Upon the written request of any
Southwestern stockholders who have
called a special meeting, it shall
be the duty of the secretary
to fix the date of the special
meeting, which shall be held
at such date and time as the
secretary may fix, not less than
fifteen nor more than sixty days
after the receipt of the request
(provided that such request complies
with all applicable provisions
of the Southwestern Bylaws),
and to give notice thereof in
accordance with applicable provisions
of the Southwestern Bylaws.
The Southwestern Bylaws provide that at any meeting of the
stockholders may be adjourned from time to time to reconvene at the
same or some other place, and notice need not be given of any
adjourned meeting if the time and place thereof are (i) announced
at the meeting at which the adjournment is taken, (ii) displayed
during the time scheduled for the meeting, on the same
electronic network used to enable stockholders and proxy holders
to participate in the meeting by means of remote communication
or (iii) set forth in the notice of meeting. At the adjourned
meeting, Southwestern may transact any business which might have
been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the
adjourned meeting in accordance with the requirements of Article
VI of the Southwestern Bylaws shall be given to each stockholder
of record entitled to notice of and to vote at the meeting.
NOTICE OF MEETINGS OF SHAREHOLDERS
Record Date Record Date
Pursuant to the Southwestern Pursuant to the Chesapeake
Bylaws, in order Bylaws, in order that Chesapeake
that Southwestern may may determine the shareholders
determine the stockholders entitled to notice of,
entitled to notice of or or to vote at any meeting of
to vote at any meeting of shareholders or any adjournment
the stockholders or any thereof, the Chesapeake Board
adjournment thereof, the may fix, in advance, a
Southwestern Board may record date, which record
fix a record date, which date shall not precede the
record date is adopted by date upon which the resolution
the Southwestern Board, and fixing the record date is
which record date shall not adopted, and which record date
be more than sixty nor shall not be more than sixty
less than ten days before nor less than ten days before
the date of such meeting. the date of such meeting.
If no record A determination
date is fixed of shareholders
by the Southwestern entitled to notice
Board, the of, or to vote at, a
record date for meeting of
determining shareholders
stockholders shall apply
entitled to to any adjournment
notice of or to of such meeting;
vote at a
meeting of the
stockholders
shall be at the
close of
business on the
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day next preceding provided,
the day however, that
on which notice the Chesapeake
is given, Board may
or, if notice fix a new
is waived, at record date for
the close of the adjourned meeting.
business on Notice of Shareholder
the day next Meetings
preceding the Under the OGCA and the
day on which Chesapeake Bylaws,
the meeting written notice of every
is held. A meeting of shareholders
determination stating the place, if
of stockholders any, date, hour, the
of record means of remote
entitled to communications, if any, by
notice of or to which shareholders and
vote at a proxyholders may be
meeting of the deemed to be present
stockholders in person and vote at
shall apply such meeting and, in
to any adjournment the case of a special
of the meeting, purposes thereof,
meeting; provided, shall, except when
however, otherwise required by
that the law, be given personally,
Southwestern Board by e-mail or other
may fix a new electronic communication
record date or by mail, not less
for the adjourned than ten nor more than
meeting. sixty days before the
In order that Southwestern date of the meeting to
may determine the each shareholder entitled
stockholders entitled to vote thereat;
to consent to corporate provided that, in case
action in writing of a proposed merger,
without a meeting, the the notice must be not
Southwestern Board may less than twenty days
fix a record date, which nor more than sixty days
record date shall not before the meeting.
precede the date upon
which the resolution
fixing the record date is
adopted by the Southwestern
Board, and which
date shall not be more
than ten days after the
date upon which the
resolution fixing the record
date is adopted by the
Southwestern Board.
Any stockholder of record
seeking to have the
stockholders authorize
or take corporate
action by written consent
shall, by written notice
delivered to the secretary
at the principal
executive offices of
Southwestern, request
that the Southwestern
Board fix a record date.
Notice of Shareholder
Meetings
Pursuant to the Southwestern Bylaws, Whenever
stockholders are required or permitted
to take any action at a meeting, a timely
written notice or electronic transmission,
in the manner provided in Section 232 of the
DGCL, of the meeting shall be given which
shall state the place, date and hour of
the meeting, and the means of electronic
communication, if any, by which shareholders
and proxyholders may be deemed to be
present in person and participate in the
proceedings of the meeting (including to and
vote or grant proxies at such meeting), the
record date for determining the stockholders
entitled to vote at the meeting (if such
date is different from the record date
for stockholders entitled to notice of the
meeting) and, in the case of a special
meeting, at whose direction the meeting is
called and the purpose or purposes for which
the meeting is called shall be mailed to or
transmitted electronically by the secretary
of Southwestern to each stockholder of
record entitled to vote thereat. Unless
otherwise required by law, written notice
of any meeting shall be given not less
than ten nor more than sixty days before the
date of the meeting to each stockholder
entitled to notice of and to vote at such
meeting. Under the DGCL, in case of a
proposed merger, the notice must be not less
than twenty days nor more than sixty days
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before the meeting.
Whenever any notice is required by the
Southwestern Bylaws to be given, personal notice
is not meant unless expressly so stated, and
any notice so required shall be deemed to be
sufficient (i) if given by mail, when the
notice is deposited in the U.S. mail, postage
prepaid, (ii) if delivered by courier service,
the earlier of when the notice is received
or left at such stockholder's address or (iii)
by electronic transmission to the extent
permitted by the DGCL. Any notice required to
be given under the Southwestern Bylaws may
be waived by the person entitled thereto.
Stockholders not entitled to vote shall not
be entitled to receive notice of any meetings
except as otherwise provided by statute.
MERGER APPROVAL
Under Section 251 of Under Sections 1081 and 1082
the DGCL, subject of the OGCA, subject to
to certain exceptions, certain exceptions, a merger
a merger must be must be approved by the
approved by the board board of directors and by
of directors and the affirmative vote of the
by the affirmative holders of at least a majority
vote of the holders (unless the charter or
of at least a bylaws require a greater vote)
majority (unless the of the outstanding shares
certificate of of stock entitled to vote.
incorporation requires a Chesapeake's Charter and
higher percentage) Bylaws do not include any
of the outstanding exceptions or additions to
shares of stock entitled what is required by Sections
to vote thereon. 1081 and 1082 of the OGCA.
The Southwestern Chesapeake is not
Certificate a constituent
of Incorporation corporation in the
and the Southwestern Merger and a
Bylaws do not vote of its
mention any exceptions shareholders is
or additions to what not required.
is required by Section
251 of the DGCL
SHAREHOLDER RIGHTS PLANS
Southwestern does Chesapeake does not
not currently have currently have a
a stockholder rights shareholder rights
plan in effect. plan in effect.
SHAREHOLDER INSPECTION
RIGHTS; SHAREHOLDER LISTS
Under Section 220 of the DGCL, a Under Section 1065 of the OGCA, a
stockholder or his or her agent has shareholder, in person or by attorney
a right to inspect the corporation's or other agent, upon written demand
stock ledger, a list of its under oath stating the purpose
stockholders and its other books thereof, has a right during the
and records during usual hours of usual hours of business to inspect
business upon written demand stating Chesapeake's stock ledger, a list of its
a proper purpose (which must be shareholders and its other books and
reasonably related to such person's records and a subsidiary's books and
interest as a stockholder). If the records (under certain circumstances).
corporation refuses to permit such If Chesapeake refuses to permit
inspection or fails to reply to the such inspection or fails to reply
request within five business days to the request within five business
of the demand, the stockholder may days of the demand, the shareholder
apply to the Chancery Court for an may apply to the district court for
order to compel such inspection. an order to compel such inspection.
Pursuant to the Under the OGCA and
Southwestern Chesapeake
Bylaws, the officer Bylaws, at least
who has charge ten days before every
of the stock meeting of
ledger of Southwestern shareholders, a
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shall prepare and make, at least complete list of the shareholders entitled to vote at the
ten days before every meeting meeting, arranged in alphabetical order, and showing
of the stockholders, a complete the address of each shareholder, and the number of
list of the stockholders shares registered in the name of each shareholder,
entitled to vote at the meeting, shall be prepared by the officer in charge of the stock
arranged in alphabetical ledger. Such list shall be open to the examination
order, and showing the address of any shareholder, for any purpose germane to the
of each stockholder and the meeting, for a period of at least ten days prior
number of shares registered in to the meeting: (i) on a reasonably accessible electronic
the name of each stockholder. network, provided that the information required
Such list shall be open to the to gain access to such list is provided with the notice
examination of any stockholder, of the meeting, or (ii) during ordinary business
for any purpose germane to hours, at the principal place of business of Chesapeake.
the meeting, during ordinary In the event that Chesapeake determines to make
business hours, for a period of the list available on an electronic network, Chesapeake
at least ten days prior to the may take reasonable steps to ensure that such
meeting, either (i) on a information is available only to shareholders of
reasonably accessible electronic Chesapeake. If the meeting is to be held at a place, then
network, provided that the the list shall be produced and kept at the time and
information required to gain access place of the meeting during the whole time of the
to such list is provided with meeting and may be inspected by any shareholder who is
the notice of the meeting, or present. If the meeting is to be held solely by means
(ii) during ordinary business of remote communication, then the list shall also be
hours, at the principal place of open to the examination of any shareholder during
business of Southwestern. In the whole time of the meeting on a reasonably accessible
the event that Southwestern electronic network, and the information required
determines to make the list to access such list shall be provided with the notice
available on an electronic network, of the meeting. The stock ledger shall be the only
Southwestern may take reasonable evidence as to which shareholders are entitled to
steps to ensure that such examine the stock ledger, the list required by the
information is available only to Chesapeake Bylaws or the books of Chesapeake, or to vote
stockholders of Southwestern. in person or by proxy at any meeting of shareholders.
NUMBER OF DIRECTORS; TERM
Number of Directors Section 1027.B of the
The Southwestern OGCA provides that
Certificate the number
of Incorporation of directors
provides constituting
that the number of the board may
directors will be fixed by the
be fixed by charter or bylaws
the Southwestern of a corporation.
Bylaws The Chesapeake
and may be Bylaws provide
increased or that, subject to the
decreased as provided rights of the
therein; provided, holders of
however, any series
that the number of preferred
of directors stock to elect
may not be less than directors
three. The under specified
Southwestern circumstances,
Bylaws provide for a if any, the
minimum of five board of
directors, directors will
the exact number of consist of not
directors to less than
be determined three nor
by the Southwestern more than ten
Board. directors. Chesapeake
There are currently currently has
ten members six directors.
of the Southwestern The Chesapeake Board
Board. is not classified. All
directors are elected
annually for
one-year terms.
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Southwestern Chesapeake
Term
A Southwestern
director shall hold
office until the
annual meeting for
the year in which his or her term
expires and until his
or her successor
shall be elected
and shall qualify,
subject, however, to prior death,
resignation, retirement,
disqualification or
removal from office.
ELECTION OF DIRECTORS
The Southwestern Bylaws provide The Chesapeake Charter
that except as otherwise provided provides that all
in the Southwestern Certificate directors shall be
of Incorporation, a nominee for elected annually.
director shall be elected to the At every meeting of shareholders,
Board of Directors by stockholders each shareholder shall be entitled to
if the votes cast for such nominee's one vote, in person or by proxy, for
election exceed the votes each share of stock having voting
cast against such nominee's power held by such shareholder. Unless
election (and neither abstentions otherwise provided by law, no proxy
nor broker non-votes shall count shall be voted on or after three
as votes cast for or against a (3) years from its date unless the
nominee's election); provided, proxy provides for a longer period.
however, that directors shall be All elections and questions shall be
elected by a plurality of the votes decided by a plurality of the votes
cast in any "contested election." cast, in person or by proxy, except
A "contested election" means any election of directors by the as described below, or otherwise
stockholders for which (i) Southwestern receives a notice required by law, or any stock exchange
that a stockholder has nominated a person for election to requirements or the terms of any
the Southwestern Board, which notice purports to be in series of outstanding preferred stock.
compliance with the advance notice requirements for In an uncontested director election, (i) any
stockholder nominations set forth in the Southwestern Bylaws, non-incumbent director nominee standing
irrespective of whether the Southwestern Board at any time for election by the shareholders who receives
determines that any such notice is not in compliance with such a greater number of votes cast "against"
requirements, and (ii) such nomination has not been withdrawn such nominee's election than votes "for"
on or before the tenth day before Southwestern first such nominee's election (a "Majority Against
mails its initial proxy statement in connection with such Vote") shall not be elected a director; and
election of directors. If directors are to be elected by a (ii) any incumbent director nominee standing
plurality of the votes cast, stockholders shall not be permitted for election by the shareholders who receives
to vote against a nominee but instead will be permitted a Majority Against Vote shall, following
to withhold a vote from a nominee. Any election that is certification of the shareholder vote by the
not a contested election is an "uncontested election." inspector of elections, promptly comply
with the resignation procedures established
by the nominating and corporate governance
committee and published on Chesapeake's
corporate website or in a public disclosure.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Pursuant to the Southwestern The Chesapeake Bylaws provide
Certificate of Incorporation, that all vacancies, including
subject to the terms of any vacancies resulting from
one or more classes or series newly created directorships
of preferred stock, any vacancy resulting from any increase
on the Southwestern Board in the authorized number of
may be filled by a majority directors, may be filled by a
of the board then in office, majority vote of the directors
even if less than a quorum, or then in office, even if
by a sole remaining director. less than a quorum, and any
Any director elected to fill director so chosen will hold
a vacancy not resulting office until the next annual
from an increase in the number meeting of shareholders and
of directors shall have until his or her successor is
the same remaining term as duly elected and qualified,
that of his predecessor. If or until his or her earlier
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the vacancy resignation
arose from an or removal.
increase in the number
of directors,
the newly
elected director
will hold
office until the next
annual meeting
or until his
or her successor
shall be
elected or
shall qualify.
REMOVAL OF DIRECTORS
The Southwestern Certificate of As described
Incorporation and the Southwestern above under "
Bylaws provide that except as Comparison
otherwise required by applicable Of Rights Of
law and subject to the rights, Southwestern
if any, of the holders of shares Shareholders And
of preferred stock then outstanding, Chesapeake
any director or the entire Shareholders - Number
board may be removed from office at of Directors; Term
any time, with or without cause, ," Chesapeake has a
by the affirmative vote of the declassified board.
holders of at least a majority The Chesapeake
in voting power of the issued and Bylaws provide
outstanding capital stock of that a director may be
Southwestern entitled to vote removed, with
in the election of directors. or without
cause, by the
affirmative
vote of the
holders of a
majority of the shares
then entitled
to vote at
an election
of directors.
DIRECTOR NOMINATIONS BY SHAREHOLDERS
The Southwestern Bylaws permit stockholders Special Meetings
to nominate directors for consideration The Chesapeake Bylaws permit
at an annual meeting of stockholders or a shareholders to nominate directors for
special meeting called for the purpose of consideration at an annual meeting
electing directors. Nominations may be made (a) of shareholders or a special
by or at the direction of the Southwestern meeting called for the purpose
Board or (b) by any Southwestern stockholder of electing directors. To call a
who (i) is a stockholder of record on special meeting, shareholders who
the date of the giving of the notice and on desire to nominate a person for
the record date for the determination of election to the Chesapeake Board
stockholders entitled to notice of and to at a special meeting must hold
vote at such meeting and (ii) who complies of record at least 35% of the
with the notice procedures set forth in the voting power of Chesapeake's then
Southwestern Bylaws. Clause (b) of the outstanding capital stock. The
preceding sentence is the exclusive way for shareholders must give timely special
stockholders to make director nominations. meeting request in writing to the
In order for a stockholder's director nomination to be proper, corporate secretary of Chesapeake.
the stockholder must give a timely notice. To be timely, To be timely, the shareholder's request notice shall
the Noticing Stockholder's notice to the secretary must be be delivered to or mailed and received (a) not
delivered to the principal executive offices of Southwestern earlier than one hundred and twenty days prior
not later than the close of business on the ninetieth day to the date of the special meeting nor (b) later
nor earlier than the close of business on the one hundred than the later of ninety days prior to the date
twentieth day prior to the anniversary date of the immediately of the special meeting or the tenth day following
preceding annual meeting of Stockholders; provided, the day on which public announcement of the
however, that in the event that the annual meeting is called date of the special meeting was first made. The
for a date that is not within twenty-five days before or special meeting requested by shareholders shall
after such anniversary date, notice by the Noticing Stockholder be held on such place, date and at such time as
in order to be timely must be so delivered not earlier may be fixed by the board of directors in accordance
than the close of business on the one hundred twentieth day with the Chesapeake Bylaws; provided, that
prior to the annual meeting and not later than the close the date of a special meeting of the shareholders
of business on the later of the ninetieth day prior to the shall not be less than thirty days or more
annual meeting or the tenth day following the day on which than seventy-five days after receipt by the
corporate secretary of the special meeting request.
The shareholders
must (a)
be holders of
record at the
time of the
special meeting
(including any
adjournment or
postponement
thereof), (b) be
entitled to vote
at such meeting
and (c) meet the
conditions of
and comply with
the nominee
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public announcement eligibility
of the date of requirements
the annual meeting and procedures
is first made by set forth in the
Southwestern. Public Chesapeake Bylaws.
announcement of an Annual Meetings
adjournment, recess, To nominate a person for election
rescheduling or to the board of directors
postponement of an of Chesapeake at an annual
annual meeting shall meeting, shareholders must be
not commence a new (a) a holder of record both
time period (or at the time of giving of the
extend any time period) notice and at the time of the
for the giving annual meeting (including any
of a Noticing adjournment or postponement
Stockholder's notice. thereof), (b) is entitled to
The Southwestern Bylaws provide vote at such meeting and (c)
that in order for a stockholder's meets the requirements of and
notice to be proper, the complies with the procedures
notice must include certain set forth herein as to such
information about the stockholder's nomination or (iii) by an Eligible
nominee and about the nominating Shareholder (as defined below).
stockholder. Stockholders should The notice must be received at the principal executive offices of
refer to the Southwestern Chesapeake not later than the close of business on the ninetieth
Bylaws for the exact information day nor earlier than the close of business on the one hundred
required to be provided in twentieth day prior to the first anniversary of the preceding year's
the notice. The written notice annual meeting; provided, however, that in the event that the date
must be accompanied by (i) the of the annual meeting is more than thirty days before or more than
written consent of each proposed sixty days after such anniversary date, the notice by the shareholder
director nominee and (ii) a to be timely must be so delivered not earlier than the close
completed and signed questionnaire, of business on the one hundred twentieth day prior to the date of
representation and agreement. such annual meeting and not later than the close of business on
To be eligible to be a the later of the one hundred twentieth day prior to the date of
nominee for election or such annual meeting or, the tenth day following the day on which
re-election by the stockholders public announcement of the date of such meeting is first made by
as director, a person Chesapeake. In no event shall any adjournment or postponement of an
must deliver to the annual meeting or the announcement thereof commence a new time
secretary of Southwestern a period for the giving of a shareholder's notice as described above.
written questionnaire with In the event that the number of directors
respect to the background to be elected to the board of directors is
and qualification of such increased and there is no public announcement
person and, if applicable, by Chesapeake naming all of the nominees
the background of any for director or specifying the size of the
other person on whose increased board of directors at least one
behalf the nomination is hundred days prior to the first anniversary
being made and a written of the preceding year's annual meeting,
representation and agreement a shareholder's notice shall also be
that such person: considered timely, but only with respect to
. nominees for any new positions created by such
is not and will not become a party increase, if it shall be delivered to the
to (A) any agreement, arrangement or corporate secretary of Chesapeake not later
understanding (whether written or oral) than the close of business on the tenth
with, and has not given any commitment or day following the day on which such public
assurance to, any person or entity as announcement is first made by Chesapeake.
to how such person, if elected as a
director of Southwestern, will act or
vote on any issue or question (solely for
purposes of the Southwestern Bylaws
Section 2.3, a "Voting Commitment") that
has not been disclosed to Southwestern
or (B) any Voting Commitment that could
limit or interfere with such person's
ability to comply, if elected as a director
of Southwestern, with such person's
fiduciary duties under applicable law;
.
is not and will not
become a party to any
agreement, arrangement
or understanding
with any person or
entity other than
Southwestern 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
to Southwestern;
.
in such person's
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 Southwestern,
and will
comply with all
applicable
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Southwestern Chesapeake
rules of the Nominee Eligibility
exchanges upon which Requirements
the securities of and Other Conditions
Southwestern are To be eligible to be a
listed and all nominee for election or
applicable publicly reelection as a director
disclosed corporate of Chesapeake, a person
governance, must complete and deliver
business conduct, to the corporate secretary
conflict of of Chesapeake: (1) a
interest, completed director &
confidentiality officer questionnaire, (2)
and stock a written representation
ownership and trading that, the nominee is not
policies and and will not become
guidelines of a party to any voting
Southwestern; and agreement, (3) a written
. representation and
in such person's agreement that the nominee
individual is not and will not become
capacity and on behalf a party to any third-party
of any Holder on whose compensation arrangement
behalf the nomination and (4) a written
is being made, intends representation that, if
to serve a full term elected as a director,
if elected as such nominee would be
a director in compliance and will
of Southwestern. continue to comply with
Chesapeake's publicly
Proxy Access disclosed corporate
Nomination governance, conflict of
The Southwestern Bylaws provide for proxy access nomination. interest, confidentiality
Whenever the Southwestern Board solicits proxies with respect and stock ownership and
to the election of directors at an annual meeting, subject to trading policies and
the provisions of Section 2.17 of the Southwestern Bylaws, guidelines of Chesapeake.
Southwestern shall include in its proxy statement for such annual Chesapeake shall
meeting, in addition to any persons nominated for election include in its
by or at the direction of the Southwestern Board (or any duly proxy statement
authorized committee thereof), the name, together with the for an annual
required information (as defined in the Southwestern Bylaws), of meeting of
any person nominated for election (the "stockholder nominee") shareholders the
to the Southwestern Board by a stockholder or group of no more name of any
than twenty (20) stockholders (counting as one stockholder, person nominated
for this purpose, any two (2) or more funds that are part of for election to
the same related fund group (as defined in the Southwestern the board of
Bylaws)) that satisfies the requirements of Section 2.17 (such directors (the
stockholder or stockholders, the "eligible stockholder") "Shareholder
and that expressly elects at the time of providing the notice Nominee") by a
required by Section 2.17 to have such nominee included in shareholder or
Southwestern's proxy materials pursuant to Section 2.17. For group of
purposes of Section 2.17 of the Southwestern Bylaws, the shareholders that
"Required Information" that the Southwestern will include in satisfies the
its proxy statement is (i) the information provided to the requirements
secretary of Southwestern concerning the Stockholder Nominee and (the "Eligible
the eligible stockholder that is required to be disclosed in Shareholder"),
Southwestern's proxy statement pursuant to Section 14 of the together with
Exchange Act and the rules and regulations promulgated thereunder the Required
and (ii) if the eligible stockholder so elects, a Supporting Information
Statement (as defined in Section 2.17(g) hereof). Subject to (defined below),
the provisions of Section 2.17, the name of any stockholder who expressly
nominee included in Southwestern's proxy statement for an annual elects at the
meeting shall also be set forth on the form of proxy distributed time of providing
by Southwestern in connection with such annual meeting. notice to
have its nominee
included in
Chesapeake's
proxy materials.
The maximum number of
Shareholder Nominees
appearing in
Chesapeake's
proxy materials with
respect to an annual
meeting of
shareholders
shall not exceed the
greater of two and
25% of the number of
directors in office as
of the last
day on which
the notice may be
delivered, or if such
amount is not a whole
number, the closest
whole number below.
An Eligible Shareholder
must have owned
3% or more of
Chesapeake's issued
and outstanding
Common Stock (the
"Required Shares")
continuously for
at least three years,
or in the case
of holders of certain
interests in
connection with
that certain Joint
Chapter 11 Plan
of Reorganization
of Chesapeake
Energy Corporation,
one year, as of
both the date the
notice is required
to be received by
Chesapeake and the
record date for
determining
shareholders entitled
to vote at the
annual meeting, and
must continue to
hold the Required
Shares through the
meeting date.
The Eligible
Shareholder
may provide
to the corporate
secretary of
Chesapeake a written
statement for
inclusion in the
proxy statement for
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In addition to any other applicable requirements, Chesapeake's
for a Stockholder Nominee to be eligible for annual meeting,
inclusion in Southwestern's proxy materials pursuant not to exceed
to the Section 2.17 of the Southwestern Bylaws, five hundred
the eligible stockholder must give timely notice words, in
of such nomination (the "Notice of Proxy Access support of the
Nomination") in proper written form to the secretary Shareholder Nominee's
of Southwestern. To be timely, the Notice of candidacy.
Proxy Access Nomination must be delivered to and Any Shareholder Nominee who
received by the secretary of Southwestern at the is included in Chesapeake's
principal executive offices of Southwestern not proxy materials for a
less than one hundred and twenty (120) days nor particular annual meeting of
more than one hundred and fifty (150) days prior to shareholders but either (i)
the first anniversary of the date that Southwestern withdraws from or becomes
first distributed its proxy statement to ineligible or unavailable
stockholders for the previous year's annual meeting. for election at the annual
To make a nomination pursuant to the Section 2.17 of the meeting, or (ii) does not
Southwestern Bylaws, an eligible stockholder must have owned receive at least 25% of the
at least three percent (3%) of Southwestern's outstanding votes cast in favor of the
common stock (the "Required Shares") continuously for election of such Shareholder
at least three (3) years (the "Minimum Holding Period") Nominee, will be ineligible
as of both the date the Notice of Proxy Access Nomination to be a Shareholder Nominee
is delivered to or mailed and received by the secretary of for the next two annual
Southwestern in accordance with the Section 2.17 of the meetings of Chesapeake.
Southwestern Bylaws and the record date for the determination The chair of the meeting,
of stockholders entitled to notice of and to vote at the acting in good faith,
annual meeting, and must continue to own the Required shall reasonably
Shares through the date of the annual meeting. In order for determine, based on the
the eligible stockholder's written notice of proxy access facts, whether a nomination
nomination to be in proper form, it must include or be proposed to be brought
accompanied by certain representations and statements as before the meeting was
further described in Section 2.18 of the Southwestern Bylaws. made in accordance
In addition to the information required pursuant with the requisite
to any other provision of the Southwestern Bylaws, procedures under the
Southwestern may require (i) any proposed Stockholder Chesapeake Bylaws and if
Nominee to furnish any other information any proposed nomination
(x) that may reasonably be required by Southwestern is not in compliance,
to determine whether the Stockholder Nominee to declare that such
would be independent under the Independence Standards defective nomination
(y) that could be material to a reasonable shall be disregarded.
stockholder's understanding of the independence, or
lack thereof, of such Stockholder Nominee or (z)
that may reasonably be required by Southwestern
to determine the eligibility of such Stockholder
Nominee to serve as a director of Southwestern
and (ii) the eligible stockholder to furnish
any other information that may reasonably be
required by Southwestern to verify the eligible
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stockholder's
continuous
ownership of the
Required
Shares for the
Minimum Holding
Period.
Section 2.17 of the
Southwestern
Bylaws provides
the exclusive method
for a stockholder to
include nominees for
election to the
Southwestern
Board in
Southwestern's
proxy materials.
SHAREHOLDER PROPOSALS
The Southwestern The Chesapeake Bylaws provide
Bylaws that business may be brought
provide that a before an annual meeting
stockholder (i) by or at the direction
must give timely of the board of directors
written notice to the or (ii) by any shareholder
secretary of of Chesapeake who was a
Southwestern shareholder of record at the
of any proposal for time of giving notice provided
business to for in the Chesapeake
be conducted Bylaws and at the time of
at an annual meeting. the annual meeting, who is
To be timely, the stockholder of record bringing the notice entitled to vote at such
(the "Noticing Stockholder") must have delivered timely notice meeting and who complies with
thereof in proper written form to the secretary of Southwestern the procedures set forth
at the principal executive offices of Southwestern, in the Chesapeake Bylaws.
and any such proposed business other than nominations of To be timely, a shareholder must give written notice
persons for election to the Board of Directors must constitute to the corporate secretary not later than the
a proper matter for stockholder action. To be timely, the close of business on the ninetieth day nor earlier
Noticing Stockholder's notice to the secretary must be than the close of business on the one hundred
delivered to the principal executive offices of Southwestern twentieth day before the anniversary date of the
not later than the close of business on the ninetieth day immediately preceding annual meeting of shareholders.
nor earlier than the close of business on the one hundred If the annual meeting is called for a date
twentieth day prior to the anniversary date of the immediately that is more than thirty days earlier or more
preceding annual meeting of Stockholders. In no event shall than sixty days after such anniversary date, notice
any adjournment or postponement of an annual meeting, or the by the shareholder must be so received (1) no
public announcement thereof, commence a new time period for earlier than the close of business on the one hundred
the giving of a stockholder's notice as described above. twentieth day before the meeting and (2) not
In addition, to be timely, a stockholder's notice shall later than the close of business on the ninetieth
further be updated and supplemented, if necessary, so that day before the meeting, or the tenth day following
the information provided or required to be provided in such the day on which public announcement of the date
notice shall be true and correct as of the record date of such meeting is first made by Chesapeake.
for the meeting and as of the date that is ten business The shareholder's
days prior to the meeting or any adjournment, recess, notice shall set
rescheduling or postponement thereof, and such update and forth, as to the
supplement shall be delivered to the secretary at the principal shareholder giving the
executive offices of Southwestern not later than five business notice and each
days after the later of the record date for the meeting beneficial
or the date such record date is first publicly disclosed, owner, if any,
in the case of the update and supplement required to be on whose behalf the
made as of the record date, and not later than eight business proposal is made:
days prior to the date for the meeting, or any adjournment, .
recess, rescheduling or postponement thereof, in the a brief description of
case of the update and supplement required to be made as the business desired
to be brought before
the meeting and
the reasons for
conducting such business
at the meeting
including the text of
any resolutions proposed
for consideration
and, if such
business includes a
proposal to amend the
Chesapeake Bylaws,
the language of the
proposed amendment;
.
the name and
address of the
shareholder proposing
such business,
as they appear
on Chesapeake's
books, and of any
beneficial owner;
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of ten business days .
prior to the meeting (a) the class or series and number of
or any adjournment or shares of Chesapeake which are, directly
postponement thereof. or indirectly, held of record or
To be in owned beneficially by each proposing
proper form, a shareholder, and, (b) any option,
stockholder's notice warrant, convertible security, stock
given pursuant appreciation right or similar right with
to Section 2.3 of an exercise or conversion privilege or a
the Southwestern settlement payment or mechanism at a price
Bylaws shall related to any class or series of shares
set forth, of Chesapeake, (c) a description of any
as to the agreement, arrangement, understanding
stockholder giving or relationship under which each proposing
the notice and shareholder and beneficial holder
each beneficial has any other direct or indirect
owner, if opportunity to profit or share in any
any, on whose profit derived from any increase or decrease
behalf the in the value of shares of Chesapeake,
proposal is made: (d) representation that the proposing
. shareholder is a holder of record
a brief description of of stock of Chesapeake entitled to vote
the business at such meeting and intends to appear
desired to in person or by proxy at the meeting to
be brought before the bring the business before the meeting;
meeting and and (e) a representation as to whether
the reasons the shareholder or any beneficial owner
for conducting such intends or is part of a group that
business at intends to deliver a proxy statement
the meeting or form of proxy to holders of at least
and the text of the the percentage of the voting power of
proposal or business Chesapeake's outstanding shares required
(including the text of to approve or adopt the proposal.
any resolutions
proposed .
for consideration and, The chair of the
in the event that such meeting, acting
business includes in good faith,
a proposal shall reasonably
to amend the Bylaws, determine, based on
the language of the the facts, whether
proposed amendment); the business was
properly brought
. before the meeting.
the name and address If the proposed
of the stockholder business is not
proposing such in compliance,
business, as the chair shall
they appear on declare that such
Southwestern's books, business shall not
and of such be transacted.
beneficial owner;
The Chesapeake
. Bylaws do not
(A) the name and address of each Holder, as the provide for
name and address appear on Southwestern's books, submission of
and the name and address of each Stockholder shareholder
Associated Person (as defined therein), if any, proposals for
(B) (I) the class or series and number of shares consideration at
of capital stock of Southwestern which are, special meetings.
directly or indirectly, held of record or owned
beneficially by each Holder and any Stockholder
Associated Person (provided that, for the purposes
of the Section 2.3 of the Southwestern Bylaws,
any such person shall in all events be deemed
to beneficially own any shares of stock of
Southwestern as to which such person has a right
to acquire beneficial ownership at any time in the
future (whether such right is exercisable immediately
or only after the passage of time or the
fulfillment of a condition or both)), (II) any
short position, profits interest, 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 Southwestern or with a value derived in
whole or in part from the value of any class or
series of shares of Southwestern, or any
derivative or synthetic arrangement having the
characteristics of a long position in any class or
series of shares of Southwestern, 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
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Southwestern, 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
Southwestern, whether or not such instrument, contract or right shall be subject
to settlement in the underlying class or series of shares of Southwestern,
through the delivery of cash or other property, or otherwise, and without regard
to whether the Holder and any Stockholder Associated Person may have entered
into transactions that hedge or mitigate the economic effect of such instrument,
contract or right, or 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 Southwestern (any of the foregoing, a "Derivative Instrument") directly
or indirectly owned or held, including beneficially, by each Holder and any
Stockholder Associated Person, (III) a description of any proxy, contract,
arrangement, understanding or relationship pursuant to which each Holder and any
Stockholder Associated Person has any right to vote or has granted a right to vote
any shares of stock or any other security of Southwestern, (IV) any agreement,
arrangement, understanding, relationship or otherwise, including any repurchase
or similar so-called "stock borrowing" agreement or arrangement, involving
any Holder or any Stockholder Associated Person, on the one hand, and any person
acting in concert therewith, on the other hand, directly or indirectly, 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 Southwestern
by, manage the risk of share price changes for, or increase or decrease the
voting power of, such Holder or any Stockholder Associated Person with respect to
any class or series of the shares or other securities of Southwestern, 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 class or series of
the shares or other securities of Southwestern (any of the foregoing, a "Short
Interest"), and any Short Interest held by each Holder or any Stockholder
Associated Person within the last twelve months in any class or series of the
shares or other securities of Southwestern, (V) any rights to dividends or
payments in lieu of dividends on the shares of Southwestern owned beneficially by
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each Holder or any Stockholder Associated Person that are separated or separable
from the underlying shares of stock or other security of Southwestern, (VI)
any proportionate interest in shares of stock or other securities of Southwestern
or Derivative Instruments held, directly or indirectly, by a general or
limited partnership or limited liability company or other entity in which any
Holder or any Stockholder Associated Person is a general partner or directly
or indirectly beneficially owns an interest in a general partner, is the manager,
managing member or directly or indirectly beneficially owns an interest in
the manager or managing member of a limited liability company or other entity,
(VII) any performance-related fees (other than an asset-based fee) that each
Holder or any Stockholder Associated Person is or may be entitled to based on any
increase or decrease in the value of stock or other securities of Southwestern
or Derivative Instruments, if any, including without limitation, any such
interests held by members of the immediate family sharing the same household of
such Holder or any Stockholder Associated Person, (VIII) any direct or indirect
legal, economic or financial interest (including Short Interest) of each
Holder and each Stockholder Associated Person, if any, in the outcome of any (x)
vote to be taken at any Annual or Special Meeting of stockholders of Southwestern
or (y) any meeting of stockholders of any other entity with respect to any
matter that is related, directly or indirectly, to any nomination or business
proposed by any Holder under the Southwestern Bylaws, (IX) any direct or
indirect legal, economic or financial interest or any Derivative Instruments or
Short Interests in any principal competitor of Southwestern held by each Holder
or any Stockholder Associated Person, (X) any direct or indirect interest
of each Holder or any Stockholder Associated Person in any contract with
Southwestern, any affiliate of Southwestern or any principal competitor of
Southwestern (including, in any such case, any employment agreement, collective
bargaining agreement or consulting agreement); and (XI) any material pending or
threatened action, suit or proceeding (whether civil, criminal, investigative,
administrative or otherwise) in which any Holder or any Stockholder Associated
Person is, or is reasonably expected to be made, a party or material participant
involving Southwestern or any of its officers, directors or employees, or any
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affiliate of Southwestern, or any officer, director or employee of such
affiliate (subclause (i)(c)(3)(B) of the Section 2.3 of the Southwestern Bylaws
shall be referred to as the "Specified Information"), (C) a representation by
the Noticing Stockholder that such stockholder is a holder of record of stock
of Southwestern entitled to vote at such meeting, will continue to be a stockholder
of record of Southwestern entitled to vote at such meeting through the
date of such meeting and intends to appear in person or by proxy at the meeting
to propose such nomination or other business, (D) any other information
relating to each Holder and each Stockholder Associated Person, 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 (as defined in Section 2.8 of Article II of the Southwestern
Bylaws) pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder, (E) a representation by the Noticing
Stockholder as to whether any Holder and/or any Stockholder Associated Person
intends or is part of a group which intends: (x) to deliver a proxy statement
and/or form of proxy to holders of at least the percentage of Southwestern's
outstanding capital stock required to elect the proposed nominee or approve
or adopt the other business being proposed and/or (y) otherwise to solicit
proxies from stockholders in support of such nomination or other business,
(F) a certification by the Noticing Stockholder that each Holder and any
Stockholder Associated Person has complied with all applicable federal, state
and other legal requirements in connection with its acquisition of shares
of capital stock or other securities of Southwestern and/or such person's
acts or omissions as a stockholder of Southwestern, (G) with respect to any
nomination, the statement required by Rule 14a-19(b)(3) of the Exchange Act (or
any successor provision), (H) the names and addresses of other stockholders
(including beneficial owners) known by any Holder or Stockholder Associated
Person to support such proposals and/or nominations, and to the extent known
the class or series and number of all shares of Southwestern's capital stock
owned beneficially or of record by each such other stockholder or other
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beneficial owner, and
(I) a representation
by the Noticing Stockholder
as to the accuracy
of the information
set forth in the notice;
.
a representation that such
stockholder intends to appear in
person or by proxy at the
meeting to bring such business
before the meeting. The presiding
officer of the meeting
shall, if the facts warrant,
determine that business
was not properly brought before
the meeting in accordance
with the foregoing procedure
and, if he should so
determine, he may so declare
to the meeting and any such
business not properly brought
shall not be transacted.
A stockholder who seeks to
have any proposal included in
Southwestern's proxy materials
must provide notice as
required by and otherwise comply
with the applicable requirements
of the rules and regulations
under the Exchange Act.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The DGCL provides that, The Chesapeake Charter
unless otherwise stated in a provides that, subject to the
company's certificate of rights of certain holders of
incorporation, any action which may Chesapeake's preferred stock,
be taken at an annual meeting action required or permitted
or special meeting of to be taken at any annual or
stockholders may be taken without special meeting of shareholders
a meeting, if a consent in may be taken only upon the
writing is signed by the holders vote of shareholders at an
of the outstanding stock annual or special meeting
having the minimum number of duly noticed and called in
votes necessary to authorize accordance with the OGCA, the
the action at a meeting of Chesapeake Charter and the
stockholders at which all Chesapeake Bylaws and may not be
shares entitled to vote thereon taken by written consent of
were present and voted. shareholders without a meeting.
The Southwestern Certificate of Incorporation
provides that, unless otherwise
required by law, stockholders shall be
permitted to act by written consent in
lieu of a meeting if the consent is signed
by the number of stockholders necessary
to authorize such action at a meeting
where all shares entitled to vote
thereon were present and voted; provided,
however, that if the stockholder
action is on a proposal that would have
the effect of increasing Southwestern
capital stock or indebtedness, such action
may only be taken by written consent
without a meeting upon the unanimous
consent of all Southwestern shareholders.
AMENDMENT OF GOVERNING DOCUMENTS
Certificate of Certificate of
Incorporation Incorporation
Under Section 242 of Section 1077
the DGCL, a company's of the OGCA
certificate of provides that
incorporation most amendments
may be amended upon to a corporation's
a resolution of the certificate of
board of incorporation
directors and, must be authorized by
subject to certain a resolution of the
exceptions, board of directors and
approved by: approved by a majority
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. of the outstanding
the holders of a shares entitled
majority of the to vote.
outstanding shares The amendment must be approved
entitled to vote; and by a majority of the outstanding
shares of each class, whether
. or not entitled to vote
a majority of the outstanding shares of by the provisions of the
each class entitled to a class vote if the certificate of incorporation, if
amendment would increase or decrease the the amendment would increase
aggregate number of authorized shares of such or decrease the aggregate
class, increase or decrease the par value number of authorized shares
of the shares of such class or alter or of the class, increase or
change the powers, preference, or special decrease the par value of the
rights of the shares of such class so as to shares of the class, or alter
affect them adversely, provided that if the or change the powers, preferences
amendment would alter or change the powers, or special rights of
preferences or special rights of one or the shares of the class so
more series of a class so as to affect as to affect them adversely.
them adversely, but shall not so affect the The Chesapeake Charter requires
entire class, then only the shares of the the affirmative vote of the
series so affected shall be considered a holders of at least 60% of the
separate class for purposes of the vote. voting power of all outstanding
stock entitled to vote, voting
The Southwestern Certificate together as a single class, to
of Incorporation amend certain provisions of the
provides the right to amend, Chesapeake Charter, including
alter, change or repeal those provisions dealing with
any provision contained amendments to the Chesapeake
in the Southwestern Charter, director liability, related
Certificate of Incorporation party transactions, board of
in the manner now or directors, indemnities, forum
hereafter prescribed in the selection, action by shareholder
Southwestern Certificate consent, corporate opportunities
of Incorporation, and amendments to bylaws.
Southwestern Bylaws or the
DGCL, and all rights
herein conferred upon
stockholders are granted
subject to such reservation
Bylaws Bylaws
The Southwestern Certificate of The Chesapeake Charter provides that its
Incorporation provides that the Bylaws may be adopted, repealed, altered,
Southwestern Board shall have the power amended or rescinded by the Chesapeake
to adopt, amend, alter or repeal Board or by the affirmative vote of the
the Southwestern Bylaws. The affirmative holders of at least a majority of the
vote of at least a majority outstanding stock of Chesapeake entitled to
of the entire Board of Directors vote thereon, provided that the affirmative
shall be required to adopt, vote of the holders of at least 60% of
amend, alter or repeal the the outstanding stock of Chesapeake entitled
Southwestern Bylaws. The Southwestern to vote at an election of directors
Bylaws also may be adopted, is required to amend certain provisions
amended, altered or repealed by the of the Chesapeake Bylaws dealing with
affirmative vote of the holders of listing requests of the Chesapeake Common
at least a majority of the voting Stock, requests that Chesapeake make certain
power of the shares entitled to filings with the SEC and the process
vote at an election of directors. required to amend the Chesapeake Bylaws.
The Southwestern Bylaws provide
that the Southwestern Bylaws may be
altered, amended or repealed, in whole
or in part, or new bylaws may be
adopted by the stockholders or by the
Board; provided, however, that in
case of action by the stockholders,
notice of such alteration, amendment,
repeal or adoption of new bylaws be
contained in the notice of such meeting
of the stockholders. All such
amendments must be approved by either
the holders of at least a majority of
the outstanding capital stock entitled
to vote thereon or by a majority of
the entire Board then in office.
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INDEMNIFICATION
The Southwestern Certificate of Incorporation and Chesapeake's
Southwestern Bylaws require Southwestern to indemnify Charter requires
any person who was or is a party or is threatened that Chesapeake
to be made a party to any threatened, pending indemnify, to the
or completed action, suit or proceeding, whether fullest extent
civil, criminal, administrative or investigative permitted by law,
(other than an action by or in the right of Southwestern), each director and
by reason of the fact that such person is or officer and shall
was a director or officer of Southwestern, or is or advance the director's
was a director or officer of Southwestern serving or officer's
at the request of Southwestern as a director, expenses.
officer, employee or agent of another corporation, Chesapeake's Board
partnership, joint venture, trust or other enterprise, may indemnify
against expenses (including attorneys' fees), each employee and
judgments, fines and amounts paid in settlement agent and advance
actually and reasonably incurred by such person in their expenses.
connection with such action, suit or proceeding if Under Section 1031 of the OGCA, a
such person acted in good faith and in a manner such corporation may indemnify its directors
person reasonably believed to be in or not opposed and officers made a party to a
to the best interests of Southwestern, and, with proceeding because the person was a
respect to any criminal action or proceeding, had no director or officer, against expenses,
reasonable cause to believe such person's conduct including attorneys' fees, judgements
was unlawful. The termination of any action, suit and fines, and amounts paid in
or proceeding by judgment, order, settlement, settlement actually and reasonably
conviction, or upon a plea of nolo contendere or incurred, whether in civil, criminal,
its equivalent, shall not, of itself, create a administrative, or investigative
presumption that the person did not act in good proceedings, by him or her if the
faith and in a manner which such person reasonably person acted in good faith and in a
believed to be in or not opposed to the best manner he or she reasonably believed
interests of Southwestern, and, with respect to any to be in or not opposed to the best
criminal action or proceeding, had reasonable cause interests of the corporation, and,
to believe that such person's conduct was unlawful. with respect to any criminal action or
Any indemnification proceeding, had no reasonable cause
under Article to believe his or her conduct was
VIII (unless ordered unlawful. A corporation may not indemnify
by a court) a director or officer under Section
of the Southwestern 1031 in respect of any claim or matter
Bylaws shall as to which the person shall have
be made by been adjudged to be liable to the
Southwestern only as corporation unless and only to the
authorized in extent that the court in which the
the specific action was brought shall determine
case upon a upon application that, despite the
determination that adjudication of liability but in view
indemnification of all the circumstances of the case,
of the present or the person is fairly and reasonably
former director or entitled to indemnity for expenses
officer is proper which the court shall deem proper.
in the circumstances The Chesapeake Bylaws provide that
because such Chesapeake will indemnify any
person has met person who was or is a party or is
the applicable threatened to be made a party to
standard of conduct any threatened, pending or completed
set forth in action, suit or proceeding whether
Sections 8.1 and civil, criminal, administrative
8.2, as the case or investigative, including an
may be. Such action by or in the right of Chesapeake,
determination shall because he or she is or was
be made, with a director, officer, employee or
respect to a person agent of Chesapeake or is or was
who is a director serving at the request of Chesapeake
or officer at as a director, officer, employee
the time of such or agent of another corporation,
determination: partnership, joint venture or other
. enterprise against expenses (including
by a majority vote attorneys' fees), judgments,
of the directors fines and amounts paid in settlement
who are not actually and reasonably incurred
parties to such by him or her in connection with
action, suit such action, suit or proceeding, if
or proceeding, he or she acted in good faith and
even though less in a manner he or she reasonably
than a quorum; believed to be in or not opposed to
the best interests of Chesapeake
. and, with respect to any criminal
by a committee of action or proceeding, had no
such directors reasonable cause to believe that his
designated by or her conduct was unlawful. The
a majority termination of any action, suit
vote of such or proceeding by judgment, order,
directors, even
though less
than a quorum;
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Southwestern Chesapeake
. settlement, conviction or upon a plea of nolo
if there are no contendere or its equivalent will not of itself create
such directors, a presumption that the person did not act in good
or if such faith and in a manner which he or she reasonably
directors so believed to be in or not opposed to the best interests
direct, by of Chesapeake and, with respect to any criminal
independent legal action or proceeding, had reasonable cause to
counsel in a written believe that his or her conduct was unlawful. In an
opinion; or action by or in the right of Chesapeake, Chesapeake
will not indemnify a person who has been adjudged
. liable to it unless and only to the extent that
by the stockholders. the court rendering judgment has determined that
despite the adjudication of liability, but in the
Such determination shall be made, with view of all the circumstances of the case, such
respect to former directors and officers, person is fairly and reasonably entitled to indemnity
by any person or persons having the for such expenses that the court deems proper.
authority to act on the matter on behalf The Chesapeake Bylaws provide
of Southwestern. To the extent, however, that Chesapeake may pay the
that a present or former director or expenses incurred in defending
officer of Southwestern has been successful a civil or criminal action,
on the merits or otherwise in defense suit or proceeding in advance
of any action, suit or proceeding described of the final disposition
above, or in defense of any claim, of such action, suit or
issue or matter therein, such person proceeding upon receipt of an
shall be indemnified against expenses undertaking by or on behalf
(including attorneys' fees) actually and of the director, officer,
reasonably incurred by such person in employee or agent to repay such
connection therewith, without the necessity amount if it is ultimately
of authorization in the specific case. determined that he or she is
Expenses (including attorneys' fees) incurred not entitled to be indemnified
by a director or officer in defending any by Chesapeake as authorized
civil, criminal, administrative or investigative by the Chesapeake Bylaws.
action, suit or proceeding may be paid by To obtain indemnification under the Chesapeake Bylaws,
Southwestern in advance of the final disposition a claimant shall submit a written request to the
of such action, suit or proceeding upon Chesapeake Board with supporting documentation. A
receipt of an undertaking by or on behalf of majority vote of a quorum of disinterested directors
such director or officer to repay such amount if determines whether the claimant is entitled to
it shall ultimately be determined that such indemnification. If a quorum of disinterested directors
person is not entitled to be indemnified by is not obtainable, or the quorum of disinterested
Southwestern as authorized in Article VIII of the directors so directs, the Chesapeake Board may appoint
Southwestern Bylaws. Such expenses (including independent counsel to determine the claimant's entitlement.
attorneys' fees) incurred by former directors A "disinterested director" is one who is not or
and officers or other employees and agents was not a party to the proceeding. "Independent Counsel"
may be so paid upon such terms and conditions, is legal counsel who is experienced in corporate
if any, as Southwestern deems appropriate. law and within the last five years has not represented
Chesapeake, the claimant or any other party to
the proceeding, and who would not have a conflict
under applicable standards of professional conduct.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL provides that a The Chesapeake Charter
corporation may limit or provides that no director
eliminate a director's personal shall be personally liable
liability for monetary to Chesapeake or its
damages to the corporation shareholders for monetary
or its stockholders for damages for any breach
breach of fiduciary duty of fiduciary duty by such
as a director, except director as a director,
for liability for: (i) any except for (i) acts or
breach of the director's duty omissions by such director
of loyalty to such corporation not in good faith or which
or its stockholders; involve intentional
(ii) acts or omissions not misconduct or a knowing
in good faith or which violation of law, (ii)
involve intentional the payment of dividends
misconduct or a knowing or the redemption or
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Southwestern Chesapeake
violation of law; purchase of stock
(iii) willful in violation
or negligent of Section 1053
violation of of the OGCA,
provisions of (iii) any
Delaware law breach of such
governing payment director's duty
of dividends and of loyalty to
stock purchases Chesapeake or its
or redemptions; shareholders,
or (iv) any or (iv) any
transaction from transaction from
which the director which the director
derived an derived an
improper personal improper personal
benefit. benefit.
The Southwestern Certificate of
Incorporation provides that no director or
officer shall be personally liable to
Southwestern or any of its stockholders
for monetary damages for breach of fiduciary
duty as a director, except to the
extent such exemption from liability
or limitation thereof is not permitted
under DGCL as the same exists or may
be amended. If the DGCL is amended
hereafter to authorize the further
elimination or limitation of the liability
of directors, then the liability of
a director of Southwestern shall be
eliminated or limited to the fullest
extent authorized by DGCL, as so amended.
CERTAIN BUSINESS COMBINATIONS
In general, Section 203 of the DGCL, subject to certain Section 1090.3 of the
exceptions set forth therein, prohibits a business combination OGCA provides generally
between a corporation and an interested stockholder within that a corporation is
three years of the time such stockholder became an interested prohibited from engaging
stockholder, unless (i) prior to such time, the board of directors in any business combination
approved either the business combination or the transaction with an interested
that resulted in the stockholder becoming an interested shareholder for three
stockholder, (ii) upon consummation of the transaction that years from the
resulted in the stockholder becoming an interested stockholder, date on which the shareholder
the interested stockholder owned at least 85% of the voting first becomes an
stock of the corporation outstanding at the time the transaction interested shareholder.
commenced, exclusive of shares owned by directors who The Chesapeake Charter
are also officers and by certain employee stock plans, or provides that Chesapeake
(iii) at or subsequent to such time, the business combination has elected to not
is approved by the board of directors and authorized by the be governed by Section
affirmative vote at a stockholders' meeting of at least 66 1090.3 of the OGCA.
2 Under the Oklahoma Control Shares
Act, a person who acquires
3 "control shares" must obtain
% of the approval of a majority of the
outstanding voting disinterested shareholders
stock of the before voting rights will attach
corporation to the control shares. Control
which is not shares are shares of a public
owned by the company held by an acquiring
interested person which, but for the Control
stockholder. Shares Act, would have 20% or
Section 203 defines a "business more of the public company's
combination" as a merger, voting power. Under the Chesapeake
sale or lease of assets, Charter, Chesapeake has
issuance of securities, elected to not be governed
or other similar transaction. by the Control Shares Act.
Section 203 defines
an "interested stockholder"
as a person who
owns, or is an affiliate or
associate of the corporation
and within three years
prior did own, 15% or
more of such corporation's
outstanding voting stock,
and the affiliates and
associates of such person.
Southwestern has
not opted out
of Section 203
of the DGCL.
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Southwestern Chesapeake
FORUM SELECTION
The Southwestern The Chesapeake Charter provides that,
Bylaws provide that, unless Chesapeake consents in writing
Unless Southwestern to the selection of an alternative
consents in writing forum, the state courts within the
to the selection of State of Oklahoma (or, if no such state
an alternative forum court has jurisdiction, the United
(an "Alternative States District Court for the Western
Forum Consent"): District of Oklahoma) will be
. the sole and exclusive forum for (i)
the Court of Chancery of the State of Delaware any derivative action or proceeding
shall be the sole and exclusive forum for (i) any brought on Chesapeake's behalf, (ii)
derivative action or proceeding brought on behalf any action asserting a claim of
of Southwestern, (ii) any action asserting a claim breach of a fiduciary duty owed by any
of breach of a duty (including any fiduciary duty) current or former directors, officers,
owed by any current or former director, officer, other employees or shareholders to
stockholder, employee or agent of Southwestern to Chesapeake or to the shareholders,
Southwestern or the Southwestern stockholders, (iii) any action asserting a claim
(iii) any action asserting a claim against Southwestern arising pursuant to any provision of
or any current or former director, officer, the OGCA, the Chesapeake Charter or
stockholder, employee or agent of Southwestern the Chesapeake Bylaws (as each may
arising out of or relating to any provision be amended from time to time), or (iv)
of the DGCL or the Southwestern Certificate of any action asserting a claim related
Incorporation or the Southwestern Bylaws (each, as to or involving Chesapeake that is
in effect from time to time), or (iv) any action governed by the internal affairs
asserting a claim against Southwestern or any doctrine. Unless Chesapeake consents
current or former director, officer, stockholder, in writing to the selection of an
employee or agent of Southwestern governed by the alternative forum, the federal district
internal affairs doctrine of the State of Delaware; courts of the United States of
provided, however, that, in the event that America shall be the sole and exclusive
the Court of Chancery of the State of Delaware forum for the resolution of any
lacks subject matter jurisdiction over any such complaint asserting a cause of action
action or proceeding, the sole and exclusive forum arising under the Securities Act.
for such action or proceeding shall be another
state or federal court located within the State of
Delaware, in each such case, unless the Court of
Chancery (or such other state or federal court
located within the State of Delaware, as applicable)
has dismissed a prior action by the same plaintiff
asserting the same claims because such court
lacked personal jurisdiction over an indispensable
party named as a defendant therein; and
.
the federal
district courts of
the United States
of America
shall, to the
fullest extent
permitted by law,
be the sole and
exclusive forum for
the resolution
of any complaint
asserting a
cause of action
arising under
the Securities
Act, as amended.
Any person or
entity purchasing,
otherwise acquiring
or holding
any interest
in shares of
capital stock
of Southwestern
shall be deemed
to have notice
of and consented
to the forum
selection provisions
set forth
in the Southwestern
Bylaws.
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Southwestern Chesapeake
Failure to enforce the foregoing provisions would cause
Southwestern irreparable harm and Southwestern shall be entitled
to equitable relief, including injunctive relief and
specific performance, to enforce the foregoing provisions.
If any action the subject matter of which is within the
scope of the foregoing provision is filed in a court other
than a court located within the State of Delaware (a
"Foreign Action") in the name of any stockholder, such
stockholder shall be deemed to have consented to (i) the
personal jurisdiction of the state and federal courts
located within the State of Delaware in connection with any
action brought in any such court to enforce the bullet
above (an "FSC Enforcement Action") and (ii) having service
of process made upon such stockholder in any such FSC
Enforcement Action by service upon such stockholder's counsel
in the Foreign Action as agent for such stockholder.
APPRAISAL RIGHTS AND DISSENTERS' RIGHTS
As Southwestern Appraisal rights of
is a Delaware Chesapeake shareholders are
corporation subject governed by Section 1091 of
to the DGCL, the the OGCA. Generally, except
stockholders of for certain cash transactions,
Southwestern have Section 1091 does not
those appraisal provide appraisal rights
rights provided for stock transactions
by Section 262 involving shares which are
of the DGCL, listed on a national securities
provided they exchange. Chesapeake
satisfy the special Common Stock, which trades
criteria and on the Nasdaq Global Select
conditions set forth Market, would not currently
in Section 262 be subject to appraisal
of the DGCL. rights. Please see "
Under Section 262 of The Merger - No
the DGCL, Southwestern Appraisal Rights
stockholders are ."
not entitled to
appraisal or
dissenters' rights in
connection with the
Merger. Please see "
The Merger - No
Appraisal Rights
."
BUSINESS OPPORTUNITIES
The Southwestern The Chesapeake Charter provides that certain of Chesapeake's
Certificate non-employee directors (the "Non-Employee Directors")
of Incorporation and shall not have a duty to refrain from engaging directly or
Southwestern indirectly in the same or similar business activities or
Bylaws are silent lines of business as Chesapeake or its affiliates or
on business otherwise competing with Chesapeake or its affiliates, and,
opportunities. to the fullest extent permitted by applicable law, Non-Employee
Directors shall not be liable to Chesapeake or its
shareholders for breach of any fiduciary duty by reason
of any such activities. Chesapeake renounces any interest
or expectancy in, or right to be offered an opportunity
to participate in, any business opportunity that may be a
corporate opportunity for a Non-Employee Director to the
fullest extent permitted by applicable law. If a Non-Employee
Director acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for Chesapeake,
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Southwestern Chesapeake
such Non-Employee Director shall have no duty to communicate or
offer such corporate opportunity to Chesapeake and shall not be
liable to Chesapeake or its shareholders for breach of any fiduciary
duty by reason of the fact that such corporate opportunity
is not communicated or offered to Chesapeake. Notwithstanding
the foregoing, (a) Chesapeake does not renounce its interest
in any corporate opportunity offered to any Non-Employee
Director if such opportunity is expressly offered solely to such
Non-Employee Director in his or her capacity as a director of
Chesapeake; and (b) a corporate opportunity shall not be deemed to
be a potential corporate opportunity for Chesapeake if it is a
business opportunity (i) that Chesapeake is neither financially
or legally able, nor contractually permitted to undertake,
(ii) that from its nature, is not in the line of Chesapeake's
business or is of no practical advantage to Chesapeake or (iii)
in which Chesapeake has no interest or reasonable expectancy.
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CERTAIN BENEFICIAL OWNERS OF CHESAPEAKE COMMON STOCK
The following table sets forth information known to Chesapeake regarding the
beneficial ownership of Chesapeake Common Stock as of May 17, 2024:
.
each person who is the beneficial owner of more than 5% of the outstanding
shares of Chesapeake Common Stock;
.
each of Chesapeake's current named executive officers and directors; and
.
all officers and directors of Chesapeake, as a group.
Beneficial ownership is determined according to the rules of the SEC, which
generally provide that a person has beneficial ownership of a security if he,
she or it possesses sole or shared voting or investment power over that
security, including securities that such he, she or it has the right to
acquire within sixty days, including options exercisable within sixty days.
Restricted stock shares that do not vest within sixty days of May 17, 2024 are
not included in the beneficial ownership percentage. Except as described in
the footnotes below and subject to applicable community property laws and
similar laws, Chesapeake believes that each person listed above has sole
voting and investment power with respect to such shares.
The beneficial ownership of Chesapeake Common Stock is based on 131,048,463
shares of Chesapeake Common Stock issued and outstanding as of May 17, 2024.
Unless otherwise indicated, Chesapeake believes that all persons named in the
tables below have sole voting and investment power with respect to all shares
of Chesapeake Common Stock beneficially owned by them.
Name and Address Number of Percent of
Shares of Outstanding
Common Stock Common
Beneficially Stock
Owned
>5% beneficial owners
The Vanguard Group 12,673,082 9.7
100 Vanguard Boulevard (1 %
Malvern, PA 19355 )
Blackstone Inc. 12,665,899 9.7
345 Park Avenue (2 %
New York, NY 10054 )
BlackRock, Inc. 11,227,586 8.6
50 Hudson Yards (3 %
New York, NY 10001 )
T. Rowe Price Investment Management, Inc. 8,792,131 6.7
101 E. Pratt Street (4 %
Baltimore, MD 21201 )
Aequim Capital Investments LP 7,104,567 5.4
495 Miller Avenue, Suite 301 (5 %
Mill Valley, CA 94941 )
Oaktree Capital Group, LLC 7,000,067 5.3
333 S. Grand Avenue, 28th Floor (6 %
Los Angeles, CA 90071 )
(1)
This information is as of December 29, 2023, as reported in an amended
Schedule 13G filed on February 13, 2024 by The Vanguard Group. The amended
Schedule 13G reports aggregate beneficial ownership of 12,486,696 shares,
including: (i) sole power to vote or to direct the vote of
-0-
shares; (ii) shared power to vote or to direct the vote of 62,764 shares;
(iii) sole power to dispose or direct the disposition of 12,532,278 shares;
and (iv) shared power to dispose or direct the disposition of 140,804 shares.
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(2)
This information is as of December 31, 2022, as reported in an amended
Schedule 13G filed on February 9, 2023 by Blackrock Inc. and the following
members of its affiliated group: BX Vine (PUB) Aggregator L.P., BX Vine Oil &
Gas Aggregator L.P., BCP VI/BEP II/BEP Holdings Manager L.L.C., Blackstone
Energy Management Associates II L.L.C., Blackstone Energy Management
Associates L.L.C., Blackstone Management Associates VI L.L.C., Blackstone EMA
II L.L.C., Blackstone EMA L.L.C., BMA VI L.L.C., Blackstone Holdings III L.P.,
Blackstone Holdings III GP L.P., Blackstone Holdings III GP Management L.L.C.,
Blackstone Group Management L.L.C. and Stephen A. Schwarzman. The reporting
persons have sole and shared power to vote or direct the vote of such shares
and sole and shared power to dispose or to direct the disposition of such
shares.
(3)
This information is as of December 31, 2023, as reported in Schedule 13G filed
on January 25, 2024 by BlackRock Inc. The Schedule 13G reports aggregate
beneficial ownership of 11,227,586 shares, including: (i) sole power to vote
or to direct the vote of 10,6114,80 shares; (ii) shared power to vote or to
direct the vote of
-0-
shares; (iii) sole power to dispose or direct the disposition of 11,227,586
shares; and (iv) shared power to dispose or direct the disposition of
-0-
shares.
(4)
This information is as of December 31, 2023, as reported in Schedule 13G filed
on February 14, 2024 by T. Rowe Price Investment Management, Inc. The Schedule
13G reports aggregate beneficial ownership of 8,792,131 shares, including: (i)
sole power to vote or to direct the vote of 2,816,760 shares; (ii) shared
power to vote or to direct the vote of
-0-
shares; (iii) sole power to dispose or direct the disposition of 8,792,131
shares; and (iv) shared power to dispose or direct the disposition of
-0-
shares.
(5)
This information is as of December 31, 2023, as reported in a Schedule 13G
filed on February 14, 2024 by Aequim Alternative Investments LP and Franklin
Parlamis. The Schedule 13G reports aggregate beneficial ownership of 7,104,567
shares, all of which are issuable upon exercise of warrants. The reporting
persons have shared power to vote or direct the vote of such shares and shared
power to dispose or to direct the disposition of such shares.
(6)
This information is as of December 31, 2023, as reported in an amended
Schedule 13G filed on February 14, 2024 by Oaktree Capital Group, LLC and the
following members of its affiliated group: OCM XI CHK Holdings, LLC, OCM Xb
CHK Holdings, LLC, Oaktree Fund GP, LLC, Oaktree Fund GP I, L.P., Oaktree
Capital I, L.P., OCM Holdings I, LLC, Oaktree Holdings, LLC, Oaktree Capital
Group, LLC, Oaktree Capital Group Holdings GP, LLC, Brookfield Public
Securities Group LLC, Brookfield Public Securities Group Holdings, LLC,
Brookfield US Inc., Brookfield Asset Management Inc. and BAM Partners Trust.
The amended Schedule 13G reports aggregate beneficial ownership of 7,000,067
shares. The reporting persons have sole power to vote or direct the vote of
such shares and sole power to dispose or to direct the disposition of such
shares.
Beneficial Owner Number of Share Total Percent of
Shares Equivalents Ownership Class
(1)
Domenic J. ("Nick") Dell'Osso, Jr. 6,694 4,954 11,648 *
Mohit Singh 3,999 - 3,999 *
Joshua J. Viets 9,346 - 9,346 *
Benjamin E. Russ 2,865 - 2,865 *
Michael A. Wichterich 11,251 12,484 23,735 *
Timothy S. Duncan 2,779 9,545 12,324 *
Benjamin C. Duster, IV 2,527 9,036 11,563 *
Sarah A. Emerson 2,527 9,036 11,563 *
Matthew M. Gallagher - 2,842 12,879 *
Brian Steck 2,842 10,037 12,879 *
All current directors and executive officers as a group (10 persons) 34,563 65,129 99,692 *
*
Less than 1%.
(1)
Includes restricted stock unit awards that: (i) are scheduled to vest within
60 days of May 17, 2024; or (ii) for directors, have vested, but have been
contributed to a deferred compensation plan at the election of the director.
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CERTAIN BENEFICIAL OWNERS OF SOUTHWESTERN COMMON STOCK
The following table sets forth information known to Southwestern regarding the
beneficial ownership of Southwestern Common Stock as of May 16, 2024:
.
each person who is the beneficial owner of more than 5% of the outstanding
shares of Southwestern Common Stock;
.
each of Southwestern's current named executive officers and directors; and
.
all executive officers and directors of Southwestern, as a group.
Beneficial ownership is determined according to the rules of the SEC, which
generally provide that a person has beneficial ownership of a security if he,
she or it possesses sole or shared voting or investment power over that
security, including securities that such he, she or it has the right to
acquire within sixty days, including options exercisable within sixty days.
Restricted stock units that do not vest within sixty days of May 16, 2024 are
not included in the beneficial ownership percentage.
Unless otherwise indicated, Southwestern believes that all persons named in
the tables below have sole voting and investment power with respect to all
shares of Southwestern Common Stock beneficially owned by them. All
information with respect to beneficial ownership has been furnished by the
respective directors, executive officers or 5% or more stockholders, as the
case may be. The applicable percentages of shares of Southwestern Common Stock
beneficially owned are based on 1,102,846,071 shares of Southwestern Common
Stock, held by 1,716 holders of record, issued and outstanding as of May 16,
2024. Unless otherwise noted, the mailing address of each listed beneficial
owner is 10000 Energy Drive, Spring, Texas 77389.
Name and Address Number of Percent of
Southwestern Outstanding
Shares of Southwestern
Common Stock Common Stock
Beneficially
Owned
>5% beneficial owners
The Vanguard Group 110,728,398 10.1
100 Vanguard Boulevard %
Malvern, PA 19355
(1)
BlackRock, Inc. 96,220,394 8.7
50 Hudson Yards %
New York, NY 10001
(2)
(1)
This information is as of December 29, 2023, as reported in Schedule 13G/A
filed on February 13, 2024 by The Vanguard Group. The amended Schedule 13G
reports aggregate beneficial ownership of 110,728,382 shares, including: (i)
sole power to vote or to direct the vote of 0 shares; (ii) shared power to
vote or to direct the vote of 540,108 shares; (iii) sole power to dispose or
direct the disposition of 109,179,398 shares; and (iv) shared power to dispose
or direct the disposition of 1,548,984 shares. The business address for each
reporting person is 100 Vanguard Blvd., Malvern, PA 19355.
(2)
This information is as of December 31, 2023, as reported in Schedule 13G/A
filed on January 25, 2024 by BlackRock, Inc. The amended Schedule 13G reports
aggregate beneficial ownership of 96,220,394 shares, including: (i) sole power
to vote or to direct the vote of 93,979,910 shares; (ii) shared power to vote
or to direct the vote of 0 shares; (iii) sole power to dispose or direct the
disposition of 96,220,394 shares; and (iv) shared power to dispose or direct
the disposition of 0 shares. The business address for each reporting person is
50 Hudson Yards, New York, NY 10001.
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Beneficial Owner Shares of Share Total Shares Percent of
Southwestern Equivalents of Outstanding
Common (1) Southwestern Southwestern
Stock Common Common
Beneficially Stock Stock
Owned Beneficially
Owned
Directors and Named Executive Officers prior to the Merger
Clayton A. Carrell 1,398,789 - 1,398,789 *
John D. Gass 108,810 236,366 345,176 *
(2)
Carl F. Giesler Jr. 278,302 5,509 283,811 *
(3)
S.P. Johnson IV 154,417 - 154,417 *
Catherine A. Kehr 535,788 - 535,788 *
John P. Kelly 211,037 - 211,037 *
Greg D. Kerley 432,014 - 432,014 *
Shameek Konar 40,778 - 40,778 -
Christopher W. Lacy 121,620 - 121,620 *
Jon A. Marshall 314,273 - 314,273 *
Patrick M. Prevost 74,178 236,366 310,544 *
(4)
Anne Taylor 25,199 236,366 261,565 *
(5)
Denis J. Walsh - 160,753 160,753 *
(6)
William J. Way 3,672,721 - 3,672,721 *
All directors and executive officers prior to the Merger 8,346,089 904,639 9,250,728 *
(20 persons)
*
Less than 1%.
(1)
Includes deferred stock units and shares of Southwestern Common Stock held via
401K plans, as applicable.
(2)
Includes 199,465 vested and 36,901 unvested deferred stock units to be settled
in shares of the Southwestern Common Stock either (i) on a date selected by
the reporting person pursuant to the Southwestern Nonemployee Director
Deferred Compensation Plan ("Southwestern Director Deferred Plan") or (ii) as
otherwise provided by the Southwestern Director Deferred Plan.
(3)
Includes 5,509 shares held by Mr. Giesler through his 401K plan with
Southwestern.
(4)
Includes 199,465 vested and 36,901 unvested deferred stock units to be settled
in shares of the Southwestern Common Stock either (i) on a date selected by
the reporting person pursuant to the Southwestern Director Deferred Plan or
(ii) as otherwise provided by the Southwestern Director Deferred Plan.
(5)
Includes 199,465 vested and 36,901 unvested deferred stock units to be settled
in shares of the Southwestern Common Stock either (i) on a date selected by
the reporting person pursuant to the Southwestern Director Deferred Plan or
(ii) as otherwise provided by the Southwestern Director Deferred Plan.
(6)
Includes 123,852 vested and 36,901 unvested deferred stock units to be settled
in shares of the Southwestern Common Stock either (i) on a date selected by
the reporting person pursuant to the Southwestern Director Deferred Plan or
(ii) as otherwise provided by the Southwestern Director Deferred Plan.
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VALIDITY OF COMMON STOCK
The validity of the shares of Chesapeake Common Stock offered hereby will be
passed upon for Chesapeake by Derrick & Briggs, LLP.
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EXPERTS
Chesapeake
The financial statements and management's assessment of the effectiveness of
internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) of Chesapeake Energy
Corporation (Successor) incorporated in this prospectus by reference to
Chesapeake Energy Corporation's
Annual Report on Form 10-K for the year ended December 31, 2023
have been so incorporated in reliance on the report (which contains an
explanatory paragraph relating to the Company's emergence from bankruptcy on
February 9, 2021 as discussed in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Chesapeake Energy Corporation (Predecessor)
incorporated in this prospectus by reference to Chesapeake Energy Corporation's
Annual Report on Form 10-K for the year ended December 31, 2023
have been so incorporated in reliance on the report (which contains an
explanatory paragraph relating to the Company's emergence from bankruptcy on
February 9, 2021 as discussed in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
Certain estimates of Chesapeake's net natural gas and oil reserves and related
information included or incorporated by reference in this proxy statement/prospe
ctus were based upon reserve estimates made by Chesapeake's reservoir
engineers under the supervision of Chesapeake's management. These reserve
estimates were audited by Netherland, Sewell & Associates, Inc., an
independent petroleum engineering firm.
Southwestern
The financial statements and management's assessment of the effectiveness of
internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) incorporated in this
prospectus by reference to
Southwestern Energy Company's Annual Report on Form 10-K for the year ended
December 31, 2023
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on the authority
of said firm as experts in auditing and accounting.
Certain estimates of Southwestern's net natural gas and oil reserves and
related information included or incorporated by reference in this proxy
statement/prospectus were based upon reserve estimates made by Southwestern's
reservoir engineers under the supervision of Southwestern's management. These
reserve estimates were audited by Netherland, Sewell & Associates, Inc., an
independent petroleum engineering firm.
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SHAREHOLDER PROPOSALS
Chesapeake
Chesapeake's 2024 annual meeting of shareholders will be held on June 6, 2024.
Shareholder proposals intended to be presented for possible inclusion in
Chesapeake's proxy materials for Chesapeake's 2025 annual meeting of
shareholders (the "Chesapeake 2025 Meeting") must be received by Chesapeake at
its principal offices not later than March 11, 2025. Any shareholder
submitting a proposal intended to be brought before the Chesapeake 2025
Meeting who has not sought inclusion of the proposal in Chesapeake's proxy
materials must provide written notice of such proposal to the Corporate
Secretary of Chesapeake at Chesapeake's principal executive offices no later
than the close of business on March 11, 2025, and no earlier than the opening
of business on February 9, 2025. If, however, the Chesapeake 2025 Meeting is
called for a date that more than thirty days before or more than sixty days
after the anniversary date of the Chesapeake 2024 Meeting, the notice by the
shareholder to be timely must be so delivered not earlier than the close of
business on the one hundred twentieth day prior to the date of such annual
meeting and not later than the close of business on the later of the one
hundred twentieth day prior to the date of such annual meeting or, the tenth
day following the day on which public announcement of the date of such meeting
is first made by Chesapeake. The Chesapeake Bylaws require that notices of
shareholder proposals contain certain information about any proposal and the
proposing shareholder. A copy of the relevant bylaw provisions may be obtained
on www.sec.gov or by contacting the Corporate Secretary, Chesapeake Energy
Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma 73118.
Eligible Shareholders may nominate a candidate for election to the Chesapeake
Board for inclusion in Chesapeake's proxy materials in accordance with the
Chesapeake Bylaws. The Chesapeake Bylaws require that notice be provided in
writing to the Corporate Secretary of Chesapeake (at the same address noted
above) no later than the close of business on March 11, 2025, and no earlier
than the opening of business on February 9, 2025. The Chesapeake Bylaws also
provide that, subject to compliance with certain requirements, any Eligible
Shareholder may nominate a candidate for election to the Chesapeake Board,
which nomination is not submitted for inclusion in Chesapeake's proxy
materials. If, however, the Chesapeake 2025 Meeting is not held within thirty
days of June 6, 2025, the Chesapeake Bylaws require that notice of any such
nomination be provided in writing to the Corporate Secretary of Chesapeake (at
the same address noted above) no later than the close of business on the tenth
day following the earlier of the day on which notice of the date of such
meeting was mailed or public announcement of the date of such meeting is first
made.
For more information regarding shareholder proposals for the Chesapeake 2025
Meeting, see the "Submitting Proposals for 2025 Annual Meeting" section of
Chesapeake Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 26, 2024.
Southwestern
Southwestern held its 2023 annual meeting of shareholders on May 18, 2023.
Shareholder proposals intended to be presented for possible inclusion in
Southwestern's proxy materials for Southwestern's 2024 annual meeting of
shareholders (the "Southwestern 2024 Meeting") must be received by
Southwestern at its principal offices not later than December 7, 2023. Any
shareholder submitting a proposal intended to be brought before the
Southwestern 2024 Meeting who has not sought inclusion of the proposal in
Southwestern's proxy materials must provide written notice of such proposal to
the Secretary of Southwestern at Southwestern's principal executive offices no
later than the close of business on February 18, 2024, and no earlier than the
opening of business on January 19, 2024. If, however, the Southwestern 2024
Meeting is called for a date that is not within twenty-five days before or
after the anniversary date of the Southwestern 2023 Meeting, then such notice
must be delivered to the Secretary of Southwestern no later than the close of
business on the tenth day following the day on which such notice of the date
of the 2024 Annual Meeting was mailed or public disclosure of the date of the
2024 Annual Meeting was first made, whichever occurs first. Any such notice
must also comply with the timing, disclosure, procedural and other
requirements as set forth in the Southwestern's Amended and Restated Bylaws. A
copy of the relevant bylaw provisions may be obtained on www.sec.gov or by
contacting the Secretary, Southwestern Energy Company, 10000 Energy Drive,
Spring, Texas 77389.
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Eligible Shareholders may nominate a candidate for election to the
Southwestern Board for inclusion in Southwestern's proxy materials in
accordance with the Southwestern Amended and Restated Bylaws. The Southwestern
Amended and Restated Bylaws require that notice be provided in writing to the
Secretary of Southwestern (at the same address noted above) no later than the
close of business on December 7, 2023, and no earlier than the opening of
business on November 7, 2023. The Southwestern Amended and Restated Bylaws
also provide that, subject to compliance with certain requirements, any
Shareholder may nominate a candidate for election to the Southwestern Board,
which nomination is not submitted for inclusion in Southwestern's proxy
materials. The Shareholder must deliver written notice of an intent to make
such director nomination and/or make such proposal of business to the
Secretary of Southwestern (at the same address noted above) no later than
February 18, 2024 and no earlier than January 19, 2024. However, if the
Southwestern 2024 Meeting is called for a date that is not within twenty-five
days before or after the anniversary of the date of the 2023 Annual Meeting,
then such notice must be delivered to the Secretary of Southwestern no later
than the close of business on the tenth day following the day on which such
notice of the date of the Southwestern 2024 Meeting was mailed or public
disclosure of the date of the Southwestern 2024 Meeting was first made,
whichever occurs first. Any such notice must also comply with the timing,
disclosure, procedural and other requirements as set forth in Southwestern's
Amended and Restated Bylaws.
For more information regarding shareholder proposals for the Southwestern 2024
Meeting, see the "Deadlines for Notice of Shareholder Actions to be Considered
at the 2024 Annual Meeting" section of Southwestern Definitive Proxy Statement
on Schedule 14A filed with the SEC on April 5, 2023.
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HOUSEHOLDING OF PROXY MATERIALS
Each registered Chesapeake shareholder and Southwestern shareholder (meaning
you own shares or shares, as applicable, in your own name on (i) the books of
Southwestern's transfer agent, Computershare, N.A., or (ii) the books of
Chesapeake's transfer agent, Equiniti) will receive one copy of this joint
proxy statement/prospectus per account, regardless of whether you have the
same address as another shareholder of record. SEC rules permit companies and
intermediaries such as brokers to satisfy delivery requirements for proxy
statements and notices with respect to two or more shareholders sharing the
same address by delivering a single proxy statement or a single notice
addressed to those shareholders. This process, commonly called "householding,"
provides cost savings for companies. If you hold shares through a broker, some
brokers household proxy materials, delivering a single proxy statement or
notice to multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders. Once you have
received notice from your broker that it will be householding materials to
your address, householding will continue until you are notified otherwise or
until you revoke your consent. If, at any time, you no longer wish to
participate in householding and would prefer to receive a separate proxy
statement or notice, or if your household is receiving multiple copies of
these documents and you wish to request that future deliveries be limited to a
single copy, please notify your broker.
Southwestern will promptly deliver, upon oral or written request, a separate
copy of this joint proxy statement/prospectus to any Southwestern shareholder
residing at an address to which only one copy was mailed. Requests for
additional copies should be directed to the Secretary, at Southwestern's
principal executive offices, 10000 Energy Drive, Spring, Texas 77389, or
contact Southwestern's Secretary by telephone at (832) 796-4700.
Chesapeake will promptly deliver, upon oral or written request, a separate
copy of this joint proxy statement/prospectus to any Chesapeake shareholder
residing at an address to which only one copy was mailed. Requests for
additional copies should be directed to Investor Relations, at Chesapeake's
principal executive offices, 6100 North Western Avenue, Oklahoma City,
Oklahoma 73118, or contact Chesapeake Investor Relations by telephone at (405)
935-8870 or by email at ir@chk.com.
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WHERE YOU CAN FIND MORE INFORMATION
Chesapeake and Southwestern file annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC maintains a website
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including both
Chesapeake and Southwestern, which you can access at www.sec.gov. The
information contained on the SEC's website is expressly not incorporated by
reference into this joint proxy statement/prospectus.
Chesapeake has filed with the SEC a registration statement on Form S-4 of
which this joint proxy statement/prospectus forms a part. The registration
statement registers the shares of Chesapeake Common Stock to be issued to
Southwestern shareholders in connection with the Merger. The registration
statement, including the attached exhibits and annexes, contains additional
relevant information about Chesapeake and Southwestern, respectively. The
rules and regulations of the SEC allow Chesapeake and Southwestern to omit
certain information included in the registration statement from this joint
proxy statement/prospectus.
In addition, the SEC allows Chesapeake and Southwestern to disclose important
information to you by referring you to other documents filed separately with
the SEC. This information is considered to be a part of this joint proxy
statement/prospectus, except for any information that is superseded by
information included directly in this joint proxy statement/prospectus or
incorporated by reference subsequent to the date of this joint proxy
statement/prospectus as described below.
This joint proxy statement/prospectus incorporates by reference the documents
listed below that Chesapeake and Southwestern have previously filed with the
SEC. They contain important information about the companies and their
financial condition.
Chesapeake SEC Filings
.
Annual Report on Form 10-K for the fiscal year ended December 31, 2023;
.
the information included in Chesapeake's
Definitive Proxy Statement on Schedule 14A filed on April 26, 2024
to the extent incorporated by reference in Part III of Chesapeake's
Annual Report on Form 10-K for the year ended December 31, 2023
;
Quarterly Report on Form 10-Q filed on April 30, 2024
;
.
Current Report on Form 8-K filed on January 11, 2024
(other than the portions of those documents not deemed to be filed pursuant to
the rules promulgated under the Exchange Act); and
.
The description of the Chesapeake securities set forth in Exhibit 4.1 of
Chesapeake's Annual Report on Form 10-K, filed February 21, 2024
, including any amendment or report filed for the purposes of updating such
description.
Southwestern SEC Filings
.
Annual Report on Form 10-K for the fiscal year ended December 31, 2023
(as amended by Amendment No. 1 to
Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023,
filed with the SEC on April 29, 2024);
.
Quarterly Report on Form 10-Q filed on May 2, 2024;
.
Current Reports on Form 8-K filed on January 11, 2024
(other than the portions of those documents not deemed to be filed pursuant to
the rules promulgated under the Exchange Act); and
.
The description of the Southwestern securities set forth in Exhibit 4.1 of
Southwestern's Annual Report on Form 10-K, filed February 22, 2024
, including any amendment or report filed for the purposes of updating such
description.
To the extent that any information contained in any report on Form 8-K, or any
exhibit thereto, was furnished to, rather than filed with, the SEC, such
information or exhibit is specifically not incorporated by reference.
In addition, Chesapeake and Southwestern incorporate by reference any future
filings they make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this joint proxy
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statement/prospectus and before the date of the Chesapeake Special Meeting and
Southwestern Special Meeting (excluding any current reports on Form 8-K to the
extent disclosure is furnished and not filed). Those documents are considered
to be a part of this joint proxy statement/prospectus, effective as of the
date they are filed. In the event of conflicting information in these
documents, the information in the latest filed document should be considered
correct.
Statements contained in this joint proxy statement/prospectus regarding the
contents of any contract or other document, are not necessarily complete and
each such statement is qualified in its entirety by reference to the full text
of that contract or other document filed as an exhibit with the SEC.
You can obtain any of the other documents listed above from the SEC, through
the SEC's website at the address indicated above, or from Chesapeake or
Southwestern, as applicable, by requesting them in writing or by telephone
from the appropriate company at the following addresses and telephone numbers:
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attn: Corporate Secretary
(405) 848-8000
Southwestern Energy Company
10000 Energy Drive
Spring, Texas 77389
Attn: Investor Relations
(832) 796-1000
These documents are available from Chesapeake or Southwestern, as the case may
be, without charge, excluding any exhibits to them unless the exhibit is
specifically listed as an exhibit to the registration statement of which this
joint proxy statement/prospectus forms a part. You can also find information
about Chesapeake and Southwestern at their websites at www.chk.com and
www.swn.com, respectively. Information contained on these websites does not
constitute part of this joint proxy statement/prospectus.
If you are a Chesapeake shareholder and would like to request documents,
please do so by June 11, 2024 to receive them before the Chesapeake Special
Meeting. If you are a Southwestern shareholder and would like to request
documents, please do so by June 11, 2024 to receive them before the
Southwestern Special Meeting. If you request any documents from Southwestern
or Chesapeake, Chesapeake or Southwestern will mail them to you by first class
mail, or another equally prompt means, within one business day after
Chesapeake or Southwestern, as the case may be, receives your request.
This document is a prospectus of Chesapeake and is a joint proxy statement of
Southwestern and Chesapeake for the Southwestern Special Meeting and
Chesapeake Special Meeting, as the case may be. Neither Chesapeake nor
Southwestern has authorized anyone to give any information or make any
representation about the Merger or Chesapeake or Southwestern that is
different from, or in addition to, that contained in this joint proxy
statement/prospectus or in any of the materials that Chesapeake or
Southwestern has incorporated by reference into this joint proxy statement/prosp
ectus. Therefore, if anyone does give you information of this sort, you should
not rely on it. The information contained in this document speaks only as of
the date of this document unless the information specifically indicates that
another date applies.
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Annex A
Execution Version
AGREEMENT AND PLAN OF MERGER
among
CHESAPEAKE ENERGY CORPORATION,
HULK MERGER SUB, INC.,
HULK LLC SUB, LLC,
and
SOUTHWESTERN ENERGY COMPANY
Dated as of January 10, 2024
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS A-1
Section 1.1 A-1
Certain Definitions
Section 1.2 A-2
Terms Defined Elsewhere
ARTICLE II THE MERGER A-4
Section 2.1 A-4
The Merger
Section 2.2 A-4
Closing
Section 2.3 A-5
Effect of the Merger
Section 2.4 A-5
Certificate of Incorporation and Bylaws of the Surviving Corporation
Section 2.5 A-5
Directors and Officers
Section 2.6 A-5
Integration and Governance
Section 2.7 A-6
Post-Closing Merger
ARTICLE III EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE A-6
Section 3.1 A-6
Effect of the Merger on Capital Stock
Section 3.2 A-7
Treatment of Equity Compensation Awards
Section 3.3 A-9
Payment for Securities; Exchange
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY A-13
Section 4.1 A-13
Organization, Standing and Power
Section 4.2 A-13
Capital Structure
Section 4.3 A-14
Authority; No Violations; Consents and Approvals
Section 4.4 A-15
Consents
Section 4.5 A-15
Company SEC Documents; Financial Statements
Section 4.6 A-16
Absence of Certain Changes or Events
Section 4.7 A-16
No Undisclosed Material Liabilities
Section 4.8 A-17
Information Supplied
Section 4.9 A-17
Company Permits; Compliance with Applicable Law
Section 4.10 A-18
Compensation; Benefits
Section 4.11 A-19
Labor Matters
Section 4.12 A-20
Taxes
Section 4.13 A-21
Litigation
Section 4.14 A-21
Intellectual Property
Section 4.15 A-22
Privacy and Cybersecurity
Section 4.16 A-22
Real Property
Section 4.17 A-22
Rights-of-Way
Section 4.18 A-23
Oil and Gas Matters
Section 4.19 A-25
Environmental Matters
Section 4.20 A-25
Material Contracts
Section 4.21 A-27
Derivative Transactions
Section 4.22 A-28
Insurance
Section 4.23 A-28
Opinion of Financial Advisor
Section 4.24 A-28
Brokers
Section 4.25 A-28
Takeover Laws
Section 4.26 A-28
Related Party Transactions
Section 4.27 A-29
No Additional Representations
A-i
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Page
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND LLC SUB A-29
Section 5.1 A-29
Organization, Standing and Power
Section 5.2 A-30
Capital Structure
Section 5.3 A-31
Authority; No Violations; Consents and Approvals
Section 5.4 A-32
Consents
Section 5.5 A-32
Parent SEC Documents; Financial Statements
Section 5.6 A-33
Absence of Certain Changes or Events
Section 5.7 A-34
No Undisclosed Material Liabilities
Section 5.8 A-34
Information Supplied
Section 5.9 A-34
Parent Permits; Compliance with Applicable Law
Section 5.10 A-35
Compensation; Benefits
Section 5.11 A-36
Labor Matters
Section 5.12 A-37
Taxes
Section 5.13 A-38
Litigation
Section 5.14 A-38
Intellectual Property
Section 5.15 A-38
Privacy and Cybersecurity
Section 5.16 A-39
Real Property
Section 5.17 A-39
Rights-of-Way
Section 5.18 A-39
Oil and Gas Matters
Section 5.19 A-41
Environmental Matters
Section 5.20 A-42
Material Contracts
Section 5.21 A-44
Derivative Transactions
Section 5.22 A-44
Insurance
Section 5.23 A-44
Opinion of Financial Advisor
Section 5.24 A-45
Brokers
Section 5.25 A-45
Ownership of Company Common Stock
Section 5.26 A-45
Business Conduct
Section 5.27 A-45
Related Party Transactions
Section 5.28 A-45
Takeover Laws
Section 5.29 A-45
No Additional Representations
ARTICLE VI COVENANTS AND AGREEMENTS A-46
Section 6.1 A-46
Conduct of Company Business Pending the Merger
Section 6.2 A-49
Conduct of Parent Business Pending the Merger
Section 6.3 A-52
No Solicitation by the Company
Section 6.4 A-57
No Solicitation by Parent
Section 6.5 A-62
Preparation of the Joint Proxy Statement/Prospectus and Registration Statement
Section 6.6 A-63
Stockholders Meetings
Section 6.7 A-65
Access to Information
Section 6.8 A-66
HSR and Other Approvals
Section 6.9 A-68
Employee Matters
Section 6.10 A-70
Indemnification; Directors' and Officers' Insurance
Section 6.11 A-72
Transaction Litigation
Section 6.12 A-72
Public Announcements
Section 6.13 A-72
Advice on Certain Matters; Control of Business
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Page
Section 6.14 A-73
Financing Cooperation
Section 6.15 A-75
Reasonable Best Efforts; Notification
Section 6.16 A-75
Section 16 Matters
Section 6.17 A-75
Stock Exchange Listing and Delistings
Section 6.18 A-76
Certain Indebtedness
Section 6.19 A-76
Tax Matters
Section 6.20 A-77
Takeover Laws
Section 6.21 A-77
Obligations of Merger Sub and LLC Sub
Section 6.22 A-77
Transfer Taxes
Section 6.23 A-77
Derivative Contracts; Hedging Matters
ARTICLE VII CONDITIONS PRECEDENT A-77
Section 7.1 A-77
Conditions to Each Party's Obligation to Consummate the Merger
Section 7.2 A-78
Additional Conditions to Obligations of Parent, Merger Sub and LLC Sub
Section 7.3 A-78
Additional Conditions to Obligations of the Company
Section 7.4 A-79
Frustration of Closing Conditions
ARTICLE VIII TERMINATION A-79
Section 8.1 A-79
Termination
Section 8.2 A-81
Notice of Termination; Effect of Termination
Section 8.3 A-81
Expenses and Other Payments
ARTICLE IX GENERAL PROVISIONS A-83
Section 9.1 A-83
Schedule Definitions
Section 9.2 A-84
Survival; Exclusive Remedy
Section 9.3 A-84
Notices
Section 9.4 A-85
Rules of Construction
Section 9.5 A-86
Counterparts
Section 9.6 A-87
Entire Agreement; No Third Party Beneficiaries
Section 9.7 A-87
Governing Law; Venue; Waiver of Jury Trial
Section 9.8 A-88
Severability
Section 9.9 A-88
Assignment
Section 9.10 A-88
Specific Performance
Section 9.11 A-88
Affiliate Liability
Section 9.12 A-89
Amendment
Section 9.13 A-89
Extension; Waiver
Section 9.14 A-89
Non-Recourse
Section 9.15 A-89
Debt Financing Sources
Annexes and Exhibits
Annex A Certain Definitions
Exhibit A Form of Certificate of Incorporation of the Surviving Corporation
Exhibit B Form of Bylaws of the Surviving Corporation
Exhibit C Form of LLC Sub Merger Agreement
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of January 10, 2024 (this "
Agreement
"), is entered into by and among Chesapeake Energy Corporation, an Oklahoma
corporation ("
Parent
"), Hulk Merger Sub, Inc., a Delaware corporation and a wholly owned
Subsidiary of Parent ("
Merger Sub
"), Hulk LLC Sub, LLC, a Delaware limited liability company and a wholly owned
Subsidiary of Parent ("
LLC Sub
"), and Southwestern Energy Company, a Delaware corporation (the "
Company
").
WHEREAS, the Board of Directors of the Company (the "
Company Board
"), at a meeting duly called and held, has (i) determined that this Agreement
and the Transactions, including the merger of Merger Sub with and into the
Company, with the Company continuing as the surviving entity following such
merger (the "
Merger
"), are fair and reasonable to, and in the best interests of, the Company and
the holders of the shares of common stock of the Company, par value $0.01 per
share (the "
Company Common Stock
"), (ii) approved and declared advisable this Agreement and the Transactions
and (iii) resolved to recommend that the holders of Company Common Stock
approve and adopt this Agreement and the Transactions;
WHEREAS, the Board of Directors of Parent (the "
Parent Board
"), at a meeting duly called and held, has (i) determined that this Agreement
and the Transactions, including the issuance of the shares of common stock of
Parent, par value $0.01 per share ("
Parent Common Stock
"), pursuant to this Agreement (the "
Parent Stock Issuance
"), are fair and reasonable to, and in the best interests of, Parent and the
holders of Parent Common Stock, (ii) approved and declared advisable this
Agreement and the consummation of the Transactions, including the Parent Stock
Issuance and (iii) resolved to recommend that the holders of Parent Common
Stock approve the Parent Stock Issuance;
WHEREAS, the Board of Directors of Merger Sub (the "
Merger Sub Board
") has (i) determined that this Agreement and the Transactions are fair and
reasonable to and in the best interests of, Merger Sub and its stockholder,
(ii) approved and declared advisable this Agreement and the Transactions and
(iii) recommended this Agreement and the Transactions to Parent for approval
and adoption thereby in its capacity as the sole stockholder of Merger Sub;
WHEREAS, Parent (i) in its capacity as the sole stockholder of Merger Sub,
will approve and adopt this Agreement and (ii) in its capacity as the sole
member of LLC Sub, will approve and adopt this Agreement, in each case,
promptly following its execution;
WHEREAS, Parent desires to acquire 100% of the issued and outstanding shares
of capital stock of the Company on the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, immediately after the Effective Time, the Surviving Corporation shall
be merged with and into LLC Sub, with LLC Sub continuing as the surviving
entity in the LLC Sub Merger as a wholly owned subsidiary of Parent; and
WHEREAS, for U.S. federal income tax purposes, it is intended that (i) the
Merger and the LLC Sub Merger (together, the "
Integrated Mergers
"), taken together, qualify as a "reorganization" within the meaning of
Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (the "
Code
"), and (ii) this Agreement and the LLC Sub Merger Agreement, taken together,
constitute and be adopted as a "plan of reorganization" for purposes of
Sections 354 and 361 of the Code and within the meaning of Treasury
Regulations (s)(s) 1.368-2(g) and 1.368-3(a).
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement, and for
other valuable consideration, the receipt and sufficiency of which are
acknowledged, Parent, Merger Sub, LLC Sub and the Company agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1
Certain Definitions
. As used in this Agreement, the capitalized terms have the meanings
ascribed to such terms in Annex A or as otherwise defined elsewhere in this
Agreement.
A-1
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Section 1.2
Terms Defined Elsewhere
. As used in this Agreement, the following capitalized terms are defined in
this Agreement as referenced in the following table:
Definition Section
Acceptable Confidentiality Agreement 6.3(c)(i)
Agreement Preamble
Antitrust Laws 6.8(b)(ii)
Bonus Payment Date 6.9(h)
Book-Entry Shares 3.3(b)(ii)
Certificate of Merger 2.2(b)
Certificates 3.3(b)(i)
Closing 2.2(a)
Closing Date 2.2(a)
Code Recitals
Company Preamble
Company 401(k) Plans 6.9(f)
Company Alternative Acquisition Agreement 6.3(e)(vi)
Company Board Recitals
Company Board Recommendation 4.3(a)
Company Capital Stock 4.2(a)
Company Change of Recommendation 6.3(e)(viii)
Company Common Stock Recitals
Company Contracts 4.20(b)
Company Designee 2.5(a)
Company Disclosure Letter Article IV
Company Employee 6.9(a)
Company Independent Petroleum Engineer 4.18(a)
Company Intellectual Property 4.14(a)
Company Material Adverse Effect 4.1
Company Material Leased Real Property 4.16
Company Material Real Property 4.16
Company Material Real Property Lease 4.16
Company Owned Real Property 4.16
Company Permits 4.9(a)
Company Preferred Stock 4.2(a)
Company Privacy Obligations 4.15(a)
Company Refinanced Indebtedness 6.1(b)(x)
Company Refinancing Indebtedness 6.1(b)(x)
Company Related Party Transaction 4.26
Company Reserve Report 4.18(a)
Company SEC Documents 4.5(a)
Company Tax Certificate 6.19(c)
Confidentiality Agreement 6.7(b)
D&O Insurance 6.10(d)
Debt Financing 6.14(b)
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Definition Section
Debt Financing Sources 6.14(b)
DGCL 2.1
Effective Time 2.2(b)
Eligible Shares 3.1(b)(i)
e-mail 9.3
Earned Company Performance Shares 3.2(d)(i)
Exchange Agent 3.3(a)
Exchange Fund 3.3(a)
Exchange Ratio 3.1(b)(i)
Excluded Shares 3.1(b)(iii)
GAAP 4.5(b)
HSR Act 4.4
Indemnified Liabilities 6.10(a)
Indemnified Persons 6.10(a)
Joint Proxy Statement/Prospectus 4.4
Letter of Transmittal 3.3(b)(i)
LLC Sub Merger 2.7
LLC Sub Merger Agreement 2.7
Material Company Insurance Policies 4.22
Material Parent Insurance Policies 5.22
Merger Recitals
Merger Consideration 3.1(b)(i)
Merger Sub Preamble
Merger Sub Board Recitals
Outside Date 8.1(b)(ii)
Parent Preamble
Parent 401(k) Plan 6.9(f)
Parent Alternative Acquisition Agreement 6.4(e)(vi)
Parent Board Recitals
Parent Board Recommendation 5.3(a)
Parent Capital Stock 5.2(a)
Parent Change of Recommendation 6.4(e)(viii)
Parent Closing Price 3.3(h)
Parent Common Stock Recitals
Parent Contracts 5.20(b)
Parent Disclosure Letter Article V
Parent Independent Petroleum Engineer 5.18(a)
Parent Intellectual Property 5.14(a)
Parent Material Adverse Effect 5.1
Parent Material Leased Real Property 5.16
Parent Material Real Property 5.16
Parent Material Real Property Lease 5.16
Parent Owned Real Property 5.16
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Definition Section
Parent Permits 5.9(a)
Parent Preferred Stock 5.2(a)
Parent Privacy Obligations 5.15(a)
Parent Refinanced Indebtedness 6.2(b)(ix)
Parent Refinancing Indebtedness 6.2(b)(ix)
Parent Related Party Transaction 5.27
Parent Reserve Report 5.18(a)
Parent RSU Award 3.2(c)(iii)
Parent SEC Documents 5.5(a)
Parent Stock Issuance Recitals
Parent Stock Plans 5.2(b)
Parent Tax Certificate 6.19(c)
Parent Warrants 5.2(a)
Participating Employee 6.9(h)
Phase II 6.7(a)(iv)
Registration Statement 4.8
Remedy Action 6.8(c)
Reserved Shares 5.2(b)
Reserved Warrants 5.2(b)
Rights-of-Way 4.17
Security Incident 4.15(b)
Subject Courts 9.15
Surviving Corporation 2.1
Tail Period 6.10(d)
Terminable Breach 8.1(b)(iii)
Transaction Litigation 6.11
ARTICLE II
THE MERGER
Section 2.1
The Merger
. Upon the terms and subject to the conditions of this Agreement, at the
Effective Time, Merger Sub will be merged with and into the Company in
accordance with the provisions of the General Corporation Law of the State of
Delaware (the "
DGCL
"). As a result of the Merger, the separate existence of Merger Sub shall
cease and the Company shall continue its existence under the laws of the State
of Delaware as the surviving corporation (in such capacity, the Company is
sometimes referred to herein as the "Surviving Corporation"), as a wholly
owned subsidiary of Parent.
Section 2.2
Closing
.
(a) The closing of the Merger (the "
Closing
"), shall take place by the exchange of documents by "portable document
format" (".pdf") or other electronic means at 9:00 a.m., Houston, Texas time,
on the date that is three (3) Business Days immediately following the
satisfaction or (to the extent permitted by applicable Law) waiver in
accordance with this Agreement of all of the conditions set forth in
Article VII
(other than any such conditions which by their nature cannot be satisfied
until the Closing Date, which shall be required to be so satisfied or (to the
extent permitted by applicable Law) waived in accordance with this Agreement
on the Closing Date), unless another date, time or place is agreed to in
writing by Parent and the Company. For purposes of this Agreement, "
Closing Date
" shall mean the date on which the Closing occurs.
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(b) As soon as practicable on the Closing Date in connection with the
Closing, the Parties will cause a certificate of merger, prepared and executed
in accordance with the relevant provisions of the DGCL to consummate the
Merger (the "
Certificate of Merger
"), to be filed with the Secretary of State of the State of Delaware. The
Merger shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, or at such later time as
shall be agreed upon in writing by Parent and the Company and specified in the
Certificate of Merger (the time the Merger becomes effective being the "
Effective Time
").
Section 2.3
Effect of the Merger
. At the Effective Time, the Merger shall have the effects set forth in this
Agreement and the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of each of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts
(including the Notes), liabilities, obligations, restrictions, disabilities
and duties of each of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
Section 2.4
Certificate of Incorporation and Bylaws of the Surviving Corporation
. At the Effective Time, (a) the certificate of incorporation of the Company
in effect immediately prior to the Effective Time shall be amended and
restated in its entirety as of the Effective Time to be in the form set forth
in
Exhibit A
and (b) the bylaws of the Company in effect immediately prior to the Effective
Time shall be amended and restated in their entirety as of the Effective Time
to be in the form set forth in
Exhibit B
, and shall be the certificate of incorporation and bylaws, respectively, of
the Surviving Corporation from and after the Effective Time, in each case
until duly amended and/or restated in accordance with their respective terms
and applicable Law.
Section 2.5
Directors and Officers
.
(a)
Parent Board
. Unless otherwise agreed to by the Parties, Parent shall take all actions
necessary to cause the Parent Board to consist, at the Effective Time, of
eleven (11) members, including four (4) individuals selected by the Company
(the "
Company Designees
"), each of whom is a member of the Company Board as of the date of this
Agreement and will meet the requirements under the rules and regulations of
NASDAQ to be considered an independent director on the Parent Board, with such
directors to serve until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Organizational Documents of Parent and applicable Law.
The Company shall deliver to Parent, prior to the time that the Registration
Statement is declared effective by the SEC, a written notice listing the names
of all four (4) of the Company Designees and providing any relevant
information about such designees as Parent may reasonably request for the
purpose of including such information in filings with the SEC. If any of the
Company Designees shall be unable or unwilling to serve at the Closing, the
Company shall promptly designate a replacement director who meets the
requirements of a Company Designee and provide any relevant information about
such designees as Parent may reasonably request for the purpose of including
such information in filings with the SEC. Following the Closing, Parent,
through the Parent Board, shall take all necessary action to nominate such
Company Designees for election to the Parent Board in the proxy statement
relating to the first annual meeting of the stockholders of Parent thereafter.
(b)
Surviving Corporation Directors and Officers
. From and after the Effective Time, the Parties shall take all actions
necessary so that, until successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with applicable Law, (i) the members of the board of directors of Merger Sub
at the Effective Time shall be the directors of the Surviving Corporation and
(ii) the officers of Merger Sub at the Effective Time shall be the officers of
the Surviving Corporation.
(c)
Name and Ticker Symbol
. As of the Effective Time, Parent shall cause the name and NASDAQ ticker
symbol of Parent to be changed to such name and ticker symbol as determined by
Parent following consultation in good faith with the Company prior to the
Effective Time.
Section 2.6
Integration and Governance
. From and after the date of this Agreement until the Effective Time, each
of Parent and the Company shall, and shall cause each of its respective
Subsidiaries to,
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subject to applicable Law, cooperate with the other Party in connection with
planning the integration of the businesses of Parent and the Company, the
identification of synergies and the adoption of best practices for Parent and
its Subsidiaries following the Effective Time. In furtherance of the
foregoing, promptly following the date of this Agreement, the respective Chief
Executive Officers and Chief Financial Officers of Parent and the Company
shall mutually develop an integration plan with the assistance of an
integration team, the members of which shall be persons selected by the
respective Chief Executive Officers and Chief Financial Officers of Parent and
the Company, and such integration team shall meet at least once per month
(unless otherwise determined by the respective Chief Executive Officers and
Chief Financial Officers of Parent and the Company) prior to the Closing Date
(subject to applicable Law as advised by their respective legal counsels) and
as otherwise reasonably requested by Parent and the Company to conduct
transition and integration planning.
Section 2.7
Post-Closing Merger
. Immediately following the Effective Time, the Surviving Corporation shall
merge with and into LLC Sub (the "
LLC Sub Merger
"), with LLC Sub continuing as the surviving entity in such merger as a wholly
owned subsidiary of Parent, pursuant to a merger agreement substantially in
the form attached hereto as
Exhibit C
(the "
LLC Sub Merger Agreement
"). At the time of and immediately after the LLC Sub Merger, Parent shall own
all of the membership interests and other equity, if any, in LLC Sub and shall
be the sole member of LLC Sub, and LLC Sub shall be treated as an entity
disregarded as separate from Parent for U.S. federal income Tax purposes.
ARTICLE III
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE
Section 3.1
Effect of the Merger on Capital Stock
. Subject to the other provisions of this
Article III
, at the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Merger Sub, the Company, or any holder of any securities of
Parent, Merger Sub or the Company:
(a)
Capital Stock of Merger Sub
. Each share of capital stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and shall
represent one (1) validly issued, fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Corporation, which shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation immediately following the Effective Time.
(b)
Capital Stock of the Company
.
(i) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any Excluded Shares, and, to the extent
set forth in
Section 3.2
, Company Incentive Awards) (such shares of Company Common Stock, the "
Eligible Shares
") shall be converted automatically at the Effective Time into the right to
receive that number of validly issued, fully-paid and nonassessable shares of
Parent Common Stock equal to the Exchange Ratio (the "
Merger Consideration
"). As used in this Agreement, "
Exchange Ratio
" means 0.0867.
(ii) All Eligible Shares, when so converted, shall cease to be outstanding
and shall automatically be canceled and cease to exist and each holder of an
Eligible Share that was outstanding immediately prior to the Effective Time
shall cease to have any rights with respect thereto, except the right to
receive (A) the Merger Consideration, (B) any dividends or other distributions
in accordance with
Section 3.3(g)
and (C) any cash to be paid in lieu of any fractional shares of Parent Common
Stock in accordance with
Section 3.3(h)
, in each case to be issued or paid in consideration therefor upon the
exchange of any Certificates or Book-Entry Shares, as applicable, in
accordance with
Section 3.3(a)
.
(iii) All shares of Company Common Stock held by the Company as treasury
shares or held by Parent or Merger Sub immediately prior to the Effective Time
and, in each case, not held on behalf of third parties (collectively, "
Excluded Shares
") shall automatically be canceled and cease to exist as of the Effective
Time, and no consideration shall be delivered in exchange therefor.
(c)
Impact of Stock Splits, Etc
. In the event of any change in (i) the number of shares of Company Common
Stock, or securities convertible or exchangeable into or exercisable for
shares of Company Common Stock or (ii) the number of shares of Parent Common
Stock, or securities convertible
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or exchangeable into or exercisable for shares of Parent Common Stock
(including options to purchase Parent Common Stock), in each case issued and
outstanding after the date of this Agreement and prior to the Effective Time
by reason of any stock split, reverse stock split, stock dividend,
subdivision, reclassification, recapitalization, combination, exchange of
shares or the like, the Exchange Ratio shall be equitably adjusted to reflect
the effect of such change and, as so adjusted, shall from and after the date
of such event, be the applicable portion of the Merger Consideration, subject
to further adjustment in accordance with this
Section 3.1(c)
. Nothing in this
Section 3.1(c)
shall be construed to permit the Parties to take any action except to the
extent such action is consistent with, and not otherwise prohibited by, the
terms of this Agreement.
Section 3.2
Treatment of Equity Compensation Awards
.
(a)
Treatment of Options
. At the Effective Time, each Company Option Award that is outstanding and
unexercised as of immediately prior to the Effective Time shall cease to
represent a right to acquire shares of Company Common Stock and shall be
automatically canceled and terminated without consideration payable or owed
therefor.
(b)
Treatment of Restricted Stock
. At the Effective Time, each outstanding Company Restricted Stock Award
shall automatically, and without any action on the part of the holder thereof,
become fully vested and the restrictions with respect thereto shall lapse, and
each such Company Restricted Stock Award shall be converted into the right to
receive a number of shares of Parent Common Stock equal to (i) the Exchange
Ratio, multiplied by (ii) the total number of shares of Company Common Stock
attributable to such Company Restricted Stock Award.
(c)
Treatment of Restricted Stock Units
.
(i) At the Effective Time, each Company Restricted Stock Unit Award that is
outstanding under the Company's Nonemployee Director Deferred Compensation
Plan shall automatically and without any action on the part of the holder
thereof, become fully vested as of the Closing Date, and each such Company
Restricted Stock Unit Award shall be canceled and converted into the right to
receive a number of shares of Parent Common Stock equal to (A) the Exchange
Ratio, multiplied by (B) the total number of shares of Company Common Stock
subject to such Company Restricted Stock Unit Award, together with accrued
dividend equivalent payments, in each case issuable and payable at the time(s)
as specified in the Company's Nonemployee Director Deferred Compensation Plan
and in accordance with such Director's deferral elections as set forth in the
applicable Deferred Compensation Agreement.
(ii) At the Effective Time, each outstanding Company Restricted Stock Unit
Award that (A) was granted pursuant to the Company's 2013 Incentive Plan, or
(B) was granted prior to the date of this Agreement and is held by an employee
of the Company or its Subsidiaries that is terminated upon or immediately
after the Effective Time, and, in either case, that is subject only to
time-based vesting conditions shall be deemed to be fully vested as of the
Closing Date, and each such Company Restricted Stock Unit Award shall be
canceled and converted into the right to receive a number of shares of Parent
Common Stock equal to (1) the Exchange Ratio, multiplied by (2) the total
number of shares of Company Common Stock subject to each such Company
Restricted Stock Unit Award, together with accrued dividend equivalent
payments, in each case issuable and payable in accordance with the terms of
the applicable award agreement.
(iii) At the Effective Time, each outstanding Company Restricted Stock Unit
Award that was granted pursuant to the Company's 2022 Incentive Plan and that
is not covered by
Section 3.2(c)(ii)
, and that is subject only to time-based vesting conditions, shall be canceled
and converted into an award of restricted stock units in respect of Parent
Common Stock (each, a "
Parent RSU Award
") in respect of that number of shares of Parent Common Stock (rounded to the
nearest whole share) equal to the product of (1) the total number of shares of
Company Common Stock subject to such Company Restricted Stock Unit Award
immediately prior to the Effective Time multiplied by (2) the Exchange Ratio.
Such Parent RSU Award shall vest and be payable on the same terms and
conditions (including "double-trigger" vesting provisions) as are set forth in
the corresponding award agreement (except that such award will be payable in
Parent Common Stock).
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(d)
Treatment of Performance Units
.
(i) At the Effective Time, each outstanding Company Performance Unit Award
that (A) was granted pursuant to the Company's 2013 Incentive Plan, or (B) was
granted prior to the date of this Agreement and is held by an employee of the
Company or its Subsidiaries that is terminated upon or immediately after the
Effective Time shall (I) automatically, by virtue of the occurrence of the
Closing, be deemed to be fully vested and payable at the greater of (1) the
level based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable award agreement
and (2) target level (the number of shares of Company Common Stock payable
pursuant to the foregoing, the "
Earned Company Performance Shares
"), and (II) be canceled and converted into the right to receive a number of
shares of Parent Common Stock equal to (x) the Exchange Ratio, multiplied by
(y) the number of Earned Company Performance Shares, together with accrued
dividend equivalent payments, in each case issuable and payable in accordance
with the terms of the applicable award agreement.
(ii) At the Effective Time, each outstanding Company Performance Unit Award
that was granted pursuant to the Company's 2022 Incentive Plan and that is not
covered by
Section 3.2(d)(i)
shall be deemed to correspond to a number of Earned Company Performance Shares
determined in the same manner as described in
Section 3.2(d)(i)
and shall be canceled and converted into a Parent RSU Award in respect of that
number of shares of Parent Common Stock (rounded to the nearest whole share)
equal to (1) the number of Earned Company Performance Shares with respect to
such Company Performance Unit Award multiplied by (2) the Exchange Ratio. Such
Parent RSU Award shall vest at the end of the original performance period
associated with the corresponding Company Performance Unit Award and shall
otherwise be subject to and payable on the same terms and conditions
(including "double-trigger" vesting provisions) as are set forth in the
corresponding award agreement (except that such award will be payable in
Parent Common Stock).
(e)
Treatment of Performance Cash Units
.
(i) At the Effective Time, each outstanding Company Performance Cash Unit
Award that (A) was granted pursuant to the Company's 2013 Incentive Plan, or
(B) was granted prior to the date of this Agreement and is held by an employee
of the Company or its Subsidiaries that is terminated upon or immediately
after the Effective Time shall automatically, by virtue of the occurrence of
the Closing, be deemed to be fully vested as of the Closing Date and payable
in cash in an amount equal to $1.00 for each unit granted under such Company
Performance Cash Unit Award multiplied by the greater of (1) the percentage
earned based on actual performance determined as of immediately prior to the
Effective Time in accordance with the terms of the applicable award agreement
and (2) 100%.
(ii) At the Effective Time, each outstanding Company Performance Cash Unit
Award that was granted pursuant to the Company's 2022 Incentive Plan and that
is not covered by
Section 3.2(e)(i)
above shall be deemed earned at a level equal to $1.00 for each unit granted
under such Company Performance Cash Unit Award multiplied by the greater of
(1) the percentage earned based on actual performance determined as of
immediately prior to the Effective Time in accordance with the terms of the
applicable award agreement and (2) 100%. Such amount shall vest and be payable
in cash at the end of the original performance period associated with the
corresponding Company Performance Cash Unit Award and shall otherwise be
subject to and payable on the same terms and conditions (including
"double-trigger" vesting provisions) as are set forth in the corresponding
award agreement.
(f)
Administration
. Prior to the Effective Time, the Company Board and/or the Compensation
Committee of the Company Board shall take such action and adopt such
resolutions as are required to (i) effectuate the treatment of the Company
Incentive Awards pursuant to the terms of this
Section 3.2
, (ii) if requested by Parent in writing at least ten (10) days prior to the
Company Stockholders Meeting, cause the Company Equity Plan to terminate at or
prior to the Effective Time and (iii) take actions reasonably required to
effectuate any provision of this
Section 3.2
, including to ensure that from and after the Effective Time, other than as
otherwise contemplated by this Agreement, neither Parent nor the
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Surviving Corporation will be required to deliver shares of Company Common
Stock or other capital stock of the Company to any Person pursuant to or in
settlement of any equity awards of the Company. Notwithstanding anything in
this Agreement to the contrary, each of Parent, the Company, and their
respective Affiliates shall be entitled to deduct or withhold from any amounts
payable to any Person pursuant to this Agreement, including the payments under
this
Section 3.2
;
provided,
that the Parties shall reasonably cooperate in good faith to minimize any such
deduction or withholding.
(g)
Parent Actions
. Parent shall take all actions that are necessary for the treatment of
Company Incentive Awards pursuant to this
Section 3.2
, including the reservation, issuance and listing of Parent Common Stock as
necessary to effect the transactions contemplated by this
Section 3.2
. If registration of any plan interests in any Company Benefit Plan or the
shares of Parent Common Stock issuable in satisfaction of any Company
Incentive Awards following the Effective Time (and giving effect to this
Section 3.2
) is required under the Securities Act, Parent shall file with the SEC as soon
as reasonably practicable on or after the Closing Date a registration
statement on Form S-8 with respect to such plan interests or shares of Parent
Common Stock, and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement for so long as the relevant
Company Benefit Plan or Company Incentive Awards remain outstanding or in
effect and such registration of interests therein or the shares of Parent
Common Stock issuable thereunder continues to be required. With respect to
those individuals who will be subject to the reporting requirements under
Section 16(a) of the Exchange Act subsequent to the Effective Time, where
applicable, Parent shall administer the Company Incentive Awards assumed
pursuant to this
Section 3.2
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act.
Section 3.3
Payment for Securities; Exchange
.
(a)
Exchange Agent; Exchange Fund
. Prior to the Closing, Parent shall enter into an agreement with Parent's
or the Company's transfer agent to act as agent for the holders of Company
Common Stock in connection with the Merger (the "
Exchange Agent
") and to receive the Merger Consideration and all cash payable pursuant to this
Article III
. On the Closing Date and prior to the filing of the Certificate of Merger,
Parent shall deposit, or cause to be deposited, with the Exchange Agent, for
the benefit of the holders of Eligible Shares, for distribution in accordance
with this
Article III
through the Exchange Agent, (i) the number of shares of Parent Common Stock
issuable in respect of Eligible Shares pursuant to
Section 3.1
and (ii) sufficient cash to make payments in lieu of fractional shares
pursuant to
Section 3.3(h)
. Parent agrees to make available to the Exchange Agent, from time to time as
needed, cash sufficient to pay any dividends and other distributions pursuant
to
Section 3.3(g)
. The Exchange Agent shall, pursuant to irrevocable instructions, deliver the
Merger Consideration contemplated to be issued in exchange for Eligible Shares
pursuant to this Agreement out of the Exchange Fund. Except as contemplated by
this
Section 3.3(a)
,
Section 3.3(g)
and
Section 3.3(h)
, the Exchange Fund shall not be used for any other purpose. Any cash and
shares of Parent Common Stock deposited with the Exchange Agent (including as
payment for fractional shares in accordance with
Section 3.3(h)
and any dividends or other distributions in accordance with
Section 3.3(g)
) shall hereinafter be referred to as the "
Exchange Fund
." Parent or the Surviving Corporation shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the exchange of
Eligible Shares pursuant to this Agreement. The cash portion of the Exchange
Fund may be invested by the Exchange Agent as reasonably directed by Parent.
To the extent, for any reason, the amount in the Exchange Fund is below that
required to make prompt payment of the aggregate cash payments contemplated by
this
Article III
, Parent shall promptly replace, restore or supplement (or cause to be
replaced, restored or supplemented) the cash in the Exchange Fund so as to
ensure that the Exchange Fund is at all times maintained at a level sufficient
for the Exchange Agent to make the payment of the aggregate cash payments
contemplated by this
Article III
. Any interest or other income resulting from investment of the cash portion
of the Exchange Fund shall become part of the Exchange Fund, and any amounts
in excess of the amounts payable hereunder shall, at the discretion of Parent,
be promptly returned to Parent or the Surviving Corporation.
(b)
Payment Procedures
.
(i)
Certificates
. As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to deliver to each record holder, as of immediately prior to
the Effective Time, of
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an outstanding Eligible Share represented by a certificate ("
Certificates
"), a letter of transmittal ("
Letter of Transmittal
") (which shall specify that delivery shall be effected, and risk of loss and
title to Certificates shall pass, only upon proper delivery of such
Certificates to the Exchange Agent, and which shall be in a customary form and
agreed to by Parent and the Company prior to the Closing) and instructions for
use in effecting the surrender of Certificates for payment of the Merger
Consideration set forth in
Section 3.1(b)(i)
. Upon surrender to the Exchange Agent of a Certificate (or an affidavit of
loss in lieu of the Certificate as provided in
Section 3.3(f)
), together with the Letter of Transmittal, duly completed and validly
executed in accordance with the instructions thereto, and such other customary
documents as may be reasonably required by the Exchange Agent, the holder of
the Eligible Share(s) formerly represented by such Certificate shall be
entitled to receive in exchange therefor (A) the number of shares of Parent
Common Stock (which shall be in uncertificated book-entry form) representing,
in the aggregate, the whole number of shares of Parent Common Stock, if any,
that such holder has the right to receive pursuant to
Section 3.1
(after taking into account all Eligible Shares then held by such holder
immediately prior to the Effective Time) and (B) a check or wire transfer in
an aggregate amount equal to the cash payable in lieu of any fractional shares
of Parent Common Stock pursuant to
Section 3.3(h)
and any dividends and other distributions pursuant to
Section 3.3(g)
.
(ii)
Non-DTC Book-Entry Shares
. As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to deliver to each record holder, as of immediately prior to
the Effective Time, of Eligible Shares represented by book-entry ("
Book-Entry Shares
") not held through DTC, (A) a statement reflecting the number of shares of
Parent Common Stock (which shall be in uncertificated book-entry form)
representing, in the aggregate, the whole number of shares of Parent Common
Stock, if any, that such holder has the right to receive pursuant to
Section 3.1
(after taking into account all Eligible Shares held by such holder immediately
prior to the Effective Time) and (B) a check or wire transfer in an aggregate
amount equal to the cash payable in lieu of any fractional shares of Parent
Common Stock pursuant to
Section 3.3(h)
and any dividends and other distributions to which such holder is entitled
pursuant to
Section 3.3(g)
.
(iii)
DTC Book-Entry Shares
. With respect to Book-Entry Shares held through DTC, Parent and the Company
shall cooperate to establish procedures with the Exchange Agent and DTC to
ensure that the Exchange Agent will transmit to DTC or its nominees as soon as
reasonably practicable on or after the Closing Date, upon surrender of
Eligible Shares held of record by DTC or its nominees in accordance with DTC's
customary surrender procedures, the Merger Consideration, the cash to be paid
in lieu of any fractional shares of Parent Common Stock in accordance with
Section 3.3(h)
, if any, and any unpaid non-stock dividends and any other dividends or other
distributions, in each case, that DTC has the right to receive pursuant to this
Article III
.
(iv) No interest shall be paid or accrued on the Merger Consideration or any
other amount payable in respect of any Eligible Shares pursuant to this
Article III
.
(v) With respect to any Eligible Shares represented by Certificates
immediately prior to the Effective Time, if payment of the Merger
Consideration (including any dividends or other distributions with respect to
Parent Common Stock pursuant to
Section 3.3(g)
and any cash payable in lieu of fractional shares of Parent Common Stock
pursuant to
Section 3.3(h)
) is to be made to a Person other than the record holder of such Eligible
Shares, it shall be a condition of payment that the Certificates so
surrendered shall be properly endorsed or shall be otherwise in proper form
for transfer and that the Person requesting such payment shall have paid any
transfer and other Taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of such shares
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such Taxes either have been paid or are not applicable. With
respect to Book-Entry Shares, payment of the Merger Consideration (including
any dividends or other distributions with respect to Parent Common Stock
pursuant to
Section 3.3(g)
and any cash payable in lieu of fractional shares of Parent Common Stock
pursuant to
Section 3.3(h)
) shall only be made to the Person in whose name such Book-Entry Shares are
registered in the stock transfer books of the Company as of the Effective
Time. Until surrendered as contemplated by this
Section 3.3(b)(v)
(together with the Letter of Transmittal, duly completed and validly executed in
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accordance with the instructions thereto, and such other customary documents
as may be reasonably required by the Exchange Agent), each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender (and delivery of such duly completed and validly
executed Letter of Transmittal with such other customary documents) the Merger
Consideration payable in respect of such shares of Company Common Stock, cash
payable in lieu of any fractional shares of Parent Common Stock in accordance
with
Section 3.3(h)
and any dividends or other distributions to which such holder is entitled
pursuant to
Section 3.3(g)
.
(c)
Termination of Rights
. All Merger Consideration (including any dividends or other distributions
with respect to Parent Common Stock pursuant to
Section 3.3(g)
and any cash payable in lieu of fractional shares of Parent Common Stock
pursuant to
Section 3.3(h)
) paid upon the surrender of and in exchange for Eligible Shares in accordance
with the terms hereof shall be deemed to have been paid in full satisfaction
of all rights pertaining to such Company Common Stock. At the Effective Time,
the stock transfer books of the Surviving Corporation shall be closed
immediately with respect to shares outstanding prior to the Effective Time,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common Stock that
were outstanding immediately prior to the Effective Time.
(d)
Termination of Exchange Fund
. Any portion of the Exchange Fund that remains undistributed to the former
stockholders of the Company on the 180th day after the Closing Date shall be
delivered to Parent, upon demand, and any holders of Eligible Shares as of
immediately prior to the Effective Time who have not theretofore received the
Merger Consideration, any cash payable in lieu of fractional shares of Parent
Common Stock to which they are entitled pursuant to
Section 3.3(h)
and any dividends or other distributions with respect to Parent Common Stock
to which they are entitled pursuant to
Section 3.3(g)
, in each case without interest thereon, to which they are entitled under this
Article III
shall thereafter look only to the Surviving Corporation and Parent for payment
of their claim for such amounts.
(e)
No Liability
. None of the Surviving Corporation, Parent, Merger Sub, LLC Sub or the
Exchange Agent shall be liable to any holder of Company Common Stock for any
amount of Merger Consideration properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law. If any
Certificate has not been surrendered prior to the time that is immediately
prior to the time at which Merger Consideration in respect of the Eligible
Shares represented by such Certificate would otherwise escheat to or become
the property of any Governmental Entity, any such shares, cash, dividends or
distributions in respect of such Eligible Shares shall, to the extent
permitted by applicable Law, become the property of Parent, free and clear of
all claims or interest of any Person previously entitled thereto.
(f)
Lost, Stolen, or Destroyed Certificates
. If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if reasonably required by Parent or the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration payable in respect of the Eligible Shares formerly
represented by such Certificate, any cash payable in lieu of fractional shares
of Parent Common Stock to which the holder thereof is entitled pursuant to
Section 3.3(h)
and any dividends or other distributions to which the holder thereof is
entitled pursuant to
Section 3.3(g)
.
(g)
Dividends or Other Distributions with Respect to Unexchanged Shares of Parent
Common Stock
. No dividends or other distributions declared or made with respect to
shares of Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any Eligible Shares immediately prior to the
Effective Time represented by an unsurrendered Certificate with respect to the
whole shares of Parent Common Stock that such holder would be entitled to
receive upon surrender of such Certificate and no cash payment in lieu of
fractional shares of Parent Common Stock shall be paid to any such holder, in
each case until such holder shall surrender such Certificate in accordance
with this
Section 3.3
(or an affidavit of loss in lieu of the Certificate as provided in
Section 3.3(f)
). Following surrender of any such Certificate (or an affidavit of loss in
lieu of the Certificate as provided in
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Section 3.3(f)
) (together with the Letter of Transmittal, duly completed and validly
executed in accordance with the instructions thereto, and such other customary
documents as may be reasonably required by the Exchange Agent), there shall be
paid to such holder of whole shares of Parent Common Stock issuable in
exchange therefor, without interest, (i) promptly after the time of such
surrender (and delivery of such duly completed and validly executed Letter of
Transmittal with such other customary documents), the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to such surrender and
delivery and a payment date subsequent to such surrender and delivery payable
with respect to such whole shares of Parent Common Stock. For purposes of
dividends or other distributions in respect of shares of Parent Common Stock,
all whole shares of Parent Common Stock to be issued pursuant to the Merger
shall be entitled to dividends pursuant to the immediately preceding sentence
as if such whole shares of Parent Common Stock were issued and outstanding as
of the Effective Time.
(h)
No Fractional Shares of Parent Common Stock
. No fractional shares or certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the exchange of Eligible
Shares and no holder of Eligible Shares immediately prior to the Effective
Time shall have any right to vote or have any other rights of a stockholder of
Parent or a holder of shares of Parent Common Stock in respect of the
fractional shares such holder would otherwise be entitled to receive.
Notwithstanding any other provision of this Agreement, each holder of Eligible
Shares immediately prior to the Effective Time exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Parent Common Stock (after taking into account all Eligible Shares formerly
represented by Certificates and Book-Entry Shares held by such holder
immediately prior to the Effective Time) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product of (i) such fractional
part of a share of Parent Common Stock
multiplied by
(ii) the volume weighted average price of Parent Common Stock for the five (5)
consecutive trading days ending immediately prior to the Closing Date as
reported by Bloomberg, L.P. or, if not reported thereby, by another
authoritative source mutually selected by Parent and the Company (the "
Parent Closing Price
"). As promptly as practicable after the determination of the amount of cash,
if any, to be paid to a holder of Eligible Shares immediately prior to the
Effective Time who would otherwise be entitled to receive a fractional share
of Parent Common Stock, the Exchange Agent shall so notify Parent, and Parent
shall cause the Exchange Agent to forward payments to such holders subject to
and in accordance with the terms hereof when payable pursuant to this
Article III
. The payment of cash in lieu of fractional shares of Parent Common Stock is
not a separately bargained-for consideration but merely represents a
mechanical rounding-off of the fractions in the conversion of the Eligible
Shares in the Merger.
(i)
No Appraisal Rights
. In accordance with Section 262 of the DGCL, no appraisal rights will be
available to holders of Company Common Stock in connection with the Merger.
(j)
Withholding Taxes
. Notwithstanding anything in this Agreement to the contrary, Parent, Merger
Sub, the Surviving Corporation, LLC Sub and the Exchange Agent shall be
entitled to deduct and withhold from any amounts otherwise payable to any
holder of Company Common Stock pursuant to this Agreement any amount required
to be deducted and withheld with respect to the making of such payment under
applicable Law and shall pay the amount deducted or withheld to the
appropriate Taxing Authority in accordance with applicable Law. Parent, Merger
Sub, the Surviving Corporation, LLC Sub and the Exchange Agent, as the case
may be, shall reasonably cooperate in good faith to minimize any such
deduction or withholding, and, except in the case of withholding required
under applicable Law in respect of any consideration payable pursuant to
Section 3.2
,
Section 3.3(g)
or
Section 3.3(h)
, the relevant withholding party shall use reasonable best efforts to provide
prior written notice to the Company promptly after it determines withholding
is required under this
Section 3.3(j)
. To the extent such amounts are so properly deducted or withheld and paid
over to the relevant Taxing Authority by Parent, Merger Sub, the Surviving
Corporation, LLC Sub or the Exchange Agent, as the case may be, such deducted
or withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Company Common Stock to which such
amounts would have been paid absent such deduction or withholding by Parent,
Merger Sub, the Surviving Corporation, LLC Sub or the Exchange Agent, as the
case may be.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as (i) set forth in the disclosure letter dated as of the date of this
Agreement and delivered by the Company to Parent, Merger Sub and LLC Sub on or
prior to the date of this Agreement (the "
Company Disclosure Letter
") or (ii) disclosed in the Company SEC Documents (including all exhibits and
schedules thereto and documents incorporated by reference therein) filed with
or furnished to the SEC and available on Edgar since December 31, 2021 and
prior to the date of this Agreement (excluding any disclosures set forth or
referenced in any risk factor section or in any other section, in each case,
to the extent they are forward-looking statements or cautionary, predictive,
non-specific or forward-looking in nature, including any historical factual
information contained within such headings, disclosure or statements), the
Company represents and warrants to Parent, Merger Sub and LLC Sub as follows:
Section 4.1
Organization, Standing and Power
. Each of the Company and its Subsidiaries is a corporation, partnership or
limited liability company duly incorporated, organized or formed, as the case
may be, validly existing and in good standing under the Laws of its
jurisdiction of incorporation, organization or formation, with all requisite
entity power and authority to own, lease and operate its assets and properties
and to carry on its business as now being conducted, other than, in the case
of each of the Company's Subsidiaries, where the failure to be so organized or
to have such power, authority or standing would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole (a "
Company Material Adverse Effect
"). Each of the Company and its Subsidiaries is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the business it
is conducting, or the operation, ownership or leasing of its assets and
properties, makes such qualification or license necessary, other than where
the failure to so qualify, license or be in good standing would not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect. The Company has heretofore made available to Parent complete
and correct copies of its Organizational Documents and the Organizational
Documents of each of its Subsidiaries, each as amended prior to the execution
of this Agreement, and each as made available to Parent is in full force and
effect, and neither the Company nor any of its Subsidiaries is in violation of
any of the provisions of such Organizational Documents.
Section 4.2
Capital Structure
.
(a) As of the date of this Agreement, the authorized capital stock of the
Company consists of (i) 2,500,000,000 shares of Company Common Stock and (ii)
10,000,000 shares of preferred stock, par value $0.01 per share ("
Company Preferred Stock
" and, together with the Company Common Stock, the "
Company Capital Stock
"). At the close of business on January 10, 2024, 1,101,464,507 shares of
Company Common Stock (including outstanding Company Restricted Stock Awards
and Company Common Stock subject to stock options and excluding outstanding
Company Restricted Stock Unit Awards and Company Performance Unit Awards) were
issued and outstanding and no shares of Company Preferred Stock were issued
and outstanding.
(b) At the close of business on January 10, 2024 there were (i) 820,138
shares of Company Common Stock subject to outstanding Company Option Awards
under the Company Equity Plans, (ii) 231,941 shares of Company Common Stock
subject to outstanding Company Restricted Stock Awards under the Company
Equity Plans; (iii) 4,970,667 shares of Company Common Stock subject to
outstanding Company Restricted Stock Unit Awards under the Company Equity
Plans; (iv) 2,440,090 shares of Company Common Stock subject to outstanding
Company Performance Unit Awards granted under the Company Equity Plans (at the
target award level); and (v) 36,875,052 shares of Company Common Stock
remaining available for future awards pursuant to the Company Equity Plans.
(c) All outstanding equity securities of the Company, including Company
Common Stock, have been duly authorized and are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. All outstanding
equity securities of the Company have been issued and granted in compliance in
all material respects with (i) applicable securities Laws and other applicable
Law and (ii) all requirements set forth in applicable contracts (including the
Company Equity Plan). As of the date of this Agreement, except as set forth in
this
Section 4.2
, there are no outstanding options, warrants or other rights to subscribe for,
purchase or acquire from the Company or any of its Subsidiaries any capital
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stock of the Company or securities convertible into or exchangeable or
exercisable for capital stock of the Company (and the exercise, conversion,
purchase, exchange or other similar price thereof). All outstanding shares of
capital stock or other equity interests of the Subsidiaries of the Company are
owned by the Company, or a direct or indirect wholly owned Subsidiary of the
Company, are free and clear of all Encumbrances, other than Permitted
Encumbrances, and have been duly authorized and are validly issued, fully paid
and nonassessable. Except as set forth in this
Section 4.2
, there are outstanding: (1) no shares of capital stock, other equity
interests, Voting Debt or other voting securities of the Company, (2) no
securities of the Company or any of its Subsidiaries convertible into or
exchangeable or exercisable for shares of capital stock, other equity
interests, Voting Debt or other voting securities of the Company and (3) no
options, warrants, subscriptions, calls, rights (including preemptive and
appreciation rights), commitments or agreements to which the Company or any of
its Subsidiaries is a party or by which it is bound in any case obligating the
Company or any of its Subsidiaries to issue, deliver, sell, purchase, redeem
or acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of capital stock, other equity interests or any
Voting Debt or other voting securities of the Company, or obligating the
Company or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, subscription, call, right, commitment or agreement. There are
no stockholder agreements, voting trusts or other agreements to which the
Company or any of its Subsidiaries is a party or by which it or they are bound
relating to the voting of any shares of capital stock or other equity
interests of the Company or any of its Subsidiaries. No Subsidiary of the
Company owns any shares of Company Capital Stock.
(d) As of the date of this Agreement, neither the Company nor any of its
Subsidiaries has any (i) interests in a material joint venture or, directly or
indirectly, equity securities or other similar equity interests in any Person
or (ii) material obligations, whether contingent or otherwise, to consummate
any material additional investment in any Person other than its Subsidiaries
and its joint ventures listed on
Schedule 4.2(d)
of the Company Disclosure Letter.
Section 4.3
Authority; No Violations; Consents and Approvals
.
(a) The Company has all requisite corporate power and authority to execute
and deliver this Agreement and, subject to the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and the obtaining
of the Company Stockholder Approval, to perform its obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation
by the Company of the Transactions have been duly authorized by all necessary
corporate action on the part of the Company, subject, only with respect to the
consummation of the Integrated Mergers, to the Company Stockholder Approval
and the filing of the Certificate of Merger in respect of each of the
Integrated Mergers with the Secretary of State of the State of Delaware. This
Agreement has been duly executed and delivered by the Company and, assuming
the due and valid execution of this Agreement by Parent, Merger Sub and LLC
Sub, constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject, as to enforceability,
to Creditors' Rights. The Company Board, at a meeting duly called and held,
has (A) determined that this Agreement and the Transactions, including the
Integrated Mergers, are fair and reasonable to, and in the best interests of,
the Company and the holders of Company Common Stock, (B) approved and declared
advisable this Agreement and the Transactions and (C) resolved to recommend
that the holders of Company Common Stock approve and adopt this Agreement and
the Transactions (such recommendation described in this
clause (C)
, the "
Company Board Recommendation
"). The Company Stockholder Approval is the only approval of the holders of
any class or series of the Company Capital Stock necessary to approve and
adopt this Agreement and the Company's consummation of the Transactions
contemplated hereby, including the Integrated Mergers.
(b) The execution, delivery and performance of this Agreement does not, and
the consummation of the Transactions will not (with or without notice or lapse
of time, or both) (i) contravene, conflict with or result in a breach or
violation of any provision of the Organizational Documents of the Company
(assuming that the Company Stockholder Approval is obtained) or any of its
Subsidiaries, (ii) assuming the payoff and termination of the Company Credit
Facility at or prior to the Closing, with or without notice, lapse of time or
both, result in a breach or violation of, a termination (or right of
termination) of or default under, the creation or acceleration of any
obligation or the loss of a benefit under, or result
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in the creation of any Encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement, permit,
franchise or license to which the Company or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries or its or their respective
properties or assets are bound, or (iii) assuming the Consents referred to in
Section 4.4
are duly and timely obtained or made and the Company Stockholder Approval has
been obtained, contravene, conflict with or result in a violation of any Law
applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of
clauses (ii)
and
(iii)
, any such contraventions, conflicts, violations, defaults, acceleration,
losses, or Encumbrances that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
Section 4.4
Consents
. No Consent from any Governmental Entity is required to be obtained or made
by the Company or any of its Subsidiaries or Affiliates in connection with the
execution, delivery and performance of this Agreement by the Company or the
consummation by the Company of the Transactions, except for: (a) the filing of
any required premerger notification and report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "
HSR Act
"), and the expiration or termination of any applicable waiting period with
respect thereto; (b) the filing with the SEC of (i) a joint proxy
statement/prospectus in preliminary and definitive form (including any
amendments or supplements, the "
Joint Proxy Statement/Prospectus
") relating to the Company Stockholders Meeting and the Parent Stockholders
Meeting, which Joint Proxy Statement/
Prospectus may form part of the Registration Statement, and (ii) such reports
under the Securities Act, the Exchange Act and the rules and regulations
thereunder, as may be required in connection with this Agreement and the
Transactions; (c) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware; (d) filings with the NYSE; (e) such filings
and approvals as may be required by any applicable state securities or "blue
sky" Laws or Takeover Laws; and (f) any such Consent that the failure to
obtain or make would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
Section 4.5
Company SEC Documents; Financial Statements
.
(a) Since December 31, 2021, the Company has filed or furnished with the
SEC, on a timely basis, all forms, reports, certifications, schedules,
statements and documents required to be filed or furnished under the
Securities Act or the Exchange Act, respectively, (such forms, reports,
certifications, schedules, statements and documents, collectively, the "
Company SEC Documents
"). As of their respective dates, each of the Company SEC Documents, as
amended, complied, or if not yet filed or furnished, will comply as to form in
all material respects with the applicable requirements of the Securities Act,
the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained, when filed or, if
amended prior to the date of this Agreement, as of the date of such amendment
with respect to those disclosures that are amended, or if filed with or
furnished to the SEC subsequent to the date of this Agreement, will contain
any untrue statement of a material fact or omitted 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. No
Subsidiary of the Company is subject to periodic reporting requirements of the
Exchange Act other than as part of the Company's consolidated group or
required to file any form, report or other document with the SEC, the NYSE,
any other stock exchange or comparable Governmental Entity other than routine
and ordinary filings (such as filings regarding ownership holdings or
transfers).
(b) The financial statements of the Company included in the Company SEC
Documents, including all notes and schedules thereto, complied, or, in the
case of Company SEC Documents filed after the date of this Agreement, will
comply, in all material respects, when filed or if amended prior to the date
of this Agreement, as of the date of such amendment, with the rules and
regulations of the SEC with respect thereto, were, or, in the case of Company
SEC Documents filed after the date of this Agreement, will be, prepared in
accordance with generally accepted accounting principles in the United States
("
GAAP
") applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in
all material respects in accordance with applicable
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requirements of GAAP (subject, in the case of the unaudited statements, to
normal year-end audit adjustments, and to any other adjustments described
therein, including the notes thereto) the financial position of the Company
and its consolidated Subsidiaries as of their respective dates and the results
of operations and the cash flows of the Company and its consolidated
Subsidiaries for the periods presented therein.
(c) The Company has established and maintains a system of internal control
over financial reporting and disclosure controls and procedures (as such terms
are defined in Rule 13a-15 or Rule 15d-15, as applicable, under the Exchange
Act); such disclosure controls and procedures are designed to ensure that
material information relating to the Company, including its consolidated
Subsidiaries, required to be disclosed by the Company in the reports that it
files or furnishes under the Exchange Act is accumulated and communicated to
the Company's principal executive officer and its principal financial officer
to allow timely decisions regarding required disclosure; and such disclosure
controls and procedures are effective to ensure that information required to
be disclosed by the Company in the reports that it files or furnishes under
the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and further designed and
maintained to provide reasonable assurance regarding the reliability of the
Company's financial reporting and the preparation of the Company financial
statements for external purposes in accordance with GAAP. There (i) is no
significant deficiency or material weakness in the design or operation of
internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) utilized by the Company or its Subsidiaries, (ii) is not,
and since December 31, 2021 there has not been, any illegal act or fraud,
whether or not material, that involves management or other employees who have
a significant role in the Company's internal controls, and (iii) is not, and
since December 31, 2021 there has not been, any "extensions of credit" (within
the meaning of Section 402 of the Sarbanes-Oxley Act) or prohibited loans to
any executive officer of the Company (as defined in Rule 3b-7 under the
Exchange Act) or director of the Company or any of its Subsidiaries. The
principal executive officer and the principal financial officer of the Company
have made all certifications required by the Sarbanes-Oxley Act, the Exchange
Act and any related rules and regulations promulgated by the SEC with respect
to the Company SEC Documents, and the statements contained in such
certifications were complete and correct as of the dates they were made.
Section 4.6
Absence of Certain Changes or Events
.
(a) Since December 31, 2022, there has not been any Company Material Adverse
Effect or any event, change, effect or development that, individually or in
the aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
(b) From December 31, 2022 through the date of this Agreement:
(i) the Company and its Subsidiaries have conducted their business in the
Ordinary Course in all material respects;
(ii) there has not been any material damage, destruction or other casualty
loss with respect to any material asset or property owned, leased or otherwise
used by the Company or any of its Subsidiaries, including the Oil and Gas
Properties of the Company and its Subsidiaries, whether or not covered by
insurance; and
(iii) neither the Company nor any of its Subsidiaries has taken, or agreed,
committed, arranged, authorized or entered into any understanding to take, any
action that, if taken after the date of this Agreement, would (without
Parent's prior written consent) have constituted a breach of any of the
covenants set forth in
Section 6.1(b)
(other than the covenants set forth in
Section 6.1(b)(ix)
and the issuance of Company Incentive Awards).
Section 4.7
No Undisclosed Material Liabilities
. There are no liabilities of the Company or any of its Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than: (a) liabilities adequately provided for
on the balance sheet of the Company dated as of September 30, 2023 (including
the notes thereto) contained in the Company's Quarterly Report on Form 10-Q
for the nine (9) months ended September 30, 2023; (b) liabilities incurred in
the Ordinary Course
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subsequent to September 30, 2023; (c) liabilities incurred in connection with
the Transactions; and (d) liabilities that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
Section 4.8
Information Supplied
. None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (a) the registration statement on
Form S-4 to be filed with the SEC by Parent pursuant to which shares of Parent
Common Stock issuable in the Merger will be registered with the SEC (including
any amendments or supplements, the "
Registration Statement
") shall, at the time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading or (b) the Joint Proxy Statement/Prospectus will, at
the date it is first mailed to stockholders of the Company and at the time of
the Company Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading;
provided
,
however
, that, in the case of
clause (a)
and
(b)
, no representation or covenant is made by the Company with respect to the
statements made therein based on information supplied by Parent specifically
for inclusion or incorporation by reference therein. Subject to the accuracy
of the Registration Statement and the first sentence of
Section 5.8
, the Joint Proxy Statement/Prospectus and the Registration Statement will
comply as to form in all material respects with, as applicable, the provisions
of the Exchange Act and the Securities Act, respectively, and the rules and
regulations thereunder;
provided
,
however
, that no representation or covenant is made by the Company with respect to
the statements made therein based on information supplied by Parent, Merger
Sub or LLC Sub specifically for inclusion or incorporation by reference
therein.
Section 4.9
Company Permits; Compliance with Applicable Law
.
(a) The Company and its Subsidiaries hold and at all times since December
31, 2021 have held all permits, licenses, certifications, registrations,
consents, authorizations, variances, exemptions, waivers, orders, franchises
and approvals of all Governmental Entities necessary to own, lease and operate
their respective properties and assets and for the lawful conduct of their
respective businesses as they were or are now being conducted, as applicable
(collectively, the "
Company Permits
"), and have paid all fees and assessments due and payable in connection
therewith, except where the failure to so hold or make such a payment would
not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. All Company Permits are in full force and
effect and no suspension or cancellation of any of the Company Permits is
pending or, to the Knowledge of the Company, threatened, and the Company and
its Subsidiaries are, and at all times since December 31, 2021 have been, in
compliance with the terms of the Company Permits, except where the failure to
be in full force and effect or failure to so comply would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(b) The businesses of the Company and its Subsidiaries and, with respect to
the Oil and Gas Properties of the Company and its Subsidiaries that are
operated by third parties, to the Knowledge of the Company, are not currently
being conducted, and at no time since December 31, 2021 have been conducted,
in violation of any applicable Law, except, in each case, for violations that
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Other than as may arise under Antitrust Laws
with respect to the Transactions, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the Knowledge of the Company, threatened, other than those the
outcome of which has not had and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries, nor any of their
respective directors, officers, employees, or, to the Knowledge of the
Company, agents, has directly or indirectly made, offered, promised or
authorized any payment or gift of any money or anything of value to or for the
benefit of any Person for the purpose of (i) influencing any official act or
decision of a foreign government official, political party, or candidate for
political office, (ii) inducing such official, party or candidate
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to use his, her or its influence to affect any act or decision of a foreign
Governmental Entity, or (iii) securing any improper advantage, in the case of
clauses (i)
,
(ii)
and
(iii)
in violation of any applicable Anti-Corruption Laws.
(d) Neither the Company nor any of its Subsidiaries, nor any of their
respective directors, officers, employees, or, to the Knowledge of the
Company, agents:
(i) has been nor is a Sanctioned Person;
(ii) has knowingly transacted any business directly or indirectly with any
Sanctioned Person or otherwise knowingly violated Sanctions; nor
(iii) has knowingly violated any applicable material Ex-Im Law.
Section 4.10
Compensation; Benefits
.
(a) Set forth on
Schedule 4.10(a)
of the Company Disclosure Letter is a list of each material Company Benefit
Plan.
(b) True, correct and complete copies of each material Company Benefit Plan
(or, in the case of any material Company Benefit Plan not in writing, a
description of the material terms thereof) and related trust documents and
favorable determination letters, if applicable, have been furnished or made
available to Parent or its Representatives, along with, as applicable, with
respect to each material Company Benefit Plan, the most recent report filed on
Form 5500, summary plan description, and all material correspondence to or
from (including non-routine filings made with) any Governmental Entity in the
past three (3) years.
(c) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, each Company Benefit Plan
has been maintained, funded and operated in compliance with its terms and all
applicable Laws, including ERISA and the Code.
(d) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, there are no actions, suits
or claims (other than routine claims for benefits) pending or, to the
Knowledge of the Company, threatened against, or with respect to, any of the
Company Benefit Plans (or the assets thereof), and there are no Proceedings by
a Governmental Entity pending with respect to any of the Company Benefit Plans
(or the assets thereof).
(e) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, all contributions or other
payments required to be made by the Company or any of its Subsidiaries with
respect to each of the Company Benefit Plans pursuant to their terms or
applicable Laws have been timely made or, if not yet due, accrued in
accordance with GAAP.
(f) Each Company Benefit Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and nothing has occurred that could
reasonably be expected to adversely affect the qualification of any such
Company Benefit Plan. Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, none of
the Company, any of its Subsidiaries or, to the Knowledge of the Company, any
other Person, has engaged in a transaction with respect to any Company Benefit
Plan in connection with which the Company or any of its Subsidiaries or any
Company Benefit Plan could, in each case, reasonably be expected to be subject
to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a Tax imposed pursuant to Section 4975 or 4976 of the Code.
(g) Except as set forth on
Schedule 4.10(g)
of the Company Disclosure Letter, none of the Company, any of its Subsidiaries
or any of their respective ERISA Affiliates maintains, sponsors, contributes
to or has an obligation to contribute to, or otherwise has any current or
contingent liability or obligation under or with respect to, and no Company
Benefit Plan is, a plan subject to Title IV of ERISA, Sections 302 or 303 of
ERISA, or Sections 412 or 430 of the Code, a "multiemployer plan" (as defined
in Section 3(37) of ERISA), a "multiple employer plan" (within the meaning of
Section 210
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of ERISA or Section 413(c) of the Code), or a "multiple employer welfare
arrangement" (as defined in Section 3(40) of ERISA).
(h) Except as set forth on
Schedule 4.10(h)
of the Company Disclosure Letter or as required by applicable Law, no Company
Benefit Plan provides retiree or post-employment medical or life insurance
benefits to any Person, and neither the Company nor any of its Subsidiaries
has any obligation to provide such benefits. Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect, neither the Company nor any of its Subsidiaries has incurred (whether
or not assessed) or could reasonably be expected to incur any Tax or penalty
under Section 4980B, 4980D, 4980H, 6721 or 6722 of the Code.
(i) Except as set forth on
Schedule 4.10(i)
of the Company Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation of the Transactions will, either alone or in
combination with another event, (i) entitle any employees of the Company or
any of its Subsidiaries to any amount of compensation or benefits (including
any severance pay or any material increase in severance pay or any loan
forgiveness), (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee of the Company or any of its
Subsidiaries, (iii) directly or indirectly cause the Company to transfer or
set aside any assets to fund any material benefits under any Company Benefit
Plan, (iv) otherwise give rise to any liability under any Company Benefit Plan
or (v) limit or restrict the right to amend, terminate or transfer the assets
of any Company Benefit Plan on or following the Effective Time.
(j) Except as set forth on
Schedule 4.10(j)
of the Company Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation of the Transactions could, either alone or in
combination with another event, result in any "excess parachute payment"
within the meaning of Section 280G of the Code.
(k) Neither the Company nor any of its Subsidiaries has any obligation to
provide, and no Company Benefit Plan or other agreement provides any
individual with the right to, a gross up, indemnification, reimbursement or
other payment for any excise or additional Taxes, interest or penalties
incurred pursuant to Section 409A or Section 4999 of the Code or due to the
failure of any payment to be deductible under Section 280G of the Code.
(l) No Company Benefit Plan is maintained outside the jurisdiction of the
United States or covers any employees of the Company or any of its
Subsidiaries who reside or work outside of the United States.
Section 4.11
Labor Matters
.
(a) (i) Neither the Company nor any of its Subsidiaries is a party to or
bound by any collective bargaining or similar agreement with any labor union
or labor organization, (ii) to the Knowledge of the Company there is no
pending union representation petition filed with the National Labor Relations
Board or any other Governmental Entity, with respect to employees of the
Company or any of its Subsidiaries, and (iii) to the Knowledge of the Company,
there is no labor organizing activity by any labor union or labor organization
(or representative thereof) to organize employees of the Company or its
Subsidiaries.
(b) Except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, there is
no unfair labor practice charge or complaint or any other complaint,
litigation or judicial or administrative proceeding before the National Labor
Relations Board or any other Governmental Entity, in each case, involving any
employees of the Company or any of its Subsidiaries pending, or, to the
Knowledge of the Company, threatened.
(c) There is no strike, slowdown, work stoppage or lockout pending, or, to
the Knowledge of the Company, threatened, against the Company or any of its
Subsidiaries by or involving any employees of the Company or any of its
Subsidiaries, other than as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(d) The Company and its Subsidiaries are, and since December 31, 2021 have
been, in compliance in all respects with all applicable Laws respecting
employment and employment practices except, in each
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case, for violations that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is a party to, or otherwise bound by,
any consent decree with or citation by any Governmental Entity relating to its
employees or employment practices pursuant to which it has any outstanding
liabilities or obligations, except as would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(e) In the last three (3) years: (i) to the Knowledge of the Company, no
material allegations of sexual harassment have been made by any current or
former employee of the Company against any current or former officer or
director of the Company or its Subsidiaries; and (ii) neither the Company nor
any of its Subsidiaries have been involved in any material Proceedings, or
entered into any material settlement agreements, related to allegations of
sexual harassment or sexual misconduct by any current or former officer or
director of the Company or any of its Subsidiaries.
Section 4.12
Taxes
.
(a) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect:
(i) All Tax Returns required to be filed by or on behalf of the Company or
any of its Subsidiaries have been duly and timely filed (taking into account
extensions of time for filing), and all such filed Tax Returns are complete
and accurate in all respects. All Taxes that are due and payable by the
Company or any of its Subsidiaries (other than Taxes being contested in good
faith by appropriate Proceedings and for which adequate reserves have been
established in accordance with GAAP) have been paid in full. All withholding
Tax requirements imposed on or with respect to the Company or any of its
Subsidiaries have been satisfied in full, and the Company and its Subsidiaries
have complied in all respects with all information reporting (and related
withholding) and record retention requirements.
(ii) There is not in force any waiver or agreement for any extension of time
for the assessment or payment of any Tax by the Company or any of its
Subsidiaries.
(iii) There is no outstanding claim, assessment or deficiency against the
Company or any of its Subsidiaries for any Taxes that have been asserted or,
to the Knowledge of the Company, threatened in writing by any Taxing
Authority. There are no Proceedings pending or, to the Knowledge of the
Company, threatened in writing regarding any Taxes of the Company or any of
its Subsidiaries.
(iv) Neither the Company nor any of its Subsidiaries is a party to any Tax
allocation, sharing or indemnity contract or arrangement (not including, for
the avoidance of doubt (i) an agreement or arrangement solely between or among
the Company and/or any of its Subsidiaries, or (ii) any customary Tax sharing
or indemnification provisions contained in any commercial agreement entered
into in the Ordinary Course and not primarily relating to Tax). Neither the
Company nor any of its Subsidiaries has (x) been a member of an affiliated
group filing a consolidated U.S. federal income Tax Return (other than a group
the common parent of which is or was the Company or any of its Subsidiaries)
or (y) any liability for Taxes of any Person (other than the Company or any of
its Subsidiaries) under Treasury Regulations (s) 1.1502-6 (or any similar
provision of state, local or foreign Law) or as a transferee or successor.
(v) Neither the Company or any of its Subsidiaries has participated, or is
currently participating, in a "listed transaction," as defined in Treasury
Regulations (s) 1.6011-4(b)(2) (or any similar provision of state, local or
foreign Law).
(vi) Neither the Company nor any of its Subsidiaries has constituted a
"distributing corporation" or a "controlled corporation" in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(or so much of Section 356 of the Code as relates to Section 355 of the Code)
(i) in the two (2) years prior to the date of this Agreement or (ii) as part
of a "plan" or "series of related transactions" (within the meaning of Section
355(e) of the Code) in conjunction with the Transactions.
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(vii) No written claim has been made by any Taxing Authority in a
jurisdiction where the Company or any of its Subsidiaries does not currently
file a Tax Return that it is or may be subject to any Tax in such
jurisdiction, nor has any such assertion been threatened or proposed in
writing and received by the Company or any of its Subsidiaries.
(viii) Neither the Company nor any of its Subsidiaries has requested, has
received or is subject to any written ruling of a Taxing Authority that will
be binding on it for any taxable period ending after the Closing Date or has
entered into any "closing agreement" as described in Section 7121 of the Code
(or any similar provision of state, local or foreign Law).
(ix) There are no Encumbrances for Taxes on any of the assets of the Company
or any of its Subsidiaries, except for those described in
clause (ii)(B)
of Permitted Encumbrances.
(x) Neither of the Company nor any of its Subsidiaries has availed itself of
the benefit of any Tax credits or deferred the payment of any Taxes pursuant
to COVID-19 Measures.
(xi) The Company is, and has been since formation, properly classified for
U.S. federal income tax purposes as a corporation.
(b) Neither the Company nor any of its Subsidiaries is aware of the
existence of any fact, or has taken or agreed to take any action, that would
reasonably be expected to prevent or impede the Integrated Mergers, taken
together from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code.
Section 4.13
Litigation
. Except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect (or as may
arise under Antitrust Laws with respect to the Transactions), there is no (a)
Proceeding pending, or, to the Knowledge of the Company, threatened against
the Company or any of its Subsidiaries or any of their Oil and Gas Properties,
or (b) judgment, decree, injunction, ruling, order, writ or award of any
Governmental Entity or arbitrator with outstanding obligations against either
the Company or any of its Subsidiaries. To the Knowledge of the Company, as of
the date hereof, no officer or director of the Company is a defendant in any
Proceeding in connection with his or her status as an officer or director of
the Company.
Section 4.14
Intellectual Property
.
(a) The Company and its Subsidiaries own or have the right to use all
Intellectual Property used in or necessary for the operation of the businesses
of each of the Company and its Subsidiaries as presently conducted
(collectively, the "
Company Intellectual Property
") free and clear of all Encumbrances except for Permitted Encumbrances,
except where the failure to own or have the right to use such properties has
not had and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b) To the Knowledge of the Company, the use of the Company Intellectual
Property by the Company and its Subsidiaries in the operation of the business
of the Company and its Subsidiaries as presently conducted does not infringe,
misappropriate or otherwise violate any Intellectual Property of any other
Person, except for such matters that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. To the Knowledge of the Company, no third party is infringing on the
Company Intellectual Property, except for such matters that have not had and
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(c) The Company and its Subsidiaries have taken reasonable measures
consistent with prudent industry practices to protect the confidentiality of
trade secrets used in the businesses of the Company and its Subsidiaries as
presently conducted, except where failure to do so has not had and would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(d) Except as has not had and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, the IT
Assets owned, used, or held for use by the Company or any of its Subsidiaries
(i) are sufficient for the current needs of the businesses of the
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Company and its Subsidiaries; (ii) have not malfunctioned or failed within the
past three (3) years and (iii) to the Knowledge of the Company, are free from
any malicious code.
Section 4.15
Privacy and Cybersecurity
.
(a) The Company and its Subsidiaries maintain and are in compliance with,
and since December 31, 2021 have maintained and been in compliance with, (i)
all applicable Laws relating to the privacy and/or security of Personal
Information, (ii) the Company's and its Subsidiaries' posted or publicly
facing privacy policies or notices, and (iii) the Company's and its
Subsidiaries' contractual obligations concerning the privacy and/or security
of Personal Information and the IT Assets (
clauses (i)
through
(iii)
collectively, "
Company Privacy Obligations
"), in each case of
clauses (i)
through
(iii)
above, other than any non-compliance that, individually or in the aggregate,
has not been and would not reasonably be expected to be material to the
Company and its Subsidiaries. There are no actions by any Person (including
any Governmental Entity) pending to which the Company or any of the Company's
Subsidiaries is a named party or, to the knowledge of the Company, threatened
in writing against the Company or its Subsidiaries alleging a violation of any
Company Privacy Obligations.
(b) The Company and its Subsidiaries have implemented and at all times
maintained commercially reasonable and legally compliant administrative,
technical and physical safeguards designed to protect the IT Assets and all
confidential and sensitive information (including trade secrets) and Personal
Information in the Company or any Subsidiary's possession or control against
unauthorized access, use, loss, modification, disclosure or other misuse ("
Security Incident
"). Other than as disclosed on
Schedule 4.15(b)
of the Company Disclosure Letter, neither the Company nor any Subsidiary of
the Company has (i) experienced any material Security Incident, or (ii)
received any written notice or complaint from any Person with respect to any
of the foregoing, nor has any such notice or complaint been threatened in
writing against the Company or any of the Company's Subsidiaries.
Section 4.16
Real Property
. Except as would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect and with respect to
clauses (a)
and
(b)
, except with respect to any of the Company's Oil and Gas Properties, (a) the
Company and its Subsidiaries have good, valid and defensible title to all
material real property owned by the Company or any of its Subsidiaries
(subject to the exclusion of the Company's Oil and Gas Properties and the
Rights-of-Way, collectively, the "
Company Owned Real Property
") and valid leasehold estates in all material real property leased,
subleased, licensed or otherwise occupied (whether as tenant, subtenant or
pursuant to other occupancy arrangements) by the Company or any of its
Subsidiaries, but excluding the Company Oil and Gas Properties and the
Rights-of-Way (collectively, including the improvements thereon, but subject
to the exclusion of the Company's Oil and Gas Properties and Rights-of-Way,
the "
Company Material Leased Real Property
," and together with the Company Owned Real Property, the "
Company Material Real Property
") free and clear of all Encumbrances and defects and imperfections, except
Permitted Encumbrances, (b) each agreement under which the Company or any of
its Subsidiaries is the landlord, sublandlord, tenant, subtenant, or occupant
with respect to the Company Material Leased Real Property (each, a "
Company Material Real Property Lease
") is in full force and effect and is valid and enforceable against the
Company or such Subsidiary and, to the Knowledge of the Company, the other
parties thereto in accordance with its terms, subject, as to enforceability,
to Creditors' Rights, and neither the Company nor any of its Subsidiaries, or
to the Knowledge of the Company, any other party thereto, has received written
notice of any default under any Company Material Real Property Lease and no
event has occurred and no circumstance exists which, if not remedied, would
result in such a default (with or without notice or lapse of time, or both),
and (c) as of the date of this Agreement, there does not exist any pending or,
to the Knowledge of the Company, threatened, condemnation or eminent domain
Proceedings that affect any Company Owned Real Property or Company Material
Leased Real Property. The Company Owned Real Property, Company Material Leased
Real Property and all other real property leased and owned by the Company and
its Subsidiaries are sufficient for the current needs of the businesses of the
Company and its Subsidiaries, except for such real property the absence of
which would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 4.17
Rights-of-Way
. Each of the Company and its Subsidiaries has such Consents, easements,
rights-of-way, permits and licenses from each Person (collectively "
Rights-of-Way
") as are
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sufficient to conduct its business as presently conducted in the Ordinary
Course, except for such Rights-of-Way the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Each of the Company and its Subsidiaries has
fulfilled and performed all of its material obligations with respect to such
Rights-of-Way and conduct their business in a manner that does not violate any
of the Rights-of-Way and no event has occurred that allows, or after notice or
lapse of time would allow, revocation or termination thereof or would result
in any impairment of the rights of the holder of any such Rights-of-Way,
except for such revocations, terminations and impairments that would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. All pipelines operated by the Company and its
Subsidiaries are located on or are subject to valid Rights-of-Way or are
located on real property owned or leased by the Company, and there are no gaps
(including any gap arising as a result of any breach by the Company or any of
its Subsidiaries of the terms of any Rights-of-Way) in the Rights-of-Way other
than gaps that would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
Section 4.18
Oil and Gas Matters
.
(a) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, and except for property (i)
sold or otherwise disposed of in the Ordinary Course since the date specified
in the reserve reports prepared by Netherland, Sewell & Associates, Inc. (the "
Company Independent Petroleum Engineer
") relating to the Company's interests referred to therein and dated as of
January 31, 2023 (the "
Company Reserve Report
") or (ii) reflected in the Company Reserve Report or in the Company SEC
Documents as having been sold or otherwise disposed of (other than
transactions effected after the date hereof in accordance with
Section 6.1(b)(v)
), the Company and its Subsidiaries, except as set forth on
Schedule 4.18(a)
of the Company Disclosure Letter, have good and defensible title to all Oil
and Gas Properties forming the basis for the reserves reflected in the Company
Reserve Report and in each case as attributable to interests owned by the
Company and its Subsidiaries, free and clear of any Encumbrances (other than
Permitted Encumbrances). For purposes of the foregoing sentence, "good and
defensible title" means that the Company's and/or one or more of its
Subsidiaries', as applicable, title (as of the date hereof and as of the
Closing) to each of the Oil and Gas Properties held or owned by them (or
purported to be held or owned by them) that (A) entitles the Company (and/or
one or more of its Subsidiaries, as applicable) to receive (after satisfaction
of all Production Burdens applicable thereto), not less than the net revenue
interest share shown in the Company Reserve Report of all Hydrocarbons
produced from such Oil and Gas Properties throughout the productive life of
such Oil and Gas Properties (other than decreases in connection with
operations in which the Company and/or its Subsidiaries may be a non-consenting
co-owner from and after the date hereof, decreases resulting from reversion of
interests to co-owners with respect to operations in which such co-owners
elected not to consent from and after the date of the Company Reserve Report,
and decreases resulting from the establishment of pools or units from and
after the date of the Company Reserve Report), (B) obligates the Company
(and/or one or more of its Subsidiaries, as applicable) to bear a percentage
of the costs and expenses for the maintenance and development of, and
operations relating to, such Oil and Gas Properties, of not greater than the
working interest shown on the Company Reserve Report for such Oil and Gas
Properties (other than any positive difference in such percentage and the
applicable working interest shown on the Company Reserve Report for such Oil
and Gas Properties that are accompanied by a proportionate (or greater)
increase in the net revenue interest in such Oil and Gas Properties) and (C)
is free and clear of all Encumbrances (other than Permitted Encumbrances).
(b) Except for any such matters that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, the
factual, non-interpretive data supplied by the Company to the Company
Independent Petroleum Engineer relating to the Company's interests referred to
in the Company Reserve Report, by or on behalf of the Company and its
Subsidiaries that was material to such firm's estimates of proved oil and gas
reserves attributable to the Oil and Gas Properties of the Company and its
Subsidiaries in connection with the preparation of the Company Reserve Report
was, as of the time provided, accurate in all respects. To the Company's
Knowledge, any assumptions or estimates provided by any of the Company's
Subsidiaries to the Company Independent Petroleum Engineer in connection with
its preparation of the Company Reserve Report were made in good faith and on a
reasonable basis based on the facts and circumstances in existence and that
were
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known to the Company at the time such assumptions or estimates were made.
Except for any such matters that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, the oil
and gas reserve estimates of the Company set forth in the Company Reserve
Report are derived from reports that have been prepared by the Company
Independent Petroleum Engineer, and such reserve estimates fairly reflect, in
all respects, the oil and gas reserves of the Company and its Subsidiaries at
the dates indicated therein and are in accordance with SEC guidelines
applicable thereto applied on a consistent basis throughout the periods
involved. Except for changes generally affecting the oil and gas exploration,
development and production industry (including changes in commodity prices)
and normal depletion by production, there has been no change in respect of the
matters addressed in the Company Reserve Report that would reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(c) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, (i) all rentals, shut-ins
and similar payments owed to any Person under (or otherwise with respect to)
any Oil and Gas Leases owned or held by the Company or any of its Subsidiaries
have been properly and timely paid or are being contested in good faith
through appropriate Proceedings, (ii) all royalties, minimum royalties,
overriding royalties and other Production Burdens with respect to any Oil and
Gas Properties owned or held by the Company or any of its Subsidiaries have
been timely and properly paid (other than any such Production Burdens that are
being held in suspense by the Company or its Subsidiaries in accordance with
applicable Law) or are being contested in good faith through appropriate
Proceedings and (iii) neither the Company nor any of its Subsidiaries (and, to
the Company's Knowledge, no third party operator) has violated any provision
of, or taken or failed to take any act that, with or without notice, lapse of
time, or both, would constitute a default under the provisions of any Oil and
Gas Lease (or entitle the lessor thereunder to cancel or terminate such Oil
and Gas Lease) included in the Oil and Gas Properties owned or held by the
Company or any of its Subsidiaries.
(d) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, all proceeds from the sale
of Hydrocarbons produced from the Oil and Gas Properties of the Company and
its Subsidiaries are being received by them in a timely manner or are being
contested in good faith through appropriate Proceedings and are not being held
in suspense (by the Company, any of its Subsidiaries, any third party operator
thereof or any other Person) for any reason other than awaiting preparation
and approval of division order title opinions and the receipt of division
orders for execution for recently drilled Wells. Neither the Company nor any
of its Subsidiaries (i) is obligated by virtue of a take-or-pay payment,
advance payment or similar payment (other than royalties, overriding royalties
and similar arrangements established in the Oil and Gas Leases) to deliver
Hydrocarbons or proceeds from the sale thereof attributable to such Person's
interest in its Oil and Gas Properties at some future time without receiving
payment therefor at the time of delivery or (ii) has any material
transportation, processing or plant imbalance, and no Person has given notice
that any such imbalance constitutes all of the relevant Person's ultimately
recoverable reserves from a balancing area.
(e) All of the Wells and all water, CO
2
, injection or other wells located on the Oil and Gas Properties of the
Company and its Subsidiaries or otherwise associated with an Oil and Gas
Property of the Company or its Subsidiaries that were drilled and completed by
the Company or its Subsidiaries, and to the Knowledge of the Company, all such
wells that were not drilled and completed by the Company or its Subsidiaries,
have been drilled, completed and operated within the limits permitted by the
applicable Contracts entered into by the Company or any of its Subsidiaries
related to such wells, and in accordance with applicable Law and applicable
Company Permits, and all drilling and completion (and plugging and
abandonment) of such wells and all related development, production and other
operations have been conducted in compliance with all applicable Contracts and
Laws and applicable Company Permits except, in each case, as would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as set forth on
Schedule 4.18(e)
of the Company Disclosure Letter, there are no wells that constitute a part of
the Oil and Gas Properties of the Company and its Subsidiaries of which the
Company or a Subsidiary has received a written notice, claim, demand or order
from any Governmental Entity notifying, claiming, demanding or requiring that
such well(s) be temporarily or permanently plugged and abandoned.
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(f) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, none of the Oil and Gas
Properties of the Company or its Subsidiaries is subject to any preferential
purchase, tag-along, right of first refusal, consent or similar right that
would become operative as a result of the execution of this Agreement or the
consummation of the Transactions.
(g) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, since the date of the
Company Reserve Reports, neither the Company nor any of its Subsidiaries has
elected not to participate in any operation or activity proposed with respect
to any of the Oil and Gas Properties owned or held by it (or them, as
applicable) that could result in a penalty or forfeiture as a result of such
election not to participate in such operation or activity that would be
material to the Company and its Subsidiaries, taken as a whole and is not
reflected in the Company Reserve Report.
Section 4.19
Environmental Matters
.
(a) Except for those matters that would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect:
(i) the Company and its Subsidiaries and their respective operations and
assets are, and at all times since December 31, 2021 have been, in compliance
with all Environmental Laws, which compliance includes, and since December 31,
2021 has included, obtaining, maintaining and complying with all Company
Permits required under Environmental Laws;
(ii) the Company and its Subsidiaries are not subject to any pending or, to
the Company's Knowledge, threatened Proceedings under Environmental Laws, and
the Company and its Subsidiaries have not received any written notice of a
violation of, or liability under, Environmental Laws, the subject of which is
unresolved;
(iii) there has been no Release, treatment, storage, transportation or
handling of, or exposure to, Hazardous Materials at, on, under, or from any
property currently or, to the Knowledge of the Company, formerly owned,
leased, operated or otherwise used by the Company or any of its Subsidiaries,
or, to the Knowledge of the Company, by any predecessors of the Company or any
of its Subsidiaries, or to the Knowledge of the Company, at, on, under, or
from any other property, which has resulted or is reasonably likely to result
in liability to the Company or its Subsidiaries under any Environmental Law,
and, as of the date of this Agreement, neither the Company nor any of its
Subsidiaries has received any unresolved written notice, claim, demand, or
order asserting a liability or obligation under any Environmental Laws with
respect to the investigation, remediation, removal, or monitoring of any
Release of Hazardous Materials at, on, under, or from any property currently
or formerly owned, leased, operated, or otherwise used by the Company, or at,
on, under, or from any offsite location where Hazardous Materials from the
Company's or its Subsidiaries' operations have been sent for treatment,
disposal, storage or handling; and
(iv) neither the Company nor any of its Subsidiaries has assumed, either
expressly or, to the Company's Knowledge, by operation of Law, any liability
of any other Person related to Hazardous Materials or Environmental Laws.
(b) As of the date of this Agreement, there have been no environmental,
health or safety investigations, studies, audits, or other analyses conducted
during the past three (3) years by or on behalf of, or that are in the
possession of, the Company or its Subsidiaries relating to any instance of
material noncompliance with Environmental Laws by or any material liability
arising under Environmental Laws of the Company or its Subsidiaries, or any
material Release of Hazardous Materials with respect to any property owned,
operated or otherwise used by any of them that have not been made available to
Parent prior to the date hereof.
Section 4.20
Material Contracts
.
(a)
Schedule 4.20(a)
of the Company Disclosure Letter, together with the lists of exhibits
contained in the Company SEC Documents, sets forth a true and complete list,
as of the date of this Agreement, of:
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(i) each "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K under the Exchange Act) to which the Company or any of its
Subsidiaries is a party;
(ii) each Contract that provides for the acquisition, disposition, license,
use, distribution or outsourcing of assets, services, rights or properties
(other than Oil and Gas Properties and any Contract of the type described in
Section 4.20(a)(v)
) with respect to which the Company reasonably expects that the Company and
its Subsidiaries will make or receive payments in any calendar year in excess
of $25,000,000 or aggregate payments in excess of $50,000,000;
(iii) each Contract that constitutes a commitment relating to Indebtedness
or the deferred purchase price of property by the Company or any of its
Subsidiaries (whether incurred, assumed, guaranteed or secured by any asset)
in excess of $50,000,000, other than agreements solely between or among the
Company and any of its Subsidiaries;
(iv) each Contract to which the Company or any of its Subsidiaries is a
party that (A) restricts the ability of the Company or any of its Subsidiaries
to compete in any business or with any Person in any geographical area, (B)
requires the Company or any of its Subsidiaries to conduct any business on a
"most favored nations" basis with any third party or (C) provides for
"exclusivity" or any similar requirement in favor of any third party, except
in the case of each of
clauses (A)
,
(B)
and
(C)
for such restrictions, requirements and provisions that are not material to
the Company and its Subsidiaries;
(v) any Contract providing for the purchase or sale by the Company or any of
its Subsidiaries of Hydrocarbons that:
(A) has a remaining term of greater than one year and does not allow the
Company or such Subsidiary to terminate it without penalty on one year's
notice or less,
(B) contains a minimum throughput commitment, minimum volume commitment,
"take-or-pay" clause or any similar material prepayment or forward sale
arrangement or obligation (excluding "gas balancing" arrangements associated
with customary joint operating agreements) to deliver Hydrocarbons at some
future time, or
(C) contains acreage dedication, minimum volume commitments or capacity
reservation fees to a gathering, transportation or other arrangement
downstream of the wellhead that, in each case, cover, guaranty, dedicate or
commit (1) more than 1,000 net acres or (2) volumes in excess of 10,000 MMcf
of gas or 2,000 boe of liquid Hydrocarbons on a monthly basis (calculated on a
yearly average basis);
(vi) any acquisition or divestiture Contract that contains "earn out" or
other similar contingent payment obligations (other than asset retirement
obligations, plugging and abandonment obligations and other reserves of the
Company set forth in the Company Reserve Report), that would reasonably be
expected to result in annual payments in excess of $50,000,000;
(vii) each contract for lease of personal property or real property (other
than leases for compressors and leases in respect of Oil and Gas Properties)
involving payments in excess of $2,000,000 in any calendar year or aggregate
payments in excess of $10,000,000 over the life of the contract that are not
terminable without penalty or other liability to the Company (other than any
ongoing obligation pursuant to such contract that is not caused by any such
termination) within sixty (60) days;
(viii) each Contract that would reasonably be expected to require the
disposition of a material portion of the assets or any line of business of the
Company or its Subsidiaries (or, after the Effective Time, Parent or its
Subsidiaries);
(ix) each Contract involving the pending acquisition or sale of (or option
to purchase or sell) any material amount of the assets or properties of the
Company or any of its Subsidiaries (including any material portion of the Oil
and Gas Properties), taken as a whole, other than Contracts involving the
acquisition or sale of (or option to purchase or sell) Hydrocarbons in the
Ordinary Course;
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(x) each material partnership, joint venture or limited liability company
agreement, other than any customary joint operating agreements, or unit
agreements affecting the Oil and Gas Properties of the Company;
(xi) each joint development agreement, exploration agreement, participation,
farm-out, farm-in or program agreement or similar Contract requiring the
Company or any of its Subsidiaries to make expenditures from and after
December 31, 2022 that would reasonably be expected to be in excess of
$25,000,000 in the aggregate, other than customary joint operating agreements
and continuous development obligations under Oil and Gas Leases;
(xii) each agreement under which the Company or any of its Subsidiaries has
advanced or loaned any amount of money to any of its officers, directors,
employees or consultants, in each case with a principal amount in excess of
$120,000; and
(xiii) each contract for any Company Related Party Transaction.
(b) Collectively, the Contracts described in
Section 4.20(a)
are referred to as the "
Company Contracts
." A complete and correct copy of each of the Company Contracts has been made
available to Parent. Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, each
Company Contract is legal, valid, binding and enforceable in accordance with
its terms on the Company and each of its Subsidiaries that is a party thereto
and, to the Knowledge of the Company, each other party thereto, and is in full
force and effect, subject, as to enforceability, to Creditors' Rights. Except
as would not reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect, neither the Company nor any of its
Subsidiaries is in breach or default under any Company Contract nor, to the
Knowledge of the Company, is any other party to any such Company Contract in
breach or default thereunder, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default thereunder by
the Company or its Subsidiaries, or, to the Knowledge of the Company, any
other party thereto. Except as would not reasonably be expected to have
individually or in the aggregate, a Company Material Adverse Effect, there are
no disputes pending or, to the Knowledge of the Company, threatened with
respect to any Company Contract and neither the Company nor any of its
Subsidiaries has received any written notice of the intention of any other
party to any Company Contract to terminate for default, convenience or
otherwise any Company Contract, nor to the Knowledge of the Company, is any
such party threatening to do so.
Section 4.21
Derivative Transactions
.
(a)
Schedule 4.21
of the Company Disclosure Letter contains a complete and correct list of all
outstanding material Derivative Transactions (including each outstanding
Hydrocarbon or financial hedging position attributable to the Hydrocarbon
production of the Company or any of its Subsidiaries) entered into by the
Company or any of its Subsidiaries or for the account of any of their
respective customers as of the date hereof pursuant to which such party has
outstanding rights or obligations. All such Derivative Transactions entered
into by the Company or any of its Subsidiaries or for the account of any of
its customers as of the date of this Agreement were, in all material respects,
entered into in accordance with applicable Laws, and in accordance with the
investment, securities, commodities, risk management and other policies,
practices and procedures employed by the Company and its Subsidiaries, and
were, in all material respects, entered into with counterparties believed at
the time to be financially responsible and able to understand (either alone or
in consultation with their advisers) and to bear the risks of such Derivative
Transactions.
(b) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, the Company and each of its
Subsidiaries have duly performed in all respects all of their respective
obligations under the Derivative Transactions to the extent that such
obligations to perform have accrued, and there are no breaches, violations,
collateral deficiencies, requests for collateral or demands for payment, or
defaults or allegations or assertions of such by any party thereunder.
(c) The Company SEC Documents accurately summarize, in all material
respects, the outstanding positions under any such Derivative Transaction of
the Company and its Subsidiaries, including
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Hydrocarbon and financial positions under any such Derivative Transaction of
the Company attributable to the production and marketing of the Company and
its Subsidiaries, as of the dates reflected therein.
Section 4.22
Insurance
. Set forth on
Schedule 4.22
of the Company Disclosure Letter is a true, correct and complete list of all
material insurance policies held by the Company or any of its Subsidiaries as
of the date of this Agreement (other than those constituting or funding
Company Benefit Plans) (collectively, the "
Material Company Insurance Policies
"). Except as would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, each of the Material Company
Insurance Policies is in full force and effect on the date of this Agreement
and a true, correct and complete copy of each Material Company Insurance
Policy has been made available to Parent. The Material Company Insurance
Policies are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets, and are in breadth of
coverage and amount at least equivalent to that carried by Persons engaged in
similar businesses and subject to the same or similar perils or hazards,
except as would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Except as would not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect, all premiums payable under the Material Company Insurance
Policies prior to the date of this Agreement have been duly paid to date, and
neither the Company nor any of its Subsidiaries has taken any action or failed
to take any action that (including with respect to the Transactions), with
notice or lapse of time or both, would constitute a breach or default, or
permit a termination of any of the Material Company Insurance Policies. Except
as would not reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect, as of the date of this Agreement, no
written notice of cancellation or termination has been received with respect
to any Material Company Insurance Policy. As of the date of this Agreement,
the Company and its Subsidiaries do not have aggregate claims pending with
insurers that are reasonably expected to result in insurance recoveries of
more than $1,500,000 in the aggregate.
Section 4.23
Opinion of Financial Advisor
. The Company Board has received the opinion of Goldman Sachs & Co. LLC
addressed to the Company Board to the effect that, based upon and subject to
the assumptions, qualifications, limitations, and other matters considered in
connection with the preparation of each such opinion, as of the date of the
opinion, the Exchange Ratio is fair, from a financial point of view, to the
holders (other than the Parent and its Affiliates) of Company Common Stock.
Section 4.24
Brokers
. Except for the fees and expenses payable to Goldman Sachs & Co. LLC and
RBC Capital Markets, LLC, no broker, investment banker, advisor or other
Person is entitled to any broker's, finder's or other similar fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company.
Section 4.25
Takeover Laws
. Assuming the accuracy of the representations contained in
Section 5.25
, the approval of the Company Board of this Agreement and the Transactions
represents all the action necessary to render inapplicable to this Agreement
and the Transactions the restrictions of any Takeover Law or any anti-takeover
provision in Company's Organizational Documents that is applicable to the
Company, the shares of Company Common Stock, this Agreement or the
Transactions.
Section 4.26
Related Party Transactions
.
Schedule 4.26
of the Company Disclosure Letter sets forth, as of the date of this Agreement,
a complete and correct list of any transaction or arrangement (other than any
Company Benefit Plan) under which any (a) present or former executive officer
or director of the Company or any of its Subsidiaries, (b) beneficial owner
(within the meaning of Section 13(d) of the Exchange Act) of 5% or more of any
class of the equity securities of the Company or any of its Subsidiaries whose
status as a 5% holder is known to the Company as of the date of this Agreement
or (c) Affiliate, "associate" or member of the "immediate family" (as such
terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act)
of any of the foregoing Persons described in
clause (a)
or
(b)
(but only, with respect to the Persons in
clause (b)
, to the Knowledge of the Company), in each case as would be required to be
disclosed by the Company pursuant to Item 404 of Regulation S-K promulgated
under the Exchange Act, is a party to any actual or proposed loan, lease or
other contract with or binding upon the Company or any of its Subsidiaries or
any of their respective properties or assets or has any interest in any
property owned by the Company or any of its Subsidiaries, in each case,
including any bond, letter of credit, guarantee, deposit, cash account,
escrow, policy of insurance or other credit support instrument or security
posted or
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delivered by any Person listed in
clauses (a)
,
(b)
or
(c)
in connection with the operation of the business of the Company or any of its
Subsidiaries (each of the foregoing, a "
Company Related Party Transaction
").
Section 4.27
No Additional Representations
.
(a) Except for the representations and warranties made in this
Article IV
, neither the Company nor any other Person makes any express or implied
representation or warranty with respect to the Company or any of its
Subsidiaries or their respective businesses, operations, assets, liabilities
or conditions (financial or otherwise) in connection with this Agreement or
the Transactions, and the Company hereby disclaims any such other
representations or warranties. In particular, without limiting the foregoing
disclaimer, neither the Company nor any other Person makes or has made any
representation or warranty to Parent, Merger Sub, LLC Sub, or any of their
respective Affiliates or Representatives with respect to (i) any financial
projection, forecast, estimate, budget or prospect information relating to the
Company or any of its Subsidiaries or their respective businesses; or (ii)
except for the representations and warranties made by the Company in this
Article IV
, any oral or written information presented to Parent, Merger Sub, LLC Sub or
any of their respective Affiliates or Representatives in the course of their
due diligence investigation of the Company, the negotiation of this Agreement
or in the course of the Transactions. Notwithstanding the foregoing, nothing
in this
Section 4.27
shall limit Parent's, Merger Sub's or LLC Sub's remedies with respect to
claims of fraud arising from or relating to the express written representations
and warranties made by the Company in this
Article IV
.
(b) Notwithstanding anything contained in this Agreement to the contrary,
the Company acknowledges and agrees that none of Parent, Merger Sub, LLC Sub
or any other Person has made or is making any representations or warranties
relating to Parent or its Subsidiaries (including Merger Sub and LLC Sub) or
any other matter whatsoever, express or implied, beyond those expressly given
by Parent, Merger Sub and LLC Sub in
Article V
, including any implied representation or warranty as to the accuracy or
completeness of any information regarding Parent furnished or made available
to the Company or any of its Representatives, and that the Company has not
relied on any such other representation or warranty not expressly set forth in
Article V
of this Agreement. Without limiting the generality of the foregoing, the
Company acknowledges that no representations or warranties are made with
respect to any projections, forecasts, estimates, budgets or prospect
information that may have been made available to the Company or any of its
Representatives (including in certain "data rooms," "virtual data rooms,"
management presentations or in any other form in expectation of, or in
connection with, the Integrated Mergers or the other Transactions).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND LLC SUB
Except as (i) set forth in the disclosure letter dated as of the date of this
Agreement and delivered by Parent, Merger Sub and LLC Sub to the Company on or
prior to the date of this Agreement (the "
Parent Disclosure Letter
") or (ii) disclosed in the Parent SEC Documents (including all exhibits and
schedules thereto and documents incorporated by reference therein) filed with
or furnished to the SEC and available on Edgar since December 31, 2021 and
prior to the date of this Agreement (excluding any disclosures set forth or
referenced in any risk factor section or in any other section, in each case,
to the extent they are forward-looking statements or cautionary, predictive,
non-specific or forward-looking in nature, including any historical factual
information contained within such headings, disclosure or statements), Parent,
Merger Sub and LLC Sub, jointly and severally, represent and warrant to the
Company as follows:
Section 5.1
Organization, Standing and Power
. Each of Parent and its Subsidiaries is a corporation, partnership or
limited liability company duly incorporated, organized or formed, as the case
may be, validly existing and in good standing under the Laws of its
jurisdiction of incorporation, organization or formation, with all requisite
entity power and authority to own, lease and operate its assets and properties
and to carry on its business as now being conducted, other than, in the case
of each of Parent's Subsidiaries, where the failure to be so organized or to
have such power, authority or standing would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Parent
and its Subsidiaries, taken as a whole (a "
Parent Material Adverse Effec
t"). Each of Parent and its Subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the business it is
conducting, or
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the operation, ownership or leasing of its assets and properties, makes such
qualification or license necessary, other than where the failure to so
qualify, license or be in good standing would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
Parent, Merger Sub and LLC Sub each has heretofore made available to the
Company complete and correct copies of its Organizational Documents and the
Organizational Documents of each of its Subsidiaries, each as amended prior to
the execution of this Agreement, and each as made available to the Company is
in full force and effect, and neither Parent nor any of its Subsidiaries is in
violation of any of the provisions of such Organizational Documents.
Section 5.2
Capital Structure
.
(a) As of the date of this Agreement, the authorized capital stock of Parent
consists of (i) 450,000,000 shares of Parent Common Stock and (ii) 45,000,000
shares of preferred stock, par value $0.01 per share ("
Parent Preferred Stock
" and, together with the Parent Common Stock, the "
Parent Capital Stock
"). At the close of business on January 10, 2024, (A) 130,794,580 shares of
Parent Common Stock were issued and outstanding, (B) no shares of Parent
Preferred Stock were issued and outstanding and (C) 10,148,220 shares of
Parent Common Stock were issuable under warrants to purchase Parent Common
Stock ("
Parent Warrants
"), rounded up to the nearest whole share and assuming all Parent Warrants
were exercised via "Cashless Settlement" with an "Exercise Date" of January
10, 2024 (as such terms are defined in the Parent Warrant Agreements).
(b) At the close of business on January 10, 2024, there were (i) no
outstanding options to purchase shares of Parent Common Stock pursuant to
Parent's Stock and Performance Incentive Plan, as amended from time to time,
and prior plans (the "
Parent Stock Plans
"), (ii) there were outstanding other stock-settled equity-based awards (other
than shares of restricted stock or other equity based awards included in the
number of shares of Parent Common Stock outstanding set forth above) with
respect to 1,326,416 shares of Parent Common Stock and (iii) there were (A)
777,368 shares of Parent Common Stock (the "
Reserved Shares
") and (B) Parent Warrants exercisable for 1,091,933 shares of Parent Common
Stock, rounded up to the nearest whole share assuming all such Parent Warrants
were exercised via "Cashless Settlement" with an "Exercise Date" of January
10, 2024 (as such terms are defined in the Parent Warrant Agreements) (the "
Reserved Warrants
"), in each case held in reserve for future issuance relating to general
unsecured claims.
(c) As of the date of this Agreement, the authorized capital stock of Merger
Sub consists of 1,000 shares of common stock, par value $0.01 per share, all
of which shares are validly issued, fully paid and nonassessable and are owned
by Parent.
(d) As of the date of this Agreement, the authorized capital interests of
LLC Sub consists of 1,000 units, all of which units are validly issued, fully
paid and nonassessable and are owned by Parent.
(e) All outstanding equity securities of Parent, including Parent Common
Stock have been duly authorized and are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. All outstanding
equity securities of Parent have been issued and granted in compliance in all
material respects with (i) applicable securities Laws and other applicable Law
and (ii) all requirements set forth in applicable contracts. The Parent Common
Stock to be issued pursuant to this Agreement, when issued, will be issued in
compliance in all material respects with (A) applicable securities Laws and
other applicable Law and (B) all requirements set forth in applicable
contracts. As of the date of this Agreement, except as set forth in this
Section 5.2
, there are no outstanding options, warrants or other rights to subscribe for,
purchase or acquire from Parent or any of its Subsidiaries any capital stock
of Parent or securities convertible into or exchangeable or exercisable for
capital stock of Parent (and the exercise, conversion, purchase, exchange or
other similar price thereof). All outstanding shares of capital stock or other
equity interests of the Subsidiaries of Parent are owned by Parent, or a
direct or indirect wholly owned Subsidiary of Parent, are free and clear of
all Encumbrances, other than Permitted Encumbrances, and have been duly
authorized and are validly issued, fully paid and nonassessable. Except as set
forth in this
Section 5.2
, there are outstanding: (1) no shares of capital stock, other equity
interests, Voting Debt or other voting securities of Parent; (2) no securities
of Parent or any Subsidiary of Parent convertible into or exchangeable or
exercisable for shares of capital stock, other equity interests, Voting Debt
or other voting securities of Parent; and (3) no options, warrants,
subscriptions, calls, rights (including preemptive and appreciation rights),
commitments or agreements to which Parent or
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any Subsidiary of Parent is a party or by which it is bound in any case
obligating Parent or any Subsidiary of Parent to issue, deliver, sell,
purchase, redeem or acquire, or cause to be issued, delivered, sold,
purchased, redeemed or acquired, additional shares of capital stock, other
equity interests or any Voting Debt or other voting securities of Parent, or
obligating Parent or any Subsidiary of Parent to grant, extend or enter into
any such option, warrant, subscription, call, right, commitment or agreement.
There are no stockholder agreements, voting trusts or other agreements to
which Parent or any of its Subsidiaries is a party or by which it is bound
relating to the voting of any shares of capital stock or other equity
interests of Parent or any of its Subsidiaries. No Subsidiary of Parent owns
any shares of Parent Common Stock or any other shares of Parent Capital Stock.
(f) As of the date of this Agreement, neither Parent nor any of its
Subsidiaries has any (i) interests in a material joint venture or, directly or
indirectly, equity securities or other similar equity interests in any Person
or (ii) material obligations, whether contingent or otherwise, to consummate
any material additional investment in any Person other than its Subsidiaries
and its joint ventures listed on
Schedule 5.2(f)
of the Parent Disclosure Letter.
Section 5.3
Authority; No Violations; Consents and Approvals
.
(a) Each of Parent, Merger Sub and LLC Sub has all requisite power and
authority to execute and deliver this Agreement and, subject to the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and the obtaining of Parent Stockholder Approval, to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent, Merger Sub and LLC Sub of the Transactions
have been duly authorized by all necessary action on the part of each of
Parent (subject, only with respect to the Parent Stock Issuance, to obtaining
Parent Stockholder Approval), Merger Sub (other than the adoption of this
Agreement by Parent as sole stockholder of Merger Sub, which shall occur
immediately after the execution and delivery of this Agreement) and LLC Sub
(other than the adoption of this Agreement by Parent as sole managing member
of LLC Sub, which shall occur immediately after the execution and delivery of
this Agreement), and the filing of the Certificate of Mergers for each of the
Integrated Mergers with the Secretary of State for the State of Delaware. This
Agreement has been duly executed and delivered by each of Parent, Merger Sub
and LLC Sub, and, assuming the due and valid execution of this Agreement by
the Company, constitutes a valid and binding obligation of each of Parent,
Merger Sub and LLC Sub enforceable against Parent, Merger Sub and LLC Sub in
accordance with its terms, subject as to enforceability to Creditors' Rights.
The Parent Board, at a meeting duly called and held, has (i) determined that
this Agreement and the Transactions are fair and reasonable to, and advisable
and in the best interests of, Parent and the holders of Parent Common Stock,
(ii) approved the execution, delivery and performance of this Agreement and
the consummation of the Transactions, including the Parent Stock Issuance, and
(iii) resolved to recommend that the holders of shares of Parent Common Stock
approve the Parent Stock Issuance (such recommendation described in
clause (iii)
, the "
Parent Board Recommendation
"). The Merger Sub Board, acting by written consent, has (A) determined that
this Agreement and the Transactions are fair and reasonable to, and in the
best interests of, Merger Sub and the sole stockholder of Merger Sub, (B)
approved and declared advisable this Agreement and the Transactions and (C)
recommended this Agreement and the Transactions to Parent for approval and
adoption thereby in its capacity as the sole stockholder of Merger Sub. The
Parent Stockholder Approval is the only approval of the holders of any class
or series of the Parent Capital Stock necessary to approve and adopt this
Agreement and the Parent and its Subsidiaries' consummation of the
Transactions contemplated hereby, including the Integrated Mergers and the
Parent Stock Issuance. Parent, as the owner of all of the outstanding shares
of capital stock of Merger Sub, will immediately after the execution and
delivery of this Agreement adopt this Agreement in its capacity as sole
stockholder of Merger Sub. The approval of the Transactions contemplated
hereby, including the Merger, by Parent, as the sole stockholder of Merger
Sub, is the only approval of the holders of any class or series of capital
stock of Merger Sub necessary to approve and adopt this Agreement, which
approval shall be obtained no later than one Business Day following the date
hereof. The approval of the Transactions contemplated hereby, including the
LLC Sub Merger, by Parent, as the sole member of LLC Sub, and, following the
Effective Time, as the sole equityholder of the Company, is the only approval
of the holders of any class or series of membership interests of LLC Sub
necessary to approve and adopt
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this Agreement and the LLC Sub's consummation of the Transactions contemplated
hereby, which approval shall be obtained no later than one Business Day
following the date hereof.
(b) The execution, delivery and performance of this Agreement does not, and
the consummation of the Transactions will not (with or without notice or lapse
of time, or both) (i) contravene, conflict with or result in a breach or
violation of any provision of the Organizational Documents of Parent (assuming
that the Parent Stockholder Approval is obtained) or any of its Subsidiaries,
(ii) with or without notice, lapse of time or both, result in a breach or
violation of, a termination (or right of termination) of or default under, the
creation or acceleration of any obligation or the loss of a benefit under, or
result in the creation of any Encumbrance upon any of the properties or assets
of Parent or any of its Subsidiaries under, any provision of any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
permit, franchise or license to which Parent or any of its Subsidiaries is a
party or by which Parent, Merger Sub, LLC Sub or any of their respective
Subsidiaries or their respective properties or assets are bound or (iii)
assuming the Consents referred to in
Section 5.4
are duly and timely obtained or made and the Parent Stockholder Approval has
been obtained, contravene, conflict with or result in a violation of any Law
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of
clauses (ii)
and
(iii)
, any such contraventions, conflicts, violations, defaults, acceleration,
losses or Encumbrances that would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. Parent is
not party to any contract, arrangement or other commitment that does, would or
would reasonably be expected to entitle any Person to appoint one or more
directors to the Parent Board.
Section 5.4
Consents
. No Consent from any Governmental Entity is required to be obtained or made
by Parent or any of its Subsidiaries or Affiliates in connection with the
execution, delivery and performance of this Agreement by Parent, Merger Sub
and LLC Sub or the consummation by Parent, Merger Sub and LLC Sub of the
Transactions, except for: (a) the filing of any required premerger
notification and report forms under the HSR Act, and the expiration or
termination of any applicable waiting period with respect thereto; (b) the
filing with the SEC of (i) the Registration Statement relating to the
registration under the Securities Act of the shares of Parent Common Stock to
be issued under this Agreement, (ii) the Joint Proxy Statement/Prospectus
relating to the Company Stockholders Meeting and the Parent Stockholders
Meeting which Joint Proxy Statement/Prospectus may form part of the
Registration Statement and (iii) such reports under the Securities Act, the
Exchange Act and the rules and regulations thereunder, as may be required in
connection with this Agreement and the Transactions; (c) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware;
(d) filings with NASDAQ; (e) such filings and approvals as may be required by
any applicable state securities or "blue sky" Laws or Takeover Laws; and (f)
any such Consent that the failure to obtain or make would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
Section 5.5
Parent SEC Documents; Financial Statements
.
(a) Since December 31, 2021, Parent has filed or furnished with the SEC, on
a timely basis, all forms, reports, certifications, schedules, statements and
documents required to be filed or furnished under the Securities Act or the
Exchange Act, respectively, (such forms, reports, certifications, schedules,
statements and documents, collectively, the "
Parent SEC Documents
"). As of their respective dates, each of the Parent SEC Documents, as
amended, complied, or if not yet filed or furnished, will comply as to form in
all material respects with the applicable requirements of the Securities Act,
the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such Parent SEC Documents,
and none of the Parent SEC Documents contained, when filed or, if amended
prior to the date of this Agreement, as of the date of such amendment with
respect to those disclosures that are amended, or if filed with or furnished
to the SEC subsequent to the date of this Agreement, will contain any untrue
statement of a material fact or omitted 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. No Subsidiary of
Parent is subject to periodic reporting requirements of the Exchange Act other
than as part of Parent's consolidated group or required to file any form,
report or other document with the SEC, NASDAQ, any other stock exchange or
comparable Governmental Entity other than routine and ordinary filings (such
as filings regarding ownership holdings or transfers).
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(b) The financial statements of Parent included in the Parent SEC Documents,
including all notes and schedules thereto, complied, or, in the case of Parent
SEC Documents filed after the date of this Agreement, will comply, in all
material respects, when filed or if amended prior to the date of this
Agreement, as of the date of such amendment, with the rules and regulations of
the SEC with respect thereto, were, or, in the case of Parent SEC Documents
filed after the date of this Agreement, will be, prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in
all material respects in accordance with applicable requirements of GAAP
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments, and to any other adjustments described therein, including the
notes thereto) the financial position of Parent and its consolidated
Subsidiaries as of their respective dates and the results of operations and
the cash flows of Parent and its consolidated Subsidiaries for the periods
presented therein.
(c) Parent has established and maintains a system of internal control over
financial reporting and disclosure controls and procedures (as such terms are
defined in Rule 13a-15 or Rule 15d-15, as applicable, under the Exchange Act);
such disclosure controls and procedures are designed to ensure that material
information relating to Parent, including its consolidated Subsidiaries,
required to be disclosed by Parent in the reports that it files or furnishes
under the Exchange Act is accumulated and communicated to Parent's principal
executive officer and its principal financial officer to allow timely
decisions regarding required disclosure; and such disclosure controls and
procedures are effective to ensure that information required to be disclosed
by Parent in the reports that it files or furnishes under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and further designed and maintained to provide
reasonable assurance regarding the reliability of Parent's financial reporting
and the preparation of Parent financial statements for external purposes in
accordance with GAAP. There (i) is no significant deficiency or material
weakness in the design or operation of internal controls over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) utilized by
Parent or its Subsidiaries, (ii) is not, and since December 31, 2021, there
has not been, any illegal act or fraud, whether or not material, that involves
management or other employees who have a significant role in Parent's internal
controls, and (iii) is not, and since December 31, 2021, there has not been,
any "extensions of credit" (within the meaning of Section 402 of the
Sarbanes-Oxley Act) or prohibited loans to any executive officer of Parent (as
defined in Rule 3b-7 under the Exchange Act) or director of Parent or any of
its Subsidiaries. The principal executive officer and the principal financial
officer of Parent have made all certifications required by the Sarbanes-Oxley
Act, the Exchange Act and any related rules and regulations promulgated by the
SEC with respect to Parent SEC Documents, and the statements contained in such
certifications were complete and correct as of the dates they were made.
Section 5.6
Absence of Certain Changes or Events
.
(a) Since December 31, 2022, there has not been any Parent Material Adverse
Effect or any event, change, effect or development that, individually or in
the aggregate, could reasonably be expected to have a Parent Material Adverse
Effect.
(b) From December 31, 2022 through the date of this Agreement:
(i) Parent and its Subsidiaries have conducted their business in the
Ordinary Course in all material respects;
(ii) there has not been any material damage, destruction or other casualty
loss with respect to any material asset or property owned, leased or otherwise
used by Parent or any of its Subsidiaries, including the Oil and Gas
Properties of Parent and its Subsidiaries, whether or not covered by
insurance; and
(iii) neither Parent nor any of its Subsidiaries has taken, or agreed,
committed, arranged, authorized or entered into any understanding to take, any
action that, if taken after the date of this Agreement, would (without the
Company's prior written consent) have constituted a breach of any of the
covenants set forth in
Section 6.2(b)
.
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Section 5.7
No Undisclosed Material Liabilities
. There are no liabilities of Parent or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than: (a) liabilities adequately provided for on the balance
sheet of Parent dated as of September 30, 2023 (including the notes thereto)
contained in Parent's Quarterly Report on Form 10-Q for the nine (9) months
ended September 30, 2023; (b) liabilities incurred in the Ordinary Course
subsequent to September 30, 2023; (c) liabilities incurred in connection with
the Transactions; and (d) liabilities that would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 5.8
Information Supplied
. None of the information supplied or to be supplied by Parent for inclusion
or incorporation by reference in (a) the Registration Statement shall, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading or (b) the Joint Proxy Statement/
Prospectus will, at the date it is first mailed to the stockholders of the
Company and to the stockholders of Parent and at the time of the Company
Stockholders Meeting and the Parent Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading;
provided
,
however
, that, in the case of
clause (a)
and
(b)
, no representation or covenant is made by Parent with respect to the
statements made therein based on information supplied by the Company
specifically for inclusion or incorporation by reference therein. Subject to
the accuracy of the first sentence of
Section 4.8
, the Joint Proxy Statement/Prospectus and the Registration Statement will
comply as to form in all material respects with, as applicable, the provisions
of the Exchange Act and the Securities Act, respectively, and the rules and
regulations thereunder;
provided
,
however
, that no representation is made by Parent with respect to the statements made
therein based on information supplied by the Company specifically for
inclusion or incorporation by reference therein.
Section 5.9
Parent Permits; Compliance with Applicable Law
.
(a) Parent and its Subsidiaries hold and at all times since December 31,
2021 have held all permits, licenses, certifications, registrations, consents,
authorizations, variances, exemptions, waivers, orders, franchises, and
approvals of all Governmental Entities necessary to own, lease and operate
their respective properties and assets and for the lawful conduct of their
respective businesses as they were or are now being conducted, as applicable
(collectively, the "
Parent Permits
"), and have paid all fees and assessments due and payable in connection
therewith, except where the failure to so hold or make such a payment would
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. All Parent Permits are in full force and effect and
no suspension or cancellation of any of the Parent Permits is pending or, to
the Knowledge of Parent, threatened, and Parent and its Subsidiaries are, and
at all times since December 31, 2021 have been, in compliance with the terms
of the Parent Permits, except where the failure to be in full force and effect
or failure to so comply would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
(b) The businesses of Parent and its Subsidiaries and, with respect to the
Oil and Gas Properties of Parent and its Subsidiaries that are operated by
third parties, to the Knowledge of Parent, are not currently being conducted,
and at no time since December 31, 2021 have been conducted, in violation of
any applicable Law, except, in each case, for violations that would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Other than as may arise under Antitrust Laws with
respect to the Transactions, no investigation or review by any Governmental
Entity with respect to Parent or any of its Subsidiaries is pending or, to the
Knowledge of Parent, threatened, other than those the outcome of which has not
had and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(c) Neither Parent nor any of its Subsidiaries, nor any of their respective
directors, officers, employees, or, to the Knowledge of Parent, agents, has
directly or indirectly made, offered, promised or authorized any payment or
gift of any money or anything of value to or for the benefit of any Person for
the purpose of (i) influencing any official act or decision of a foreign
government official, political party, or candidate for political office, (ii)
inducing such official, party or candidate to use his, her or its influence to
affect any act or decision of a foreign Governmental Entity, or (iii) securing
any improper advantage, in the case of clauses (i), (ii) and (iii) in
violation of any applicable Anti-Corruption Laws.
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(d) Neither Parent nor any of its Subsidiaries, nor any of their respective
directors, officers, employees, or, to the Knowledge of Parent, agents:
(i) has been nor is a Sanctioned Person;
(ii) has knowingly transacted any business directly or indirectly with any
Sanctioned Person or otherwise knowingly violated Sanctions; nor
(iii) has knowingly violated any applicable material Ex-Im Law.
Section 5.10
Compensation; Benefits
.
(a) Set forth on
Schedule 5.10(a)
of the Parent Disclosure Letter is a list of each material Parent Plan.
(b) True, correct and complete copies of each material Parent Plan (or, in
the case of any material Parent Plan not in writing, a description of the
material terms thereof) and related trust documents and favorable
determination letters, if applicable, have been furnished or made available to
the Company, along with, as applicable, with respect to each material Parent
Plan, the most recent report filed on Form 5500, summary plan description, and
all material correspondence to or from (including non-routine filings made
with) any Governmental Entity in the past three (3) years.
(c) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, each Parent Plan has been
maintained, funded and operated in compliance with its terms and all
applicable Laws, including ERISA and the Code.
(d) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, there are no actions, suits
or claims (other than routine claims for benefits) pending or, to the
Knowledge of Parent, threatened against, or with respect to, any of the Parent
Plans (or the assets thereof), and there are no Proceedings by a Governmental
Entity pending with respect to any of the Parent Plans (or the assets thereof).
(e) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, all contributions or other
payments required to be made by Parent or any of its Subsidiaries with respect
to each of the Parent Plans pursuant to their terms or applicable Laws have
been timely made or, if not yet due, accrued in accordance with GAAP.
(f) Each Parent Plan that is intended to be qualified under Section 401(a)
of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and nothing has occurred that could
reasonably be expected to adversely affect the qualification of any such
Parent Plan. Except as would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect, none of Parent, any of
its Subsidiaries or, to the Knowledge of Parent, any other Person, has engaged
in a transaction with respect to any Parent Plan in connection with which
Parent, any of its Subsidiaries or any Parent Plan could, in each case,
reasonably be expected to be subject to either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a Tax imposed pursuant to
Section 4975 or 4976 of the Code.
(g) Except as set forth on
Schedule 5.10(g)
of the Parent Disclosure Letter, none of Parent, any of its Subsidiaries or
any of their respective ERISA Affiliates maintains, sponsors, contributes to
or has an obligation to contribute to, or otherwise has any current or
contingent liability or obligation under or with respect to, and no Parent
Plan is, a plan subject to Title IV of ERISA, Sections 302 or 303 of ERISA, or
Sections 412 or 430 of the Code, a "multiemployer plan" (as defined in Section
3(37) of ERISA), a "multiple employer plan" (within the meaning of Section 210
of ERISA or Section 413(c) of the Code), or a "multiple employer welfare
arrangement" (as defined in Section 3(40) of ERISA).
(h) Except as set forth on
Schedule 5.10(h)
of the Parent Disclosure Letter or as required by applicable Law, no Parent
Plan provides retiree or post-employment medical, or life insurance benefits
to any Person, and neither Parent nor any of its Subsidiaries has any
obligation to provide such benefits. Except as would not reasonably be
expected to have, individually or in the aggregate, a Parent Material
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Adverse Effect, neither Parent nor any of its Subsidiaries has incurred
(whether or not assessed) or could reasonably be expected to incur any Tax or
penalty under Section 4980B, 4980D, 4980H, 6721 or 6722 of the Code.
(i) Except as set forth on
Schedule 5.10(i)
of the Parent Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation of the Transactions will, either alone or in
combination with another event, (i) entitle any employees of Parent or any of
its Subsidiaries to any amount of compensation or benefits (including any
severance pay or any material increase in severance pay or any loan
forgiveness), (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee of Parent or any of its
Subsidiaries, (iii) directly or indirectly cause Parent to transfer or set
aside any assets to fund any material benefits under any Parent Plan, (iv)
otherwise give rise to any liability under any Parent Plan or (v) limit or
restrict the right to amend, terminate or transfer the assets of any Parent
Plan on or following the Effective Time.
(j) Neither Parent nor any of its Subsidiaries has any obligation to
provide, and no Parent Plan or other agreement provides any individual with
the right to, a gross up, indemnification, reimbursement or other payment for
any excise or additional Taxes, interest or penalties incurred pursuant to
Section 409A or Section 4999 of the Code or due to the failure of any payment
to be deductible under Section 280G of the Code.
(k) No Parent Plan is maintained outside the jurisdiction of the United
States or covers any employees of Parent or any of its Subsidiaries who reside
and work exclusively outside of the United States.
Section 5.11
Labor Matters
.
(a)(i) Neither Parent nor any of its Subsidiaries is a party to or bound by
any collective bargaining or similar agreement with any labor union or labor
organization, (ii) to the Knowledge of Parent there is no pending union
representation petition filed with the National Labor Relations Board or any
other Governmental Entity with respect to employees of Parent or any of its
Subsidiaries, and (iii) to the Knowledge of Parent, there is no labor
organizing activity by any labor union or labor organization (or representative
thereof) to organize employees of Parent or its Subsidiaries.
(b) Except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, there is
no unfair labor practice charge or complaint or any other complaint,
litigation or judicial or administrative proceeding before the National Labor
Relations Board or any other Governmental Entity, in each case, involving any
employees of Parent or any of its Subsidiaries pending, or, to the Knowledge
of Parent, threatened.
(c) There is no strike, slowdown, work stoppage or lockout pending, or, to
the Knowledge of Parent, threatened, against Parent or any of its Subsidiaries
by or involving any employees of Parent or any of its Subsidiaries, other than
as would not reasonably be expected to have, individually or in the aggregate,
a Parent Material Adverse Effect.
(d) Parent and its Subsidiaries are, and since December 31, 2021 have been,
in compliance in all respects with all applicable Laws respecting employment
and employment practices except, in each case, for violations that would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Neither Parent nor any of its Subsidiaries is a party
to, or otherwise bound by, any consent decree with or citation by any
Governmental Entity relating to its employees or employment practices pursuant
to which it has any outstanding liabilities or obligations, except as would
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(e) In the last three (3) years: (i) to the Knowledge of Parent, no material
allegations of sexual harassment have been made by any current or former
employee of Parent against any current or former officer or director of Parent
or its Subsidiaries; and (ii) neither Parent nor any of its Subsidiaries have
been in involved in any material Proceedings, or entered into any material
settlement agreements, related to allegations of sexual harassment or sexual
misconduct by any current or former officer or director of Parent or any of
its Subsidiaries.
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Section 5.12
Taxes
.
(a) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect:
(i) All Tax Returns required to be filed by or on behalf of Parent or any of
its Subsidiaries have been duly and timely filed (taking into account
extensions of time for filing), and all such filed Tax Returns are complete
and accurate in all respects. All Taxes that are due and payable by Parent or
any of its Subsidiaries (other than Taxes being contested in good faith by
appropriate Proceedings and for which adequate reserves have been established
in accordance with GAAP) have been paid in full. All withholding Tax
requirements imposed on or with respect to Parent or any of its Subsidiaries
have been satisfied in full, and Parent and its Subsidiaries have complied in
all respects with all information reporting (and related withholding) and
record retention requirements.
(ii) There is not in force any waiver or agreement for any extension of time
for the assessment or payment of any Tax by Parent or any of its Subsidiaries.
(iii) There is no outstanding claim, assessment or deficiency against Parent
or any of its Subsidiaries for any Taxes that have been asserted or, to the
Knowledge of Parent, threatened in writing by any Taxing Authority. There are
no Proceedings pending or, to the Knowledge of Parent, threatened in writing
regarding any Taxes of Parent or any of its Subsidiaries.
(iv) Neither Parent nor any of its Subsidiaries is a party to any Tax
allocation, sharing or indemnity contract or arrangement (not including, for
the avoidance of doubt (i) an agreement or arrangement solely between or among
Parent and/or any of its Subsidiaries, or (ii) any customary Tax sharing or
indemnification provisions contained in any commercial agreement entered into
in the Ordinary Course and not primarily relating to Tax). Neither Parent nor
any of its Subsidiaries has (x) been a member of an affiliated group filing a
consolidated U.S. federal income Tax Return (other than a group the common
parent of which is or was Parent or any of its Subsidiaries) or (y) any
liability for Taxes of any Person (other than Parent or any of its
Subsidiaries) under Treasury Regulations (s) 1.1502-6 (or any similar
provision of state, local or foreign Law) or as a transferee or successor.
(v) Neither Parent or any of its Subsidiaries has participated, or is
currently participating, in a "listed transaction," as defined in Treasury
Regulations (s) 1.6011-4(b)(2) (or any similar provision of state, local or
foreign Law).
(vi) Neither Parent nor any of its Subsidiaries has constituted a
"distributing corporation" or a "controlled corporation" in a distribution of
stock intended to qualify for tax-free treatment under Section 355 of the Code
(or so much of Section 356 of the Code as relates to Section 355 of the Code)
(i) in the two (2) years prior to the date of this Agreement or (ii) as part
of a "plan" or "series of related transactions" (within the meaning of Section
355(e) of the Code) in conjunction with the Transactions.
(vii) No written claim has been made by any Taxing Authority in a
jurisdiction where Parent or any of its Subsidiaries does not currently file a
Tax Return that it is or may be subject to any Tax in such jurisdiction, nor
has any such assertion been threatened or proposed in writing and received by
Parent or any of its Subsidiaries.
(viii) Neither Parent nor any of its Subsidiaries has requested, has
received or is subject to any written ruling of a Taxing Authority that will
be binding on it for any taxable period ending after the Closing Date or has
entered into any "closing agreement" as described in Section 7121 of the Code
(or any similar provision of state, local or foreign Law).
(ix) There are no Encumbrances for Taxes on any of the assets of Parent or
any of its Subsidiaries, except for those described in
clause (ii)(B)
of Permitted Encumbrances.
(x) Neither of Parent nor any of its Subsidiaries has availed itself of the
benefit of any Tax credits or deferred the payment of any Taxes pursuant to
COVID-19 Measures.
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(xi) Each of Parent and Merger Sub is, and has been since formation,
properly classified for U.S. federal income tax purposes as a corporation. LLC
Sub is, and has been since formation, properly classified for U.S. federal
income tax purposes as an entity disregarded as separate from Parent.
(b) Neither Parent nor any of its Subsidiaries is aware of the existence of
any fact, or has taken or agreed to take any action, that would reasonably be
expected to prevent or impede the Integrated Mergers, taken together, from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
Section 5.13
Litigation
. Except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect (or as may
arise under Antitrust Laws with respect to the Transactions), there is no (a)
Proceeding pending, or to the Knowledge of Parent, threatened against Parent
or any of its Subsidiaries or any of their Oil and Gas Properties, or (b)
judgment, decree, injunction, ruling, order, writ or award of any Governmental
Entity or arbitrator with outstanding obligations against Parent or any of its
Subsidiaries. To the Knowledge of Parent, as of the date hereof, no officer or
director of Parent is a defendant in any Proceeding in connection with his or
her status as an officer or director of Parent.
Section 5.14
Intellectual Property
.
(a) Parent and its Subsidiaries own or have the right to use all
Intellectual Property used in or necessary for the operation of the businesses
of each of Parent and its Subsidiaries as presently conducted (collectively,
the "
Parent Intellectual Property
") free and clear of all Encumbrances except for Permitted Encumbrances,
except where the failure to own or have the right to use such properties has
not had and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) To the Knowledge of Parent, the use of Parent Intellectual Property by
Parent and its Subsidiaries in the operation of the business of Parent and its
Subsidiaries as presently conducted does not infringe, misappropriate or
otherwise violate any Intellectual Property of any other Person, except for
such matters that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. To the
Knowledge of Parent, no third party is infringing on the Parent Intellectual
Property, except for such matters that have not had and would not reasonably
be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(c) Parent and its Subsidiaries have taken reasonable measures consistent
with prudent industry practices to protect the confidentiality of trade
secrets used in the businesses of Parent and its Subsidiaries as presently
conducted, except where failure to do so has not had and would not reasonably
be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(d) Except as has not had and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, the IT
Assets owned, used, or held for use by Parent or any of its Subsidiaries (i)
are sufficient for the current needs of the businesses of Parent and its
Subsidiaries; (ii) have not malfunctioned or failed within the past three (3)
years and (iii) to the Knowledge of Parent, are free from any malicious code.
Section 5.15
Privacy and Cybersecurity
.
(a) Parent and its Subsidiaries maintain and are in compliance with, and
since December 31, 2021 have maintained and been in compliance with, (i) all
applicable Laws relating to the privacy and/or security of Personal
Information, (ii) Parent's and its Subsidiaries' posted or publicly facing
privacy policies or notices, and (iii) Parent's and its Subsidiaries'
contractual obligations concerning the privacy and/or security of Personal
Information and the IT Assets (
clauses (i)
through
(iii)
collectively, "
Parent Privacy Obligations
"), in each case of
clauses (i)
through
(iii)
above, other than any non-compliance that, individually or in the aggregate,
has not been and would not reasonably be expected to be material to Parent and
its Subsidiaries. There are no actions by any Person (including any
Governmental Entity) pending to which Parent or any of Parent's Subsidiaries
is a named party or,
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to the knowledge of Parent, threatened in writing against Parent or its
Subsidiaries alleging a violation of any Parent Privacy Obligations.
(b) Parent and its Subsidiaries have implemented and at all times maintained
commercially reasonable and legally compliant administrative, technical and
physical safeguards designed to protect the IT Assets and all confidential and
sensitive information (including trade secrets) and Personal Information in
Parent or any Subsidiary's possession or control against Security Incident.
Other than as disclosed on
Schedule 5.15(b)
of the Parent Disclosure Letter, neither Parent nor any Subsidiary of Parent
has (i) experienced any material Security Incident, or (ii) received any
written notice or complaint from any Person with respect to any of the
foregoing, nor has any such notice or complaint been threatened in writing
against Parent or any of Parent's Subsidiaries.
Section 5.16
Real Property
. Except as would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect and with respect to
clauses (a)
and
(b)
, except with respect to any of Parent's Oil and Gas Properties, (a) Parent
and its Subsidiaries have good, valid and defensible title to all material
real property owned by Parent or any of its Subsidiaries (subject to the
exclusion of Parent's Oil and Gas Properties and the Rights-of-Way,
collectively, the "
Parent Owned Real Property
") and valid leasehold estates in all material real property leased,
subleased, licensed or otherwise occupied (whether as tenant, subtenant or
pursuant to other occupancy arrangements) by Parent or any of its
Subsidiaries, but excluding the Parent Oil and Gas Properties and the
Rights-of-Way (collectively, including the improvements thereon, but subject
to the exclusion of Parent's Oil and Gas Properties and Rights-of-Way, the "
Parent Material Leased Real Property
," and together with Parent Owned Real Property, the "
Parent Material Real Property
") free and clear of all Encumbrances and defects and imperfections, except
Permitted Encumbrances, (b) each agreement under which Parent or any of its
Subsidiaries is the landlord, sublandlord, tenant, subtenant, or occupant with
respect to Parent Material Leased Real Property (each, a "
Parent Material Real Property Lease
") is in full force and effect and is valid and enforceable against Parent or
such Subsidiary and, to the Knowledge of Parent, the other parties thereto in
accordance with its terms, subject, as to enforceability, to Creditors'
Rights, and neither Parent nor any of its Subsidiaries, or to the Knowledge of
Parent, any other party thereto, has received written notice of any default
under any Parent Material Real Property Lease and no event has occurred and no
circumstance exists which, if not remedied, would result in such a default
(with or without notice or lapse of time, or both), and (c) as of the date of
this Agreement, there does not exist any pending or, to the Knowledge of
Parent, threatened, condemnation or eminent domain Proceedings that affect any
Parent Owned Real Property or Parent Material Leased Real Property. The Parent
Owned Real Property, Parent Material Leased Real Property and all other real
property leased and owned by the Parent and its Subsidiaries are sufficient
for the current needs of the businesses of the Parent and its Subsidiaries,
except for such real property the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
Section 5.17
Rights-of-Way
. Each of Parent and its Subsidiaries has such Rights-of-Way as are
sufficient to conduct its business as presently conducted in the Ordinary
Course, except for such Rights-of-Way the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Each of Parent and its Subsidiaries has fulfilled and
performed all of its material obligations with respect to such Rights-of-Way
and conduct their business in a manner that does not violate any of the
Rights-of-Way and no event has occurred that allows, or after notice or lapse
of time would allow, revocation or termination thereof or would result in any
impairment of the rights of the holder of any such Rights-of-Way, except for
such revocations, terminations and impairments that would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. All pipelines operated by Parent and its Subsidiaries are located on
or are subject to valid Rights-of-Way, or are located on real property owned
or leased by Parent, and there are no gaps (including any gap arising as a
result of any breach by Parent or any of its Subsidiaries of the terms of any
Rights-of-Way) in the Rights-of-Way other than gaps that would not reasonably
be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
Section 5.18
Oil and Gas Matters
.
(a) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, and except for property (i)
sold or otherwise disposed of in the Ordinary Course since the date specified
in the reserve report prepared by Netherland, Sewell & Associates, Inc. (the
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"
Parent Independent Petroleum Engineer
") relating to Parent's interests referred to therein and dated as of February
9, 2023 (the "
Parent Reserve Report
") or (ii) reflected in the Parent Reserve Report or in the Parent SEC
Documents as having been sold or otherwise disposed of (other than
transactions effected after the date hereof in accordance with
Section 6.1(b)(v)
), Parent and its Subsidiaries have good and defensible title to all Oil and
Gas Properties forming the basis for the reserves reflected in the Parent
Reserve Report and in each case as attributable to interests owned by Parent
and its Subsidiaries, free and clear of any Encumbrances (other than Permitted
Encumbrances). For purposes of the foregoing sentence, "good and defensible
title" means that Parent's and/or one or more of its Subsidiaries', as
applicable, title (as of the date hereof and as of the Closing) to each of the
Oil and Gas Properties held or owned by them (or purported to be held or owned
by them) that (A) entitles Parent (and/or one or more of its Subsidiaries, as
applicable) to receive (after satisfaction of all Production Burdens
applicable thereto), not less than the net revenue interest share shown in the
Parent Reserve Report of all Hydrocarbons produced from such Oil and Gas
Properties throughout the productive life of such Oil and Gas Properties
(other than decreases in connection with operations in which Parent and/or its
Subsidiaries may be a non-consenting co-owner from and after the date hereof,
decreases resulting from reversion of interests to co-owners with respect to
operations in which such co-owners elected not to consent from and after the
date of the Parent Reserve Report, and decreases resulting from the
establishment of pools or units from and after the date of the Parent Reserve
Report), (B) obligates Parent (and/or one or more of its Subsidiaries, as
applicable) to bear a percentage of the costs and expenses for the maintenance
and development of, and operations relating to, such Oil and Gas Properties,
of not greater than the working interest shown on the Parent Reserve Report
for such Oil and Gas Properties (other than any positive difference in such
percentage and the applicable working interest shown on the Parent Reserve
Report for such Oil and Gas Properties that are accompanied by a proportionate
(or greater) increase in the net revenue interest in such Oil and Gas
Properties) and (C) is free and clear of all Encumbrances (other than
Permitted Encumbrances).
(b) Except for any such matters that would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, the
factual, non-interpretive data supplied by Parent to the Parent Independent
Petroleum Engineer relating to Parent interests referred to in the Parent
Reserve Report, by or on behalf of Parent and its Subsidiaries that was
material to such firm's estimates of proved oil and gas reserves attributable
to the Oil and Gas Properties of Parent and its Subsidiaries in connection
with the preparation of the Parent Reserve Report was, as of the time
provided, accurate in all respects. To Parent's Knowledge, any assumptions or
estimates provided by any of Parent's Subsidiaries to the Parent Independent
Petroleum Engineer in connection with its preparation of the Parent Reserve
Report were made in good faith and on a reasonable basis based on the facts
and circumstances in existence and that were known to Parent at the time such
assumptions or estimates were made. Except for any such matters that would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect, the oil and gas reserve estimates of Parent set forth
in the Parent Reserve Report are derived from reports that have been prepared
by the Parent Independent Petroleum Engineer, and such reserve estimates
fairly reflect, in all respects, the oil and gas reserves of Parent and its
Subsidiaries at the dates indicated therein and are in accordance with SEC
guidelines applicable thereto applied on a consistent basis throughout the
periods involved. Except for changes generally affecting the oil and gas
exploration, development and production industry (including changes in
commodity prices) and normal depletion by production, there has been no change
in respect of the matters addressed in the Parent Reserve Report that would
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(c) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, (i) all rentals, shut-ins and
similar payments owed to any Person under (or otherwise with respect to) any
Oil and Gas Leases owned or held by Parent or any of its Subsidiaries have
been properly and timely paid or are being contested in good faith through
appropriate Proceedings, (ii) all royalties, minimum royalties, overriding
royalties and other Production Burdens with respect to any Oil and Gas
Properties owned or held by Parent or any of its Subsidiaries have been timely
and properly paid (other than any such Production Burdens that are being held
in suspense by Parent or its Subsidiaries in accordance with applicable Law)
or are being contested in good faith through appropriate Proceedings and (iii)
none of Parent or any of its Subsidiaries (and, to Parent's Knowledge, no
third party operator) has violated any provision of, or taken or failed to
take any act that, with or
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without notice, lapse of time, or both, would constitute a default under the
provisions of any Oil and Gas Lease (or entitle the lessor thereunder to
cancel or terminate such Oil and Gas Lease) included in the Oil and Gas
Properties owned or held by Parent or any of its Subsidiaries.
(d) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, all proceeds from the sale of
Hydrocarbons produced from the Oil and Gas Properties of Parent and its
Subsidiaries are being received by them in a timely manner or are being
contested in good faith through appropriate Proceedings and are not being held
in suspense (by Parent, any of its Subsidiaries, any third party operator
thereof or any other Person) for any reason other than awaiting preparation
and approval of division order title opinions and the receipt of division
orders for execution for recently drilled Wells. Neither Parent nor any of its
Subsidiaries (i) is obligated by virtue of a take-or-pay payment, advance
payment or similar payment (other than royalties, overriding royalties and
similar arrangements established in the Oil and Gas Leases) to deliver
Hydrocarbons or proceeds from the sale thereof attributable to such Person's
interest in its Oil and Gas Properties at some future time without receiving
payment therefor at the time of delivery or (ii) has any material
transportation, processing or plant imbalance, and no Person has given notice
that any such imbalance constitutes all of the relevant Person's ultimately
recoverable reserves from a balancing area.
(e) All of the Wells and all water, CO2, injection or other wells located on
the Oil and Gas Properties of Parent and its Subsidiaries or otherwise
associated with an Oil and Gas Property of Parent or its Subsidiaries that
were drilled and completed by Parent or its Subsidiaries, and to the Knowledge
of Parent, all such wells that were not drilled and completed by Parent or its
Subsidiaries, have been drilled, completed and operated within the limits
permitted by the applicable Contracts entered into by Parent or any of its
Subsidiaries related to such wells, and in accordance with applicable Law and
applicable Parent Permits, and all drilling and completion (and plugging and
abandonment) of such wells and all related development, production and other
operations have been conducted in compliance with all applicable Contracts and
Laws and applicable Parent Permits except, in each case, as would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Except as set forth on
Schedule 5.18(e)
of the Parent Disclosure Letter, there are no wells that constitute a part of
the Oil and Gas Properties of Parent and its Subsidiaries of which Parent or a
Subsidiary has received a written notice, claim, demand or order from any
Governmental Entity notifying, claiming, demanding or requiring that such
well(s) be temporarily or permanently plugged and abandoned.
(f) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, none of the Oil and Gas
Properties of Parent or its Subsidiaries is subject to any preferential
purchase, tag-along, right of first refusal, consent or similar right that
would become operative as a result of the execution of this Agreement or the
consummation of the Transactions.
(g) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, since the date of the Parent
Reserve Reports, neither the Parent nor any of its Subsidiaries has elected
not to participate in any operation or activity proposed with respect to any
of the Oil and Gas Properties owned or held by it (or them, as applicable)
that could result in a penalty or forfeiture as a result of such election not
to participate in such operation or activity that would be material to Parent
and its Subsidiaries, taken as a whole and is not reflected in the Parent
Reserve Report.
Section 5.19
Environmental Matters
.
(a) Except for those matters that would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect:
(i) Parent and its Subsidiaries and their respective operations and assets
are, and at all times since December 31, 2021 have been, in compliance with
all Environmental Laws, which compliance includes, and since December 31, 2021
has included, obtaining, maintaining and complying with all Parent Permits
required under Environmental Laws;
(ii) Parent and its Subsidiaries are not subject to any pending or, to
Parent's Knowledge, threatened Proceedings under Environmental Laws, and
Parent and its Subsidiaries have not
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received any written notice of a violation of, or liability under,
Environmental Laws, the subject of which is unresolved;
(iii) there has been no Release, treatment, storage, transportation or
handling of, or exposure to, Hazardous Materials at, on, under, or from any
property currently or, to the Knowledge of Parent, formerly owned, leased,
operated or otherwise used by Parent or any of its Subsidiaries, or, to the
Knowledge of Parent, by any predecessors of Parent or any Subsidiary of
Parent, or to the Knowledge of Parent, at, on, under, or from any other
property, which has resulted or is reasonably likely to result in liability to
Parent or its Subsidiaries under any Environmental Law, and, as of the date of
this Agreement, neither Parent nor any of its Subsidiaries has received any
unresolved written notice, claim, demand, or order asserting a liability or
obligation under any Environmental Laws with respect to the investigation,
remediation, removal, or monitoring of any Release of Hazardous Materials at,
on, under, or from any property currently or formerly owned, leased, operated,
or otherwise used by Parent, or at, on, under, or from any offsite location
where Hazardous Materials from Parent's or its Subsidiaries' operations have
been sent for treatment, disposal, storage or handling; and
(iv) neither Parent nor any of its Subsidiaries has assumed, either
expressly or, to Parent's Knowledge, by operation of Law, any liability of any
other Person related to Hazardous Materials or Environmental Laws.
(b) As of the date of this Agreement, there have been no environmental,
health or safety investigations, studies, audits, or other analyses conducted
during the past three (3) years by or on behalf of, or that are in the
possession of, Parent or its Subsidiaries relating to any instance of material
noncompliance with Environmental Laws by or any material liability arising
under Environmental Laws of Parent or its Subsidiaries, or any material
Release of Hazardous Materials with respect to any property owned, operated or
otherwise used by any of them that have not been made available to the Company
prior to the date hereof.
Section 5.20
Material Contracts
.
(a)
Schedule 5.20(a)
of the Parent Disclosure Letter, together with the lists of exhibits contained
in the Parent SEC Documents, sets forth a true and complete list, as of the
date of this Agreement, of:
(i) each "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K under the Exchange Act) to which Parent or any of its
Subsidiaries is a party;
(ii) each Contract that provides for the acquisition, disposition, license,
use, distribution or outsourcing of assets, services, rights or properties
(other than Oil and Gas Properties and any Contract of the type described in
Section 5.20(a)(v)
) with respect to which Parent reasonably expects that Parent and its
Subsidiaries will make or receive payments in any calendar year in excess of
$25,000,000 or aggregate payments in excess of $50,000,000;
(iii) each Contract that constitutes a commitment relating to Indebtedness
or the deferred purchase price of property by Parent or any of its
Subsidiaries (whether incurred, assumed, guaranteed or secured by any asset)
in excess of $50,000,000, other than agreements solely between or among Parent
and any of its Subsidiaries;
(iv) each Contract to which Parent or any of its Subsidiaries is a party
that (A) restricts the ability of Parent or any of its Subsidiaries to compete
in any business or with any Person in any geographical area, (B) requires
Parent or any of its Subsidiaries to conduct any business on a "most favored
nations" basis with any third party or (C) provides for "exclusivity" or any
similar requirement in favor of any third party, except in the case of each of
clauses (A)
,
(B)
and
(C)
for such restrictions, requirements and provisions that are not material to
Parent and its Subsidiaries;
(v) any Contract providing for the purchase or sale by Parent or any of its
Subsidiaries of Hydrocarbons that:
(A) has a remaining term of greater than one year and does not allow Parent
or such Subsidiary to terminate it without penalty on one year's notice or
less,
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(B) contains a minimum throughput commitment, minimum volume commitment,
"take-or-pay" clause or any similar material prepayment or forward sale
arrangement or obligation (excluding "gas balancing" arrangements associated
with customary joint operating agreements) to deliver Hydrocarbons at some
future time, or
(C) contains acreage dedication, minimum volume commitments or capacity
reservation fees to a gathering, transportation or other arrangement
downstream of the wellhead that, in each case, cover, guaranty, dedicate or
commit (1) more than 1,000 net acres or (2) volumes in excess of 10,000 MMcf
of gas or 2,000 boe of liquid Hydrocarbons on a monthly basis (calculated on a
yearly average basis);
(vi) any acquisition or divestiture Contract that contains "earn out" or
other similar contingent payment obligations (other than asset retirement
obligations, plugging and abandonment obligations and other reserves of Parent
set forth in the Parent Reserve Report), that would reasonably be expected to
result in annual payments in excess of $50,000,000;
(vii) each Contract for lease of personal property or real property (other
than leases for compressors and leases in respect of Oil and Gas Properties)
involving payments in excess of $2,000,000 in any calendar year or aggregate
payments in excess of $10,000,000 over the life of the contract that are not
terminable without penalty or other liability to Parent (other than any
ongoing obligation pursuant to such contract that is not caused by any such
termination) within sixty (60) days;
(viii) each contract that would reasonably be expected to require the
disposition of a material portion of the assets or any line of business of
Parent or its Subsidiaries;
(ix) each Contract involving the pending acquisition or sale of (or option
to purchase or sell) any material amount of the assets or properties of Parent
or any of its Subsidiaries (including any material portion of the Oil and Gas
Properties), taken as a whole, other than Contracts involving the acquisition
or sale of (or option to purchase or sell) Hydrocarbons in the Ordinary Course;
(x) each material partnership, joint venture or limited liability company
agreement, other than any customary joint operating agreements, or unit
agreements affecting the Oil and Gas Properties of Parent;
(xi) each joint development agreement, exploration agreement, participation,
farm-out, farm-in or program agreement or similar Contract requiring Parent or
any of its Subsidiaries to make expenditures from and after December 31, 2022
that would reasonably be expected to be in excess of $25,000,000 in the
aggregate, other than customary joint operating agreements and continuous
development obligations under Oil and Gas Leases;
(xii) each agreement under which Parent or any of its Subsidiaries has
advanced or loaned any amount of money to any of its officers, directors,
employees or consultants, in each case with a principal amount in excess of
$120,000; and
(xiii) each contract for any Parent Related Party Transaction.
(b) Collectively, the Contracts described in
Section 5.20(a)
are referred to as the "
Parent Contracts
." A complete and correct copy of each of the Parent Contracts has been made
available to the Company. Except as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, each
Parent Contract is legal, valid, binding and enforceable in accordance with
its terms on Parent and each of its Subsidiaries that is a party thereto and,
to the Knowledge of Parent, each other party thereto, and is in full force and
effect, subject, as to enforceability, to Creditors' Rights. Except as would
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect, neither Parent nor any of its Subsidiaries is in
breach or default under any Parent Contract nor, to the Knowledge of Parent,
is any other party to any such Parent Contract in breach or default
thereunder, and no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default thereunder by Parent or
its Subsidiaries, or, to the
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Knowledge of Parent, any other party thereto. Except as would not reasonably
be expected to have individually or in the aggregate, a Parent Material
Adverse Effect, there are no disputes pending or, to the Knowledge of Parent,
threatened with respect to any Parent Contract and neither Parent nor any of
its Subsidiaries has received any written notice of the intention of any other
party to any Parent Contract to terminate for default, convenience or
otherwise any Parent Contract, nor to the Knowledge of Parent, is any such
party threatening to do so.
Section 5.21
Derivative Transactions
.
(a)
Schedule 5.21
of the Parent Disclosure Letter contains a complete and correct list of all
outstanding material Derivative Transactions (including each outstanding
Hydrocarbon or financial hedging position attributable to the Hydrocarbon
production of Parent or any of its Subsidiaries) entered into by Parent or any
of its Subsidiaries or for the account of any of their respective customers as
of the date hereof pursuant to which such party has outstanding rights or
obligations. All such Derivative Transactions entered into by Parent or any of
its Subsidiaries or for the account of any of its customers as of the date of
this Agreement were, in all material respects, entered into in accordance with
applicable Laws, and in accordance with the investment, securities,
commodities, risk management and other policies, practices and procedures
employed by Parent and its Subsidiaries, and were, in all material respects,
entered into with counterparties believed at the time to be financially
responsible and able to understand (either alone or in consultation with their
advisers) and to bear the risks of such Derivative Transactions.
(b) Except as would not reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect, Parent and each of its
Subsidiaries have duly performed in all respects all of their respective
obligations under the Derivative Transactions to the extent that such
obligations to perform have accrued, and there are no breaches, violations,
collateral deficiencies, requests for collateral or demands for payment, or
defaults or allegations or assertions of such by any party thereunder.
(c) The Parent SEC Documents accurately summarize, in all material respects,
the outstanding positions under any such Derivative Transaction of Parent and
its Subsidiaries, including Hydrocarbon and financial positions under any such
Derivative Transaction of Parent attributable to the production and marketing
of Parent and its Subsidiaries, as of the dates reflected therein.
Section 5.22
Insurance
. Set forth on
Schedule 5.22
of Parent Disclosure Letter is a true, correct and complete list of all
material insurance policies held by Parent or any of its Subsidiaries as of
the date of this Agreement (other than those constituting or funding Parent
Plans) (collectively, the "
Material Parent Insurance Policies
"). Except as would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, each of the Material Parent
Insurance Policies is in full force and effect on the date of this Agreement
and a true, correct and complete copy of each Material Parent Insurance Policy
has been made available to Parent. The Material Parent Insurance Policies are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Parent and its Subsidiaries and their
respective properties and assets, and are in breadth of coverage and amount at
least equivalent to that carried by Persons engaged in similar businesses and
subject to the same or similar perils or hazards, except as would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Except as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, all
premiums payable under the Material Parent Insurance Policies prior to the
date of this Agreement have been duly paid to date, and neither Parent nor any
of its Subsidiaries has taken any action or failed to take any action that
(including with respect to the Transactions), with notice or lapse of time or
both, would constitute a breach or default, or permit a termination of any of
the Material Parent Insurance Policies. Except as would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect, as of the date of this Agreement, no written notice of cancellation or
termination has been received with respect to any Material Parent Insurance
Policy. As of the date of this Agreement, the Parent and its Subsidiaries do
not have aggregate claims pending with insurers that are reasonably expected
to result in insurance recoveries of more than $1,500,000 in the aggregate.
Section 5.23
Opinion of Financial Advisor
. The Parent Board has received the oral opinion of Evercore Group LLC
addressed to the Parent Board, to be confirmed by delivery of a written
opinion, to
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the effect that, based upon and subject to the assumptions, qualifications,
limitations, and other matters set forth in such opinion, as of the date of
the opinion, the Exchange Ratio is fair, from a financial point of view, to
Parent.
Section 5.24
Brokers
. Except for the fees and expenses payable to Evercore Group LLC and J.P.
Morgan Securities LLC, no broker, investment banker, advisor or other Person
is entitled to any broker's, finder's or other similar fee or commission in
connection with the Transactions based upon arrangements made by or on behalf
of Parent.
Section 5.25
Ownership of Company Common Stock
. As of the date hereof, neither Parent nor any of its Subsidiaries own, or
has within the last three (3) years owned, any shares of Company Common Stock
(or other securities or derivatives convertible into, exchangeable for or
exercisable for shares of Company Common Stock).
Section 5.26
Business Conduct
. Merger Sub was incorporated on January 3, 2024, and LLC Sub was formed on
January 3, 2024. Since its inception, each of Merger Sub and LLC Sub has not
engaged in any activity, other than such actions in connection with (a) its
organization and (b) the preparation, negotiation and execution of this
Agreement and the Transactions. Each of Merger Sub and LLC Sub has no
operations, has not generated any revenues and has no assets or liabilities
other than those incurred in connection with the foregoing and in association
with the Merger as provided in this Agreement.
Section 5.27
Related Party Transactions
. Schedule 5.27
of the Parent Disclosure Letter sets forth, as of the date of this Agreement,
a complete and correct list of any transaction or arrangement under which any
(a) present or former executive officer or director of Parent or any of its
Subsidiaries, (b) beneficial owner (within the meaning of Section 13(d) of the
Exchange Act) of 5% or more of any class of the equity securities of Parent or
any of its Subsidiaries whose status as a 5% holder is known to Parent as of
the date of this Agreement or (c) Affiliate, "associate" or member of the
"immediate family" (as such terms are respectively defined in Rules 12b-2 and
16a-1 of the Exchange Act) of any of the foregoing Persons described in
clause (a)
or
(b)
(but only, with respect to the Persons in
clause (b)
, to the Knowledge of Parent), in each case as would be required to be
disclosed by the Parent pursuant to Item 404 of Regulation S-K promulgated
under the Exchange Act is a party to any actual or proposed loan, lease or
other contract with or binding upon Parent or any of its Subsidiaries or any
of their respective properties or assets or has any interest in any property
owned by Parent or any of its Subsidiaries, in each case, including any bond,
letter of credit, guarantee, deposit, cash account, escrow, policy of
insurance or other credit support instrument or security posted or delivered
by any Person listed in
clauses (a)
,
(b)
or
(c)
in connection with the operation of the business of Parent or any of its
Subsidiaries (each of the foregoing, a "
Parent Related Party Transaction
").
Section 5.28
Takeover Laws
. The approval of the Parent Board of this Agreement and the Transactions
represents all the action necessary to render inapplicable to this Agreement
and the Transactions the restrictions of any Takeover Law or any anti-takeover
provision in Parent's Organizational Documents that is applicable to Parent,
the shares of Parent Common Stock, this Agreement or the Transactions.
Section 5.29
No Additional Representations
.
(a) Except for the representations and warranties made in this
Article V
, neither Parent nor any other Person makes any express or implied
representation or warranty with respect to Parent or any of its Subsidiaries
or their respective businesses, operations, assets, liabilities or conditions
(financial or otherwise) in connection with this Agreement or the
Transactions, and Parent hereby disclaims any such other representations or
warranties. In particular, without limiting the foregoing disclaimer, neither
Parent nor any other Person makes or has made any representation or warranty
to the Company or any of its Affiliates or Representatives with respect to (i)
any financial projection, forecast, estimate, budget or prospect information
relating to Parent or any of its Subsidiaries or their respective businesses;
or (ii) except for the representations and warranties made by Parent in this
Article V
, any oral or written information presented to the Company or any of its
Affiliates or Representatives in the course of their due diligence
investigation of Parent, the negotiation of this Agreement or in the course of
the Transactions. Notwithstanding the foregoing, nothing in this
Section 5.29
shall limit the Company's remedies with respect to claims of fraud arising
from or relating to the express written representations and warranties made by
Parent, Merger Sub and LLC Sub in this
Article V
.
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(b) Notwithstanding anything contained in this Agreement to the contrary,
Parent acknowledges and agrees that neither the Company nor any other Person
has made or is making any representations or warranties relating to the
Company or its Subsidiaries or any other matter whatsoever, express or
implied, beyond those expressly given by the Company in
Article IV
, including any implied representation or warranty as to the accuracy or
completeness of any information regarding the Company furnished or made
available to Parent or any of its Representatives, and that none of Parent,
Merger Sub or LLC Sub has relied on any such other representation or warranty
not expressly set forth in
Article IV
of this Agreement. Without limiting the generality of the foregoing, Parent
acknowledges that no representations or warranties are made with respect to
any projections, forecasts, estimates, budgets or prospect information that
may have been made available to Parent or any of its Representatives
(including in certain "data rooms," "virtual data rooms," management
presentations or in any other form in expectation of, or in connection with,
the Merger or the other Transactions).
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6.1
Conduct of Company Business Pending the Merger
.
(a) Except (i) as set forth on
Schedule 6.1(a)
of the Company Disclosure Letter, (ii) as expressly permitted, contemplated or
required by this Agreement, (iii) as may be required by applicable Law, or
(iv) as otherwise consented to by Parent in writing (which consent shall not
be unreasonably withheld, delayed or conditioned), the Company covenants and
agrees that, until the earlier of the Effective Time and the termination of
this Agreement pursuant to
Article VIII
, it shall, and shall cause each of its Subsidiaries to, use reasonable best
efforts to conduct its businesses in the Ordinary Course, including by using
reasonable best efforts to preserve substantially intact its present business
organization, goodwill and assets, to keep available the services of its
current officers and employees and preserve its existing relationships with
Governmental Entities and its significant customers, suppliers, licensors,
licensees, distributors, lessors and others having significant business
dealings with it.
(b) Except (i) as set forth on
Schedule 6.1(b)
of the Company Disclosure Letter, (ii) as expressly permitted, contemplated or
required by this Agreement, (iii) as may be required by applicable Law, or
(iv) otherwise consented to by Parent in writing (which consent shall not be
unreasonably withheld, delayed or conditioned), until the earlier of the
Effective Time and the termination of this Agreement pursuant to
Article VIII
the Company shall not, and shall not permit its Subsidiaries to (in each case
whether directly or indirectly or by merger, consolidation, division,
operation of law or otherwise):
(i) (A) declare, set aside or pay any dividends on, or make any other
distribution in respect of any outstanding capital stock of, or other equity
interests in, the Company or its Subsidiaries, except for dividends and
distributions by a direct or indirect wholly owned Subsidiary of the Company
to the Company or another direct or indirect wholly owned Subsidiary of the
Company; (B) split, combine, exchange, subdivide, recapitalize or reclassify
any capital stock of, or other equity interests in, or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for equity interests in the Company or any of its Subsidiaries;
or (C) purchase, redeem or otherwise acquire, or offer to purchase, redeem or
otherwise acquire, any capital stock of, or other equity interests in, the
Company or any Subsidiary of the Company, except as required by the terms of
any capital stock or equity interest of a Subsidiary or in respect of any
Company Incentive Awards outstanding as of the date hereof in accordance with
the terms of the Company Equity Plan and applicable award agreements;
(ii) offer, issue, deliver, grant or sell, or authorize or propose to offer,
issue, deliver, grant or sell, any capital stock of, or other equity interests
in, the Company or any of its Subsidiaries or any securities convertible into,
or any rights, warrants or options to acquire, any such capital stock or
equity interests, other than: (A) the delivery of Company Common Stock upon
the exercise, vesting or settlement of any Company Incentive Awards
outstanding on the date hereof or granted after the date hereof in compliance
with this Agreement in accordance with the terms of the Company Equity Plan
and applicable award agreements; and (B) issuances by a wholly owned
Subsidiary of the Company of such Subsidiary's capital stock or other equity
interests to the Company or any other wholly owned Subsidiary of the Company;
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(iii) amend or propose to amend the Company's Organizational Documents or
amend or propose to amend the Organizational Documents of any of the Company's
Subsidiaries (other than ministerial changes);
(iv) (A) merge, consolidate, combine or amalgamate with any Person or effect
any division transaction, in each case, other than between wholly owned
Subsidiaries of the Company or (B) acquire or agree to acquire or make an
investment in (including by merging or consolidating with, purchasing any
equity interest in or a substantial portion of the assets of, licensing, or by
any other manner), any assets, properties or any business or any corporation,
partnership, association or other business organization or division thereof,
in each case other than acquisitions for which the consideration is less than
$50,000,000 in the aggregate;
(v) sell, lease, swap, exchange, transfer, farmout, license, Encumber (other
than Permitted Encumbrances), abandon, permit to lapse, discontinue or
otherwise dispose of, or agree to sell, lease, swap, exchange, transfer,
farmout, license, Encumber (other than Permitted Encumbrances), abandon,
permit to lapse, discontinue or otherwise dispose of, any material portion of
its assets or properties, other than (A) sales, leases, exchanges or
dispositions for which the consideration is less than $20,000,000 in the
aggregate (or as otherwise permitted hereunder); (B) the sale of Hydrocarbons
and rights thereto in the Ordinary Course; (C) among the Company and its
wholly owned Subsidiaries or among wholly owned Subsidiaries of the Company;
(D) sales or dispositions of excess, obsolete or worthless equipment in the
Ordinary Course; (E) asset swaps the fair market value of which are less than,
(x) for those entered in the Ordinary Course, $20,000,000 individually and
$100,000,000 in the aggregate or (y) in all other cases, $10,000,000 in the
aggregate; (F) with respect to relinquishment or abandonment, as required by
Law, permit or any applicable Contract; or (G) for the expiration of any oil
and gas lease in accordance with its terms.
(vi) authorize, recommend, propose, enter into, adopt a plan or announce an
intention to adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of the Company or any
of its Subsidiaries, other than such transactions among wholly owned
Subsidiaries of the Company;
(vii) change in any material respect its financial accounting principles,
practices or methods that would materially affect the consolidated assets,
liabilities or results of operations of the Company and its Subsidiaries,
except as required by GAAP or applicable Law;
(viii) (A) make, change or revoke any material Tax election or accounting
method, but excluding any election that must be made periodically and is made
consistent with past practice, (B) file any material amended Tax Return, (C)
except to the extent otherwise required by applicable Law, file any material
Tax Return other than on a basis consistent with past practice, (D) consent to
any extension or waiver of the limitation period applicable to any material
claim or assessment in respect of material Taxes, (E) enter into any material
Tax allocation, sharing or indemnity agreement, any material Tax holiday
agreement or other similar agreement with respect to Taxes, (F) enter into any
closing agreement with respect to material Taxes, (G) settle or compromise any
material Tax Proceeding, or (H) surrender any right to claim a material Tax
refund, offset or other reduction in Tax liability;
(ix) except as required by applicable Law or by the terms of any Company
Benefit Plan existing as of the date hereof, (A) grant any increases in the
compensation or benefits payable or to become payable to any of its current or
former directors, officers, employees or other individual service providers,
other than (1) salary or wage increases made in the Ordinary Course with
respect to employees (other than the Company's named executive officers) and
service providers (not to exceed 4% in the aggregate) or (2) any increases
provided to a newly promoted employee as permitted hereunder (and so long as
such newly promoted employee's compensation and other terms and conditions of
employment are substantially comparable to those of the employee that he or
she is replacing); (B) take any action to accelerate the vesting or lapsing of
restrictions or payment, or fund or in any other way secure the payment, of
compensation or benefits; (C) grant any new equity-based or equity-linked
awards or Company Performance Cash Unit Awards or other long-term compensation
awards, amend or modify the terms of any outstanding equity-based or
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equity-linked awards or Company Performance Cash Unit Awards or other
long-term compensation awards or approve treatment of outstanding equity
awards or Company Performance Cash Unit Awards in connection with the
Transactions that is inconsistent with the treatment contemplated by
Section 3.2
; (D) other than in the Ordinary Course, pay or agree to pay to any current or
former director, officer, employee or other service provider any pension,
retirement allowance or other benefit not required by the terms of any Company
Benefit Plan existing as of the date hereof; (E) enter into any new, or
materially amend any existing, employment or severance agreement or, except in
the Ordinary Course, any termination agreement, in any case with any current
or former director, officer, vice-president or higher level employee or
service provider except for entry into offer letters with newly hired
employees on a form that has previously been provided by Parent to the Company
or a form that is substantially similar thereto; (F) establish or adopt any
benefit or compensation plan, policy, program, agreement or arrangement that
was not in existence prior to the date of this Agreement but that would be a
Company Benefit Plan if in effect on the date of this Agreement, or amend or
terminate any Company Benefit Plan in existence on the date of this Agreement,
other than
de minimis
administrative amendments that do not have the effect of enhancing any
benefits thereunder or otherwise resulting in increased costs to the Company
or any of its Subsidiaries except for (i) changes to the contractual terms of
health and welfare plans made in the Ordinary Course that do not materially
increase the cost to Parent and its Subsidiaries, or (ii) arrangements
necessary to effectuate any expressly permitted actions under this
clause 6.1(b)(ix)
on terms and conditions provided herein; (G) hire or promote any employee or
engage any other service provider (who is a natural person) who is (or would
be) an executive officer or who has (or would have) an annualized base salary
in excess of $300,000 (except for the hire or promotion of an employee as is
reasonably necessary to replace any employee, so long as the new employee's
compensation and other terms and conditions of employment are substantially
comparable to those of the employee being replaced); (H) terminate the
employment of any executive officer other than for cause; or (I) enter into,
amend or terminate any collective bargaining agreement with any labor union,
works council or labor organization;
(x) (A) incur, create, assume, repurchase or offer to repurchase any
Indebtedness or guarantee any such Indebtedness of another Person or (B)
create any Encumbrances on any property or assets of the Company or any of its
Subsidiaries in connection with any Indebtedness thereof, other than Permitted
Encumbrances;
provided
,
however
, that the foregoing
clauses (A)
and
(B)
shall not restrict (1) the incurrence or repayment of Indebtedness under the
Company Credit Facility in the Ordinary Course, (2) the incurrence or
repayment of Indebtedness by the Company that is owed to any wholly owned
Subsidiary of the Company or by any Subsidiary of the Company that is owed to
the Company or a wholly owned Subsidiary of the Company, (3) the incurrence or
assumption of Indebtedness in connection with any acquisition permitted by
Sections 6.1(b)(iv)
and
6.1(b)(v)
, (4) the incurrence of additional Indebtedness in an amount not to exceed (x)
at any time on or prior to June 30, 2024, $50,000,000, and (y) at any time
after June 30, 2024, an additional $50,000,000 (for an aggregate permitted
amount of $100,000,000), (5) the incurrence of any Indebtedness (such new
Indebtedness, the "
Company Refinancing Indebtedness
") that replaces, renews, extends, refinances or refunds existing Indebtedness
(other than in respect of the Company Credit Facility) (such existing
Indebtedness, the "
Company Refinanced Indebtedness
") (including Indebtedness incurred to repay or refinance related fees,
premiums and expenses) and the repurchase or repayment of such Company
Refinanced Indebtedness;
provided
that (A) such Company Refinancing Indebtedness does not contain covenants and
events of default that are more restrictive in any material respect than those
under the Company Refinanced Indebtedness as in effect on the date hereof, (B)
such Company Refinancing Indebtedness does not contain terms or provisions
that prohibit or restrict the Transactions contemplated by the terms of this
Agreement except for encumbrances or restrictions that are no more restrictive
in any material respect than those under the Company Refinanced Indebtedness,
and (C) to the extent the Company Refinanced Indebtedness is unsecured and/or
subordinated (including in right of payment) to any other Indebtedness of the
Company, such Company Refinancing Indebtedness is unsecured and/or
subordinated (including in right of payment) to such other Indebtedness on
terms at least as favorable to the holders of such senior Indebtedness as
those contained in the documentation governing the Company Refinanced
Indebtedness, (6) the repurchase or repayment
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of Indebtedness within one year of its maturity date or (7) the creation of
any Encumbrance securing Indebtedness permitted by the foregoing
clauses (1)
,
(2)
,
(3)
,
(4)
or
(5)
;
(xi) other than in the Ordinary Course, (A) enter into any contract that
would be a Company Contract if it were in effect on the date of this
Agreement, (B) modify, amend, terminate or assign, or waive or assign any
rights under, any Company Contract (other than the renewal of an existing
Company Contract on substantially the same terms), or (C) except to the extent
necessary to remain in compliance with the Company Credit Facility, enter into
any material Derivative Transaction;
(xii) other than in the Ordinary Course or with respect to amounts that are
not material to such Party and its Subsidiaries, taken as a whole, cancel,
modify or waive any debts or claims held by the Company or any of its
Subsidiaries or waive any rights held by the Company or any of its
Subsidiaries;
(xiii) waive, release, assign, settle or compromise or offer or propose to
waive, release, assign, settle or compromise, any material Proceeding
(excluding any Proceeding in respect of Taxes) other than (A) the settlement
of such Proceedings involving only the payment of monetary damages by the
Company or any of its Subsidiaries of any amount not exceeding $3,000,000
individually or $10,000,000 in the aggregate and (B) as would not result in
any material restriction on future activity or conduct or a finding or
admission of a violation of Law;
provided
, that the Company shall be permitted to settle any Transaction Litigation in
accordance with
Section 6.11
;
(xiv) make or commit to make any capital expenditures that are, in the
aggregate for any fiscal quarter, greater than 115% of the aggregate amount of
capital expenditures (excluding capitalized interest, which is set forth on
Schedule 6.1(b)(xiv)
) contemplated for such fiscal quarter by the Company's annual capital
expenditure budget as set forth in
Schedule 6.1(b)(xiv)
of the Company Disclosure Letter, except for capital expenditures to repair
damage resulting from insured casualty events or capital expenditures required
on an emergency basis or for the safety of individuals, assets or the
environments in which individuals perform work for the Company and its
Subsidiaries (
provided
that the Company shall notify Parent of any such emergency expenditure as soon
as reasonably practicable) or delayed capital expenditures from a previous
fiscal quarter's capital expenditure budget in the Ordinary Course;
(xv) take any action, cause any action to be taken, knowingly fail to take
any action or knowingly fail to cause any action to be taken, which action or
failure to act would prevent or impede, or would be reasonably likely to
prevent or impede, the Integrated Mergers, taken together, from qualifying as
a reorganization within the meaning of Section 368(a) of the Code;
(xvi) fail to maintain in full force and effect in all material respects, or
fail to replace or renew, the insurance policies of the Company and its
Subsidiaries at a level at least comparable to current levels or otherwise in
a manner inconsistent with past practice; or
(xvii) agree to take any action that is prohibited by this
Section 6.1(b)
.
Section 6.2
Conduct of Parent Business Pending the Merger
.
(a) Except (i) as set forth on
Schedule 6.2(a)
of the Parent Disclosure Letter, (ii) as expressly permitted, contemplated or
required by this Agreement, (iii) as may be required by applicable Law, or
(iv) as otherwise consented to by the Company in writing (which consent shall
not be unreasonably withheld, delayed or conditioned), Parent covenants and
agrees that, until the earlier of the Effective Time and the termination of
this Agreement pursuant to
Article VIII
, it shall, and shall cause each of its Subsidiaries to, use reasonable best
efforts to conduct its businesses in the Ordinary Course, including by using
reasonable best efforts to preserve substantially intact its present business
organization, goodwill and assets, to keep available the services of its
current officers and employees and preserve its existing relationships with
Governmental Entities and its significant customers, suppliers, licensors,
licensees, distributors, lessors and others having significant business
dealings with it.
(b) Except (i) as set forth on
Schedule 6.2(b)
of the Parent Disclosure Letter, (ii) as expressly permitted or required by
this Agreement, (iii) as may be required by applicable Law, or (iv) as
otherwise
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consented to by the Company in writing (which consent shall not be
unreasonably withheld, delayed or conditioned), until the earlier of the
Effective Time and the termination of this Agreement pursuant to
Article VIII
, Parent shall not, and shall not permit its Subsidiaries to (in each case
whether directly or indirectly or by merger, consolidation, division,
operation of law or otherwise):
(i) (A) declare, set aside or pay any dividends on, or make any other
distribution in respect of any outstanding capital stock of, or other equity
interests in, Parent or its Subsidiaries, except for (x) regular quarterly
cash dividends payable by Parent in the Ordinary Course pursuant to the
formula set forth in Parent's dividend policy, which is set forth on
Schedule 6.2(b)(i)
of the Parent Disclosure Letter (which, for the avoidance of doubt, shall not
include any special or other extraordinary dividends) and (y) dividends and
distributions by a direct or indirect wholly owned Subsidiary of Parent to
Parent or another direct or indirect wholly owned Subsidiary of Parent; (B)
split, combine, exchange, subdivide, recapitalize or reclassify any capital
stock of, or other equity interests in, or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for equity interests in Parent or any of its Subsidiaries; or (C) purchase,
redeem or otherwise acquire, or offer to purchase, redeem or otherwise
acquire, any capital stock of, or other equity interests in, Parent, or any
Subsidiary of Parent, except as required by the terms of any capital stock or
equity interest of a Subsidiary or in respect of any equity awards outstanding
as of the date hereof or issued after the date hereof in accordance with this
Agreement in accordance with the terms of the Parent Stock Plan and applicable
award agreements;
(ii) offer, issue, deliver, grant or sell, or authorize or propose to offer,
issue, deliver, grant or sell, any capital stock of, or other equity interests
in, Parent or any of its Subsidiaries or any securities convertible into, or
any rights, warrants or options to acquire, any such capital stock or equity
interests, other than: (A) the delivery of Parent Common Stock upon the
exercise, vesting or settlement of any equity awards outstanding as of the
date hereof or granted after the date hereof in compliance with this Agreement
in accordance with the terms of the Parent Stock Plans (or any successor
equity compensation plans) and applicable award agreements; (B) any equity
awards issued in the Ordinary Course after the date hereof under the Parent
Stock Plans (or any successor equity compensation plans) as otherwise allowed
under the terms of this Agreement; (C) the issuance of shares of Parent Common
Stock upon the exercise of Parent Warrants outstanding on the date hereof; (D)
the issuance of Reserved Shares and Reserved Warrants to satisfy general
unsecured claims; and (E) issuances by a wholly owned Subsidiary of Parent of
such Subsidiary's capital stock or other equity interests to Parent or any
other wholly owned Subsidiary of Parent;
(iii) amend or propose to amend Parent's Organizational Documents or amend
or propose to amend the Organizational Documents of any of Parent's
Subsidiaries (other than ministerial changes);
(iv) (A) merge, consolidate, combine or amalgamate with any Person or effect
any division transaction, in each case, other than between wholly owned
Subsidiaries of Parent or (B) acquire or agree to acquire or make an
investment in (including by merging or consolidating with, purchasing any
equity interest in or a substantial portion of the assets of, licensing, or by
any other manner), any assets, properties or any business or any corporation,
partnership, association or other business organization or division thereof,
in each case, other than acquisitions for which the consideration is less than
$750,000,000 in the aggregate;
(v) sell, lease, swap, exchange, transfer, farmout, license, Encumber (other
than Permitted Encumbrances), abandon, permit to lapse, discontinue or
otherwise dispose of, or agree to sell, lease, swap, exchange, transfer,
farmout, license, Encumber (other than Permitted Encumbrances), abandon,
permit to lapse, discontinue or otherwise dispose of, any material portion of
its assets or properties, other than sales, leases, exchanges or dispositions
for which the consideration is less than $750,000,000, in the aggregate;
(vi) authorize, recommend, propose, enter into, adopt a plan or announce an
intention to adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or
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other reorganization of Parent or any of its Subsidiaries, other than such
transactions among wholly owned Subsidiaries of Parent;
(vii) change in any material respect its financial accounting principles,
practices or methods that would materially affect the consolidated assets,
liabilities or results of operations of Parent and its Subsidiaries, except as
required by GAAP or applicable Law;
(viii) (A) make, change or revoke any material Tax election or accounting
method, but excluding any election that must be made periodically and is made
consistent with past practice, (B) file any material amended Tax Return, (C)
except to the extent otherwise required by applicable Law, file any material
Tax Return other than on a basis consistent with past practice, (D) consent to
any extension or waiver of the limitation period applicable to any material
claim or assessment in respect of material Taxes, (E) enter into any material
Tax allocation, sharing or indemnity agreement, any material Tax holiday
agreement or other similar agreement with respect to Taxes, (F) enter into any
closing agreement with respect to material Taxes, (G) settle or compromise any
material Tax Proceeding, or (H) surrender any right to claim a material Tax
refund, offset or other reduction in Tax liability;
(ix) (A) incur, create, assume, repurchase or offer to repurchase any
Indebtedness or guarantee any such Indebtedness of another Person or (B)
create any Encumbrances on any property or assets of Parent or any of its
Subsidiaries in connection with any Indebtedness thereof, other than Permitted
Encumbrances;
provided
,
however
, that the foregoing
clauses (A)
and
(B)
shall not restrict (1) the incurrence or repayment of Indebtedness under the
Parent Credit Facility in the Ordinary Course, (2) the incurrence or repayment
of Indebtedness by Parent that is owed to any wholly owned Subsidiary of
Parent or by any Subsidiary of Parent that is owed to Parent or a wholly owned
Subsidiary of Parent, (3) the incurrence or assumption of Indebtedness in
connection with any acquisition of any Person, assets or properties, (4) the
incurrence of additional Indebtedness in an amount not to exceed (x) at any
time on or prior to June 30, 2024, $50,000,000, and (y) at any time after June
30, 2024, an additional $50,000,000 (for an aggregate permitted amount of
$100,000,000), (5) the incurrence of any Indebtedness (such new Indebtedness,
the "
Parent Refinancing Indebtedness
") that replaces, renews, extends, refinances or refunds existing Indebtedness
(other than in respect of the Parent Credit Facility) (such existing
Indebtedness, the "
Parent Refinanced Indebtedness
") (including Indebtedness incurred to repay or refinance related fees,
premiums and expenses) and the repurchase or repayment of such Parent
Refinanced Indebtedness;
provided
that (A) such Parent Refinancing Indebtedness does not contain covenants and
events of default that are more restrictive in any material respect than those
under the Parent Refinanced Indebtedness as in effect on the date hereof, (B)
such Parent Refinancing Indebtedness does not contain terms or provisions that
prohibit or restrict the Transactions contemplated by the terms of this
Agreement except for encumbrances or restrictions that are no more restrictive
in any material respect than those under the Parent Refinanced Indebtedness,
and (C) to the extent the Parent Refinanced Indebtedness is unsecured and/or
subordinated (including in right of payment) to any other Indebtedness of
Parent, such Parent Refinancing Indebtedness is unsecured and/or subordinated
(including in right of payment) to such other Indebtedness on terms at least
as favorable to the holders of such senior Indebtedness as those contained in
the documentation governing the Parent Refinanced Indebtedness, (6) the
incurrence of any Indebtedness pursuant to the Debt Financing; (7) the
repurchase or repayment of Indebtedness within one year of its maturity date
or (8) the creation of any Encumbrance securing Indebtedness permitted by the
foregoing
clauses (1)
,
(2)
,
(3)
,
(4)
,
(5)
or
(6)
;
(x) other than in the Ordinary Course or with respect to amounts that are
not material to such Party and its Subsidiaries, taken as a whole, cancel,
modify or waive any debts or claims held by the Parent or any of its
Subsidiaries or waive any rights held by the Parent or any of its Subsidiaries;
(xi) other than (1) in the Ordinary Course or (2) in respect of any Parent
Contracts or Derivative Transactions which do not exceed $750,000,000 in the
aggregate, (A) enter into any contract that would be a Parent Contract if it
were in effect on the date of this Agreement, (B) modify, amend, terminate or
assign, or waive or assign any rights under, any Parent Contract
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(other than the renewal of an existing Parent Contract on substantially the
same terms), or (C) except to the extent necessary to remain in compliance
with the Parent Credit Facility, enter into any material Derivative
Transaction;
(xii) waive, release, assign, settle or compromise or offer or propose to
waive, release, assign, settle or compromise, any Proceeding (excluding any
Proceeding in respect of Taxes) other than (A) the settlement of such
proceedings involving only the payment of monetary damages by the Parent or
any of its Subsidiaries of any amount not exceeding $3,000,000 individually or
$10,000,000 in the aggregate and (B) as would not result in any restriction on
future activity or conduct or a finding or admission of a violation of Law;
provided
, that Parent shall be permitted to settle any Transaction Litigation in
accordance with
Section 6.11
;
(xiii) make or commit to make any capital expenditures that are, in the
aggregate, greater than 115% of the aggregate amount of capital expenditures
contemplated for such fiscal quarter by Parent's capital expenditure budget as
set forth in
Schedule 6.2(b)(xiii)
of the Parent Disclosure Letter, except for capital expenditures to repair
damage resulting from insured casualty events or capital expenditures required
on an emergency basis or for the safety of individuals, assets or the
environments in which individuals perform work for the Parent and its
Subsidiaries (
provided
that the Parent shall notify Company of any such emergency expenditure as soon
as reasonably practicable) or delayed capital expenditures from a previous
fiscal quarter's capital expenditure budget in the Ordinary Course;
(xiv) take any action, cause any action to be taken, knowingly fail to take
any action or knowingly fail to cause any action to be taken, which action or
failure to act would prevent or impede, or would be reasonably likely to
prevent or impede, the Integrated Mergers, taken together, from qualifying as
a reorganization within the meaning of Section 368(a) of the Code;
(xv) fail to maintain in full force and effect in all material respects, or
fail to replace or renew, the insurance policies of Parent and its
Subsidiaries at a level at least comparable to current levels or otherwise in
a manner inconsistent with past practice; or
(xvi) agree to take any action that is prohibited by this
Section 6.2(b)
.
Section 6.3
No Solicitation by the Company
.
(a) From and after the date of this Agreement and until the earlier of the
Effective Time and termination of this Agreement pursuant to
Article VIII
, the Company and its officers and directors will, and will cause the
Company's Subsidiaries and its and their controlled Affiliates and respective
officers and directors to, and will use their reasonable best efforts to cause
the other Representatives to, immediately cease, and cause to be terminated,
any solicitation of, discussion or negotiations with any Person conducted
heretofore by the Company or any of its Subsidiaries, their respective
controlled Affiliates or Representatives with respect to any inquiry, proposal
or offer that relates to, constitutes, or could reasonably be expected to lead
to, a Company Competing Proposal. The Company shall, promptly following the
execution and delivery of this Agreement, terminate any physical or electronic
data room relating to any potential Company Competing Proposal.
(b) From and after the date of this Agreement and until the earlier of the
Effective Time and termination of this Agreement pursuant to
Article VIII
, the Company and its officers and directors will not, and will cause the
Company's Subsidiaries and its and their respective controlled Affiliates and
respective officers and directors not to, and will use reasonable best efforts
to cause the other Representatives not to, directly or indirectly:
(i) initiate, solicit, seek, propose, knowingly encourage, or knowingly
facilitate (including by way of furnishing non-public information) any inquiry
regarding the making, submission or announcement by any Person (other than
Parent or its Subsidiaries) of any proposal or offer, including any proposal
or offer to the Company's stockholders, that constitutes, or could reasonably
be expected to lead to, a Company Competing Proposal;
(ii) engage in, continue or otherwise participate in any discussions with
any Person with respect to or negotiations with any Person with respect to,
relating to, or in furtherance of a
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Company Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Company Competing Proposal;
(iii) furnish or afford access to any material non-public information
regarding the Company or its Subsidiaries to any Person (other than Parent and
its Subsidiaries) in connection with, for the purpose of soliciting,
initiating, knowingly encouraging or knowingly facilitating, or in response to
any Company Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Company Competing Proposal;
(iv) approve, adopt, recommend, agree to or enter into, or propose to
approve, adopt, recommend, agree to or enter into, any inquiry, proposal or
offer that constitutes, or could reasonably be expected to lead to, a Company
Alternative Acquisition Agreement;
(v) enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a Company Competing Proposal or that would require, or would reasonably be
expected to require, the Company to abandon, terminate or fail to consummate
the Integrated Mergers or any other transaction contemplated by this Agreement;
(vi) waive or release any Person from, forebear in the enforcement of, or
amend or terminate any standstill agreement or any standstill provisions of
any other contract;
provided
that if the Company (acting under the direction of the Company Board)
determines in good faith after consultation with the Company's outside legal
counsel that the failure to waive a particular standstill provision would be
inconsistent with the relevant directors' fiduciary duties under applicable
Law, then the Company may waive such standstill provision, solely to the
extent necessary to permit a third party to make and pursue a non-public
Company Competing Proposal that the Company reasonably believes is likely to
lead to a Company Superior Proposal;
(vii) submit any Company Competing Proposal to the vote of the stockholders
of the Company; or
(viii) resolve or agree to do any of the foregoing.
(c) Notwithstanding anything to the contrary in this Agreement, prior to
obtaining the Company Stockholder Approval, the Company or any of its
Representatives may:
(i) provide information in response to a request therefor by a Person who
has made an unsolicited bona fide written Company Competing Proposal or any
inquiry, proposal or offer with respect to (or that could reasonably be
expected to lead to) a Company Competing Proposal after the date hereof that
did not result from a breach of this
Section 6.3
if the Company receives from the Person so requesting such information an
executed confidentiality agreement on terms not less restrictive to the other
party than those contained in the Confidentiality Agreement (an "
Acceptable Confidentiality Agreement
"), it being understood that such Acceptable Confidentiality Agreement need
not prohibit the making, or amendment, of a Company Competing Proposal and
shall not prohibit compliance by the Company with this
Section 6.3
, and the Company shall promptly (and, in any event, within 24 hours) disclose
and provide copies of such Acceptable Confidentiality Agreement and any such
information provided to such Person to Parent to the extent not previously
provided to Parent; or
(ii) engage or participate in any discussions or negotiations with any
Person who has made such an unsolicited bona fide written Company Competing
Proposal after the date hereof that did not result from a breach of this
Section 6.3
;
in each case, if and only to the extent that, prior to taking any action
described in
Section 6.3(c)(i)
or
Section 6.3(c)(ii)
, (A) the Company provides the notice to Parent required by
Section 6.3(d)
and the Company Board determines in good faith after consultation with its
outside legal counsel that failure to take such action in light of the Company
Competing Proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Company Board's fiduciary
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duties under applicable law, and (B) the Company Board has determined in good
faith based on the information then available and after consultation with its
financial advisor and outside legal counsel that such Company Competing
Proposal either constitutes a Company Superior Proposal or is reasonably
likely to result in a Company Superior Proposal,
provided
that, notwithstanding anything to the contrary in this
Section 6.3
, if the Company receives any Company Competing Proposal or any inquiry,
proposal or offer with respect to (or that could reasonably be expected to
lead to) a Company Competing Proposal, the Company may seek clarification of
the terms and conditions thereof so as to determine whether such Company
Competing Proposal or any inquiry, proposal or offer with respect to (or that
could reasonably be expected to lead to) a Company Competing Proposal
constitutes a Company Superior Proposal or is reasonably likely to result in a
Company Superior Proposal.
(d) From and after the date of this Agreement, the Company shall promptly
(and in any event, within 24 hours) notify Parent in writing of the receipt by
the Company of any Company Competing Proposal or any inquiry, proposal or
offer with respect to (or that could reasonably be expected to lead to) a
Company Competing Proposal made on or after the date of this Agreement, any
request for information or data relating to the Company or any of its
Subsidiaries made by any Person in connection with (or that could reasonably
be expected to lead to) a Company Competing Proposal or any request for
discussions or negotiations with the Company or a Representative of the
Company relating to (or that could reasonably be expected to lead to) a
Company Competing Proposal, and the Company shall notify Parent of the
identity of the Person making or submitting such request, inquiry, proposal or
offer and provide to Parent (i) a copy of any such request, inquiry, proposal
or offer made in writing provided to the Company or any of its Subsidiaries or
any of its and their respective Representatives or (ii) if any such inquiry,
request, proposal or offer is not made in writing, a written summary of such
request, proposal or offer (including the material terms and conditions
thereof), in each case together with copies of any proposed transaction
agreements. Thereafter the Company shall keep Parent reasonably informed in
writing on a current basis (and, in any event, within twenty-four (24) hours)
regarding material changes to the status of any such requests, inquiries,
proposals or offers (including any amendments or changes thereto, which, for
the avoidance of doubt, shall include (among other things) any changes to the
form or amount of consideration) and shall reasonably apprise Parent of the
status of any such negotiations to the extent the status changes in any
material respect. Without limiting the foregoing, the Company shall notify
Parent if the Company determines to engage in discussions or negotiations
concerning a Company Competing Proposal.
(e) Except as expressly permitted by
Section 6.3
, neither the Company Board nor any committee of the Company Board shall:
(i) withhold, withdraw, qualify or modify, or publicly propose or announce
any intention to withhold, withdraw, qualify or modify, in a manner adverse to
Parent or Merger Sub, the Company Board Recommendation;
(ii) fail to include the Company Board Recommendation in the Joint Proxy
Statement/
Prospectus;
(iii) fail to publicly announce, within ten (10) Business Days after a
tender offer or exchange offer relating to the equity securities of the
Company shall have been commenced by any third party other than Parent and its
Affiliates (and in no event later than one (1) Business Day prior to the date
of the Company Stockholders Meeting, as it may be postponed or adjourned in
accordance with the terms of this Agreement), a statement disclosing that the
Company Board recommends rejection of such tender or exchange offer (for the
avoidance of doubt, the taking of no position or a neutral position by the
Company Board in respect of the acceptance of any such tender offer or
exchange offer as of the end of such period shall constitute a failure to
publicly announce that the Company Board recommends rejection of such tender
or exchange offer);
(iv) if requested by Parent, fail to issue, within five (5) Business Days
after a Company Competing Proposal is publicly announced (and in no event
later than one (1) Business Day prior to the date of the Company Stockholders
Meeting, as it may be postponed or adjourned in accordance with the terms of
this Agreement), a press release reaffirming the Company Board
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Recommendation, which request may not be made more than two times in respect
of any specific Company Competing Proposal;
(v) approve, recommend or declare advisable (or publicly propose to do so)
any Company Competing Proposal;
(vi) approve, adopt, recommend, agree to or enter into, or propose or
resolve to approve, adopt, recommend, agree to or enter into, any letter of
intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement or other agreement (other than an Acceptable
Confidentiality Agreement entered into in accordance with
Section 6.3(b)
) relating to a Company Competing Proposal (a "
Company Alternative Acquisition Agreement
");
(vii) cause or permit the Company to enter into a Company Alternative
Acquisition Agreement; or
(viii) publicly propose to do any of the foregoing (together with any of the
actions set forth in the foregoing
clauses (i)
though
(vii)
, a "
Company Change of Recommendation
").
(f) Notwithstanding anything in this Agreement to the contrary, prior to the
receipt of the Company Stockholder Approval:
(i) the Company Board may, after consultation with its outside legal
counsel, make such disclosures as the Company Board determines in good faith
are necessary to comply with Rule 14d-9 or Rule 14e-2(a) promulgated under the
Exchange Act or other disclosure required to be made in the Joint Proxy
Statement/Prospectus by applicable U.S. federal securities Laws;
provided
,
however
, that if such disclosure by the Company Board has the effect of withdrawing
or materially and adversely modifying the Company Board Recommendation, such
disclosure shall be deemed to be a Company Change of Recommendation and Parent
shall have the right to terminate this Agreement as set forth in
Section 8.1(c)(i)
;
(ii) in response to a
bona fide
written Company Competing Proposal from a third party that has not been
withdrawn, was received after the date hereof, was not solicited at any time
following the execution of this Agreement and did not result from a breach of
the obligations set forth in this
Section 6.3
, the Company Board may (x) effect a Company Change of Recommendation or (y)
terminate this Agreement pursuant to
Section 8.1(d)(ii)
in response to a Company Superior Proposal;
provided
,
however
, that such Company Change of Recommendation or termination of this Agreement,
as applicable, may not be made unless and until:
(A) the Company Board determines in good faith after consultation with its
financial advisors and outside legal counsel that such Company Competing
Proposal is a Company Superior Proposal;
(B) the Company Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a Company
Change of Recommendation in response to such Company Superior Proposal would
be inconsistent with the fiduciary duties of the directors under applicable
Law;
(C) the Company provides Parent written notice of such proposed action four
(4) Business Days in advance, which notice shall set forth in writing that the
Company Board intends to take such action, shall include the identity of the
Person making such Company Competing Proposal and shall contain a copy of such
proposal and a draft of the definitive agreement to be entered into in
connection therewith (or, if not in writing, a written summary of the material
terms and conditions thereof);
(D) during the four (4) Business Day period commencing on the date of
Parent's receipt of the notice specified in
clause (C)
above (subject to any applicable extensions), the Company negotiates (and
causes its officers, employees, financial advisors, outside legal counsel and
other Representatives to negotiate) in good faith with Parent (to the extent
Parent wishes to negotiate) to permit Parent to make such adjustments,
amendments or revisions to
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the terms of this Agreement so that the Company Competing Proposal that is the
subject of the notice specified in
clause (C)
above ceases to be a Company Superior Proposal;
(E) at the end of the four (4) Business Day period, prior to taking action
to effect a Company Change of Recommendation, the Company Board takes into
account any binding irrevocable adjustments, amendments or revisions to the
terms of this Agreement proposed by Parent in writing and any other
information offered by Parent in response to the notice specified in
clause (C)
above, and determines in good faith after consultation with its financial
advisors and outside legal counsel, that the Company Competing Proposal
remains a Company Superior Proposal and that the failure to effect a Company
Change of Recommendation in response to such Company Superior Proposal would
continue to be inconsistent with the fiduciary duties of the directors under
applicable Law;
provided
that if there is any material development with respect to or material
modification of such Company Competing Proposal, the Company shall, in each
case, be required to deliver to Parent an additional notice consistent with
that described in
clause (C)
above and a new negotiation period under
clause (D)
above shall commence (except that the original four (4) Business Day notice
period referred to in
clause (C)
above) shall instead be equal to the longer of (1) two (2) Business Days and
(2) the period remaining under the first and original four (4) Business Day
notice period of
clause (C)
above, during which time the Company shall be required to comply with the
requirements of
clause (D)
above and this clause anew with respect to such additional notice (but
substituting the time periods therein with the foregoing extended period); and
(F) in the case of the Company terminating this Agreement to enter into a
definitive agreement with respect to a Company Superior Proposal, the Company
shall have, prior to or contemporaneously with such termination, paid, or
caused the payment of, the Company Termination Fee.
(iii) in response to a Company Intervening Event that is not caused by a
Company Competing Proposal, that occurs or arises after the date of this
Agreement and that did not arise from or in connection with a material breach
of this Agreement by the Company, the Company Board may effect a Company
Change of Recommendation;
provided
,
however
, that such Company Change of Recommendation may not be made unless and until:
(A) the Company Board determines in good faith after consultation with its
financial advisors and outside legal counsel that a Company Intervening Event
has occurred;
(B) the Company Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a Company
Change of Recommendation in response to such Company Intervening Event would
be inconsistent with the fiduciary duties of the directors under applicable
Law;
(C) the Company provides Parent written notice of such proposed action and
the basis thereof four (4) Business Days in advance, which notice shall set
forth in writing that the Company Board intends to take such action and
includes the reasons therefor a reasonable description of the facts and
circumstances of the Company Intervening Event and the reasons for the Company
Board's determination;
(D) during the four (4) Business Day period commencing on the date of
Parent's receipt of the notice specified in
clause (C)
above (subject to any applicable extensions), the Company negotiates (and
causes its officers, employees, financial advisor, outside legal counsel and
other Representatives to negotiate) in good faith with Parent (to the extent
Parent wishes to negotiate) to make such adjustments, amendments or revisions
to the terms of this Agreement as would permit the Company Board not to effect
a Company Change of Recommendation in response thereto; and
(E) at the end of the four (4) Business Day period, prior to taking action
to effect a Company Change of Recommendation, the Company Board takes into
account any binding irrevocable adjustments, amendments or revisions to the
terms of this Agreement proposed by
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Parent in writing and any other information offered by Parent in response to
the notice specified in
clause (C)
above, and determines in good faith after consultation with its financial
advisors and outside legal counsel, that the failure to effect a Company
Change of Recommendation in response to such Company Intervening Event would
continue to be inconsistent with the fiduciary duties of the directors under
applicable Law if such adjustments, amendments or revisions irrevocably
offered in writing by Parent were to be given effect;
provided
that if there is any material development with respect to such Company
Intervening Event, the Company shall, in each case, be required to deliver to
Parent an additional notice consistent with that described in
clause (C)
above and a new negotiation period under
clause (D)
above shall commence (except that the original four (4) Business Day notice
period referred to in
clause (C)
above shall instead be equal to the longer of (1) two (2) Business Days and
(2) the period remaining under the first and original four (4) Business Day
notice period of
clause (C)
above, during which time the Company shall be required to comply with the
requirements of
clause (D)
above and this clause anew with respect to such additional notice (but
substituting the time periods therein with the foregoing extended period)).
(g) Notwithstanding anything to the contrary in this
Section 6.3
, any action, or failure to take action of a Representative of the Company
that is taken by, at the direction of, or at the request or on behalf of the
Company or any of its Subsidiaries or its and their directors, officers,
employees or Affiliates in violation of this
Section 6.3
, shall be deemed to be a breach of this
Section 6.3
by the Company.
Section 6.4
No Solicitation by Parent
.
(a) From and after the date of this Agreement and until the earlier of the
Effective Time and termination of this Agreement pursuant to
Article VIII
, Parent and its officers and directors will, and will cause Parent's
Subsidiaries and its and their controlled Affiliates and respective officers
and directors to, and will use their reasonable best efforts to cause the
other Representatives to, immediately cease, and cause to be terminated, any
solicitation of, discussion or negotiations with any Person conducted
heretofore by Parent or any of its Subsidiaries, their respective controlled
Affiliates or Representatives with respect to any inquiry, proposal or offer
that relates to, constitutes, or could reasonably be expected to lead to, a
Parent Competing Proposal. Parent shall, promptly following the execution and
delivery of this Agreement, terminate any access any such Persons may have to
any physical or electronic data room relating to any potential Parent
Competing Proposal.
(b) From and after the date of this Agreement and until the earlier of the
Effective Time and termination of this Agreement pursuant to
Article VIII
, Parent and its officers and directors will not, and will cause Parent's
Subsidiaries and its and their respective controlled Affiliates and respective
officers and directors not to, and will use their reasonable best efforts to
cause the other Representatives not to, directly or indirectly:
(i) initiate, solicit, seek, propose, knowingly encourage, or knowingly
facilitate (including by way of furnishing non-public information) any inquiry
regarding the making, submission or announcement by any Person (other than the
Company or its Subsidiaries) of any proposal or offer, including any proposal
or offer to Parent's stockholders, that constitutes, or could reasonably be
expected to lead to, a Parent Competing Proposal;
(ii) engage in, continue or otherwise participate in any discussions with
any Person with respect to or negotiations with any Person with respect to,
relating to, or in furtherance of a Parent Competing Proposal or any inquiry,
proposal or offer that could reasonably be expected to lead to a Parent
Competing Proposal;
(iii) furnish or afford access to any material non-public information
regarding Parent or its Subsidiaries to any Person (other than the Company and
its Subsidiaries) in connection with, for the purpose of soliciting,
initiating, knowingly encouraging or knowingly facilitating, or in response to
any Parent Competing Proposal or any inquiry, proposal or offer that could
reasonably be expected to lead to a Parent Competing Proposal;
(iv) approve, adopt, recommend, agree to or enter into, or propose to
approve, adopt, recommend, agree to or enter into, any inquiry, proposal or
offer that constitutes, or could reasonably be expected to lead to, a Parent
Alternative Acquisition Agreement;
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(v) enter into any letter of intent, term sheet, memorandum of understanding,
merger agreement, acquisition agreement, exchange agreement or duly execute
any other agreement (whether binding or not) with respect to any inquiry,
proposal or offer that constitutes, or could reasonably be expected to lead
to, a Parent Competing Proposal or that would require, or would reasonably be
expected to require Parent to abandon, terminate or fail to consummate the
Integrated Mergers or any other transaction contemplated by this Agreement;
(vi) waive or release any Person from, forebear in the enforcement of, or
amend or terminate any standstill agreement or any standstill provisions of
any other contract;
provided
that if Parent (acting under the direction of the Parent Board) determines in
good faith after consultation with Parent's outside legal counsel that the
failure to waive a particular standstill provision would be inconsistent with
the relevant directors' fiduciary duties under applicable Law, then Parent may
waive such standstill provision, solely to the extent necessary to permit a
third party to make and pursue a non-public Parent Competing Proposal that
Parent reasonably believes is likely to lead to a Parent Superior Proposal;
(vii) submit any Parent Competing Proposal to the vote of the stockholders
of Parent; or
(viii) resolve or agree to do any of the foregoing.
(c) Notwithstanding anything to the contrary in this Agreement, prior to
obtaining the Parent Stockholder Approval, Parent or any of its Representatives
may:
(i) provide information in response to a request therefor by a Person who
has made an unsolicited bona fide written Parent Competing Proposal or any
inquiry, proposal or offer with respect to (or that could reasonably be
expected to lead to) a Parent Competing Proposal after the date hereof that
did not result from a breach of this
Section 6.4
if Parent receives from the Person so requesting such information an
Acceptable Confidentiality Agreement, it being understood that such Acceptable
Confidentiality Agreement need not prohibit the making, or amendment, of a
Parent Competing Proposal and shall not prohibit compliance by Parent with this
Section 6.4
, and Parent shall promptly (and, in any event, within 24 hours) disclose and
provide copies of such Acceptable Confidentiality Agreement and any such
information provided to such Person to the Company to the extent not
previously provided to the Company; or
(ii) engage or participate in any discussions or negotiations with any
Person who has made such an unsolicited bona fide written Parent Competing
Proposal after the date hereof that did not result from a breach of this
Section 6.4
;
in each case, if and only to the extent that, prior to taking any action
described in
Section 6.4(c)(i)
or
Section 6.4(c)(ii)
, (A) Parent provides the notice to the Company required by
Section 6.4(d)
and the Parent Board determines in good faith after consultation with its
outside legal counsel that failure to take such action in light of the Parent
Competing Proposal or such other inquiry, proposal or offer, as applicable,
would be inconsistent with the Parent Board's fiduciary duties under
applicable law, and (B) the Parent Board has determined in good faith based on
the information then available and after consultation with its financial
advisor and outside legal counsel that such Parent Competing Proposal either
constitutes a Parent Superior Proposal or is reasonably likely to result in a
Parent Superior Proposal,
provided
that, notwithstanding anything to the contrary in this
Section 6.4
, if Parent receives any Parent Competing Proposal or any inquiry, proposal or
offer with respect to (or that could reasonably be expected to lead to) a
Parent Competing Proposal, Parent may seek clarification of the terms and
conditions thereof so as to determine whether such Parent Competing Proposal
or any inquiry, proposal or offer with respect to (or that could reasonably be
expected to lead to) a Parent Competing Proposal constitutes a Parent Superior
Proposal or is reasonably likely to result in a Parent Superior Proposal.
(d) From and after the date of this Agreement, Parent shall promptly (and in
any event, within 24 hours) notify the Company in writing of the receipt by
Parent of any Parent Competing Proposal or any inquiry, proposal or offer with
respect to (or that could reasonably be expected to lead to) a Parent
Competing Proposal made on or after the date of this Agreement, any request
for information or data relating to Parent or any of its Subsidiaries made by
any Person in connection with (or that could reasonably be expected to lead
to) a Parent Competing Proposal or any request for discussions or
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negotiations with Parent or a Representative of Parent relating to (or that
could reasonably be expected to lead to) a Parent Competing Proposal, and
Parent shall notify the Company of the identity of the Person making or
submitting such request, inquiry, proposal or offer and provide to the Company
(i) a copy of any such request, inquiry, proposal or offer made in writing
provided to Parent or any of its Subsidiaries or any of its and their
respective Representatives or (ii) if any such request, inquiry, proposal or
offer is not made in writing, a written summary of such request, proposal or
offer (including the material terms and conditions thereof), in each case
together with copies of any proposed transaction agreements. Thereafter Parent
shall keep the Company reasonably informed in writing on a current basis (and,
in any event, within twenty-four (24) hours) regarding material changes to the
status of any such requests, inquiries, proposals or offers (including any
amendments or changes thereto, which, for the avoidance of doubt, shall
include (among other things) any changes to the form or amount of
consideration) and shall reasonably apprise the Company of the status of any
such negotiations to the extent the status changes in any material respect.
Without limiting the foregoing, Parent shall notify the Company if Parent
determines to engage in discussions or negotiations concerning a Parent
Competing Proposal.
(e) Except as expressly permitted by this
Section 6.4
, neither the Parent Board nor any committee of the Parent Board shall:
(i) withhold, withdraw, qualify or modify, or publicly propose or announce
any intention to withhold, withdraw, qualify or modify, in a manner adverse to
the Company, the Parent Board Recommendation;
(ii) fail to include the Parent Board Recommendation in the Joint Proxy
Statement/
Prospectus;
(iii) fail to publicly announce, within ten (10) Business Days after a
tender offer or exchange offer relating to the equity securities of Parent
shall have been commenced by any third party other than the Company and its
Affiliates (and in no event later than one (1) Business Day prior to the date
of the Parent Stockholders Meeting, as it may be postponed or adjourned in
accordance with the terms of this Agreement), a statement disclosing that the
Parent Board recommends rejection of such tender or exchange offer (for the
avoidance of doubt, the taking of no position or a neutral position by the
Parent Board in respect of the acceptance of any such tender offer or exchange
offer as of the end of such period shall constitute a failure to publicly
announce that the Parent Board recommends rejection of such tender or exchange
offer);
(iv) if requested by the Company, fail to issue, within five (5) Business
Days after a Parent Competing Proposal is publicly announced (and in no event
later than one (1) Business Day prior to the date of the Parent Stockholders
Meeting, as it may be postponed or adjourned in accordance with the terms of
this Agreement), a press release reaffirming the Parent Board Recommendation,
which request may not be made more than two times in respect of any specific
Parent Competing Proposal;
(v) approve, recommend or declare advisable (or publicly propose to do so)
any Parent Competing Proposal;
(vi) approve, adopt, recommend, agree to or enter into, or propose or
resolve to approve, adopt, recommend, agree to or enter into, any letter of
intent, memorandum of understanding, agreement in principle, acquisition
agreement, merger agreement, option agreement, joint venture agreement,
partnership agreement or other agreement (other than an Acceptable
Confidentiality Agreement entered into in accordance with
Section 6.4(b)
) relating to a Parent Competing Proposal (a "
Parent Alternative Acquisition Agreement
");
(vii) cause or permit Parent to enter into a Parent Alternative Acquisition
Agreement; or
(viii) publicly propose to do any of the foregoing (together with any of the
actions set forth in the foregoing
clauses (i)
though
(vii)
, a "
Parent Change of Recommendation
").
(f) Notwithstanding anything in this Agreement to the contrary, prior to the
receipt of the Parent Stockholder Approval:
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(i) the Parent Board may, after consultation with its outside legal counsel,
make such disclosures as the Parent Board determines in good faith are
necessary to comply with Rule 14d-9 or Rule 14e-2(a) promulgated under the
Exchange Act or other disclosure required to be made in the Joint Proxy
Statement/Prospectus by applicable U.S. federal securities Laws;
provided
,
however
, that if such disclosure by the Parent Board has the effect of withdrawing or
materially and adversely modifying the Parent Board Recommendation, such
disclosure shall be deemed to be a Parent Change of Recommendation and the
Company shall have the right to terminate this Agreement as set forth in
Section 8.1(d)(i)
;
(ii) in response to a
bona fide
written Parent Competing Proposal from a third party that has not been
withdrawn, was received after the date hereof, was not solicited at any time
following the execution of this Agreement and did not result from a breach of
the obligations set forth in this
Section 6.4
, the Parent Board may (x) effect a Parent Change of Recommendation or (y)
terminate this Agreement pursuant to
Section 8.1(c)(ii)
in response to a Parent Superior Proposal;
provided
,
however
, that such Parent Change of Recommendation or termination of this Agreement,
as applicable, may not be made unless and until:
(A) the Parent Board determines in good faith after consultation with its
financial advisors and outside legal counsel that such Parent Competing
Proposal is a Parent Superior Proposal;
(B) the Parent Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a Parent
Change of Recommendation in response to such Parent Superior Proposal would be
inconsistent with the fiduciary duties of the directors under applicable Law;
(C) Parent provides the Company written notice of such proposed action four
(4) Business Days in advance, which notice shall set forth in writing that the
Parent Board intends to take such action, shall include the identity of the
Person making such Parent Competing Proposal and shall contain a copy of such
proposal and a draft of the definitive agreement to be entered into in
connection therewith (or, if not in writing, a written summary of the material
terms and conditions thereof);
(D) during the four (4) Business Day period commencing on the date of the
Company's receipt of the notice specified in
clause (C)
above (subject to any applicable extensions), Parent negotiates (and causes
its officers, employees, financial advisors, outside legal counsel and other
Representatives to negotiate) in good faith with the Company (to the extent
the Company wishes to negotiate) to permit the Company to make such
adjustments, amendments or revisions to the terms of this Agreement so that
the Parent Competing Proposal that is the subject of the notice specified in
clause (C)
above ceases to be a Parent Superior Proposal;
(E) at the end of the four (4) Business Day period, prior to taking action
to effect a Parent Change of Recommendation, the Parent Board takes into
account any binding irrevocable adjustments, amendments or revisions to the
terms of this Agreement proposed by the Company in writing and any other
information offered by the Company in response to the notice specified in
clause (C)
above, and determines in good faith after consultation with its financial
advisors and outside legal counsel, that the Parent Competing Proposal remains
a Parent Superior Proposal and that the failure to effect a Parent Change of
Recommendation in response to such Parent Superior Proposal would be
inconsistent with the fiduciary duties of the directors under applicable Law;
provided
that if there is any material development with respect to or material
modification of such Parent Competing Proposal, Parent shall, in each case, be
required to deliver to the Company an additional notice consistent with that
described in
clause (C)
above and a new negotiation period under
clause (D)
above shall commence (except that the original four (4) Business Day notice
period referred to in
clause (C)
above shall instead be equal to the longer of (1) two (2) Business Days and
(2) the period remaining under the first and original four (4) Business Day
notice period of
clause (C)
above, during which time Parent shall be required to comply with the
requirements of
clause (D)
above and
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this clause anew with respect to such additional notice (but substituting the
time periods therein with the foregoing extended period)); and
(F) in the case of Parent terminating this Agreement to enter into a
definitive agreement with respect to a Parent Superior Proposal, Parent shall
have, prior to or contemporaneously with such termination, paid, or caused the
payment of, the Parent Termination Fee.
(iii) in response to a Parent Intervening Event that is not caused by a
Parent Competing Proposal, that occurs or arises after the date of this
Agreement and that did not arise from or in connection with a breach of this
Agreement by Parent, the Parent Board may effect a Parent Change of
Recommendation;
provided
,
however
, that such Parent Change of Recommendation may not be made unless and until:
(A) the Parent Board determines in good faith after consultation with its
financial advisors and outside legal counsel that a Parent Intervening Event
has occurred;
(B) the Parent Board determines in good faith, after consultation with its
financial advisors and outside legal counsel, that failure to effect a Parent
Change of Recommendation in response to such Parent Intervening Event would be
inconsistent with the fiduciary duties of the directors under applicable Law;
(C) Parent provides the Company written notice of such proposed action and
the basis thereof four (4) Business Days in advance, which notice shall set
forth in writing that the Parent Board intends to take such action and
includes the reasons therefor a reasonable description of the facts and
circumstances of the Parent Intervening Event and the reasons for the Parent
Board's determination;
(D) during the four (4) Business Day period commencing on the date of the
Company's receipt of the notice specified in
clause (C)
above (subject to any applicable extensions), Parent negotiates (and causes
its officers, employees, financial advisor, outside legal counsel and other
Representatives to negotiate) in good faith with the Company (to the extent
the Company wishes to negotiate) to make such adjustments, amendments or
revisions to the terms of this Agreement as would permit the Parent Board not
to effect a Parent Change of Recommendation in response thereto; and
(E) at the end of the four (4) Business Day period, prior to taking action
to effect a Parent Change of Recommendation, the Parent Board takes into
account any binding irrevocable adjustments, amendments or revisions to the
terms of this Agreement proposed by the Company in writing and any other
information offered by Parent in response to the notice specified in
clause (C)
above, and determines in good faith after consultation with its financial
advisors and outside legal counsel, that the failure to effect a Parent Change
of Recommendation in response to such Parent Intervening Event would continue
to be inconsistent with the fiduciary duties of the directors under applicable
Law if such adjustments, amendments or revisions irrevocably offered in
writing by the Company were to be given effect;
provided
that if there is any material development with respect to such Parent
Intervening Event, Parent shall, in each case, be required to deliver to the
Company an additional notice consistent with that described in
clause (C)
above and a new negotiation period under
clause (D)
above shall commence (except that the original four (4) Business Day notice
period referred to in
clause (C)
above shall instead be equal to the longer of (1) two (2) Business Days and
(2) the period remaining under the first and original four (4) Business Day
notice period of
clause (C)
above, during which time Parent shall be required to comply with the
requirements of
clause (D)
above and this clause anew with respect to such additional notice (but
substituting the time periods therein with the foregoing extended period)).
(g) Notwithstanding anything to the contrary in this
Section 6.4
, any action, or failure to take action of a Representative of Parent that is
taken by, at the direction of or at the request or on behalf of Parent or any
of its Subsidiaries or its and their directors, officers, employees or
Affiliates, in violation of this
Section 6.4
, shall be deemed to be a breach of this
Section 6.4
by Parent.
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Section 6.5
Preparation of the Joint Proxy Statement/Prospectus and Registration Statement
.
(a) Parent will promptly furnish to the Company such data and information
relating to it, its Subsidiaries (including Merger Sub) and the holders of its
capital stock, as the Company may reasonably request for the purpose of
including such data and information in the Joint Proxy Statement/
Prospectus and any amendments or supplements thereto. The Company will
promptly furnish to Parent such data and information relating to it, its
Subsidiaries and the holders of its capital stock, as Parent may reasonably
request for the purpose of including such data and information in the Joint
Proxy Statement/Prospectus and the Registration Statement and any amendments
or supplements thereto.
(b) Promptly following the date hereof, the Company and Parent shall
cooperate in preparing and shall use their respective reasonable best efforts
to cause to be filed with the SEC as promptly as practicable following the
execution of this Agreement, and in any event no more than forty-five (45)
days following the date of this Agreement, a mutually acceptable (i) Joint
Proxy Statement/Prospectus relating to the matters to be submitted to the
holders of Company Common Stock at the Company Stockholders Meeting and the
matters to be submitted to the holders of Parent Common Stock at the Parent
Stockholders Meeting and (ii) Registration Statement (of which the Joint Proxy
Statement/
Prospectus will be a part). The Company and Parent shall each use reasonable
best efforts to cause the Joint Proxy Statement/Prospectus and the
Registration Statement to comply as to form and substance in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder and to respond as promptly as
practicable to any comments of the SEC or its staff. Parent and the Company
shall each use its reasonable best efforts to cause the Registration Statement
to become effective under the Securities Act as soon after such filing as
reasonably practicable and Parent shall use reasonable best efforts to keep
the Registration Statement effective as long as is necessary to consummate the
Merger. Each of the Company and Parent will advise the other promptly after it
receives any request by the SEC for amendment of the Joint Proxy Statement/
Prospectus or the Registration Statement or comments thereon and responses
thereto or any request by the SEC for additional information and Parent and
the Company shall jointly prepare any response to such comments or requests,
and shall provide each other with copies of all correspondence that is
provided between it, on one hand, and by the SEC on the other hand. Each of
Parent and the Company agrees to permit the other (in each case, to the extent
practicable), and their respective counsels, to participate in all meetings
and conferences with the SEC. Each of Parent and the Company shall use
reasonable best efforts to cause all documents that it is responsible for
filing with the SEC in connection with the Transactions to comply as to form
and substance in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder. Notwithstanding the foregoing, prior to filing the Registration
Statement (or any amendment or supplement thereto) or filing or mailing the
Joint Proxy Statement/Prospectus (or any amendment or supplement thereto) or
responding to any comments of the SEC with respect thereto, each of the
Company and Parent will (A) provide the other with a reasonable opportunity to
review and comment on such document or response (including the proposed final
version of such document or response), (B) include in such document or
response all comments reasonably and promptly proposed by the other and (C)
not file or mail such document or respond to the SEC prior to receiving the
approval of the other, which approval shall not be unreasonably withheld,
conditioned or delayed.
(c) Parent and the Company shall make all necessary filings with respect to
the Integrated Mergers and the Transactions under the Securities Act and the
Exchange Act and applicable "blue sky" laws and the rules and regulations
thereunder and the rules and regulations of NASDAQ or the NYSE, as applicable.
Each Party will advise the other, promptly after it receives notice thereof,
of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop or
cease-trade order, or the suspension of the qualification of the shares of
Parent Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction. Each of the Company and Parent will use reasonable
best efforts to have any such stop or cease-trade order or suspension lifted,
reversed or otherwise terminated.
(d) If at any time prior to the Effective Time, any information relating to
Parent or the Company, or any of their respective Affiliates, officers or
directors, should be discovered by Parent or the Company that should be set
forth in an amendment or supplement to the Joint Proxy Statement/Prospectus or
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the Registration Statement, so that such documents would not include any
misstatement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, the Party that discovers such information shall
promptly notify the other Party and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by applicable Law, disseminated to the stockholders of the
Company and the stockholders of Parent.
Section 6.6
Stockholders Meetings
.
(a) The Company shall take all action necessary in accordance with
applicable Laws and the Organizational Documents of the Company to duly give
notice of, convene and hold (in person or virtually, in accordance with
applicable Law) the Company Stockholders Meeting, to be held as promptly as
practicable following the clearance of the Joint Proxy Statement/Prospectus by
the SEC and the Registration Statement is declared effective by the SEC (and
in any event will use reasonable best efforts to convene such meeting within
forty-five (45) days thereof and no later than five (5) Business Days prior to
the Outside Date). Except where a Company Change of Recommendation has been
made in compliance with
Section 6.3
, the Company Board shall recommend that the stockholders of the Company
approve and adopt this Agreement at the Company Stockholders Meeting and the
Joint Proxy Statement/Prospectus shall include the Company Board Recommendation.
The Company shall solicit from stockholders of the Company proxies in favor
of the adoption of this Agreement, use its reasonable best efforts to obtain
the Company Stockholder Approval and submit the proposal to adopt this
Agreement to the stockholders of the Company at the Company Stockholders
Meeting. The Company shall ensure that all proxies solicited in connection
with the Company Stockholders Meeting are solicited in compliance with any
applicable Laws. Notwithstanding anything to the contrary contained in this
Agreement, the Company (i) shall be required to adjourn or postpone the
Company Stockholders Meeting (A) to the extent necessary to ensure that any
legally required supplement or amendment to the Joint Proxy Statement/Prospectus
is provided to the Company's stockholders or (B) if, as of the time for which
the Company Stockholders Meeting is scheduled, there are insufficient shares
of Company Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct business at such Company Stockholders
Meeting and (ii) may adjourn or postpone the Company Stockholders Meeting with
the written consent of Parent if, as of the time for which the Company
Stockholders Meeting is scheduled, there are insufficient shares of Company
Common Stock represented (either in person or by proxy) to obtain the Company
Stockholder Approval;
provided
,
however
, that (x) unless otherwise agreed to by the Parties, the Company Stockholders
Meeting shall not be adjourned or postponed to a date that is more than ten
(10) Business Days after the date for which the meeting was previously
scheduled except as may be required by applicable Law; (y) the Company
Stockholders Meeting shall not be adjourned or postponed to a date on or after
five (5) Business Days prior to the Outside Date; and (z) no such adjournment
or postponement may have the effect of changing the record date for
determining the stockholders of the Company entitled to notice of or to vote
at the Company Stockholders Meeting without the written consent of Parent
(which consent shall not be unreasonably withheld, conditioned, or delayed).
If requested by Parent, the Company shall promptly provide Parent with all
voting tabulation reports relating to the Company Stockholders Meeting that
have been prepared by the Company or the Company's transfer agent, proxy
solicitor or other Representative, and shall otherwise keep Parent reasonably
informed regarding the status of the solicitation and any material oral or
written communications from or to the Company's stockholders with respect
thereto. Unless there has been a Company Change of Recommendation made in
accordance with
Section 6.3
, the Parties agree to cooperate and use their reasonable best efforts to
defend against any efforts by any of the Company's stockholders or any other
Person to prevent the Company Stockholder Approval from being obtained. The
Company, in consultation with Parent, shall fix a record date for determining
the stockholders of the Company entitled to notice of, and to vote at, the
Company Stockholders Meeting and the Company shall not change such record date
or establish a different record date for the Company Stockholders Meeting
without the prior written consent of Parent (which consent shall not be
unreasonably withheld, conditioned or delayed). Without the prior written
consent of Parent or as required by applicable Law, (i) the adoption of this
Agreement shall be the only matter (other than a non-binding advisory proposal
regarding compensation that may be paid or become payable to the named
executive officers of the Company in connection with the Integrated Mergers
and matters of procedure, including any adjournment proposal) that the Company
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shall propose to be acted on by the stockholders of the Company at the Company
Stockholders Meeting and the Company shall not submit any other proposal to
such stockholders in connection with the Company Stockholders Meeting or
otherwise (including any proposal inconsistent with the adoption of this
Agreement or the consummation of the Transactions) and (ii) the Company shall
not call any meeting of the stockholders of the Company (or solicit any other
stockholder action by written consent) other than the Company Stockholders
Meeting.
(b) Parent shall take all action necessary in accordance with applicable
Laws and the Organizational Documents of Parent to duly give notice of,
convene and hold (in person or virtually, in accordance with applicable Law)
the Parent Stockholders Meeting, to be held as promptly as practicable
following the clearance of the Joint Proxy Statement/Prospectus by the SEC and
the Registration Statement is declared effective by the SEC (any in any event
will use reasonable best efforts to convene such meeting within forty-five
(45) days thereof and no later than five (5) Business Days prior to the
Outside Date). Except where a Parent Change of Recommendation has been made in
compliance with
Section 6.4
, the Parent Board shall recommend that the stockholders of Parent approve and
adopt this Agreement at the Parent Stockholders Meeting and the Joint Proxy
Statement/
Prospectus shall include the Parent Board Recommendation. Parent shall solicit
from stockholders of Parent proxies in favor of the adoption of this
Agreement, use its reasonable best efforts to obtain the Parent Stockholder
Approval and submit the proposal to adopt this Agreement to the stockholders
of Parent at the Parent Stockholders Meeting. Parent shall ensure that all
proxies solicited in connection with the Parent Stockholders Meeting are
solicited in compliance with any applicable Laws. Notwithstanding anything to
the contrary contained in this Agreement, Parent (i) shall be required to
adjourn or postpone the Parent Stockholders Meeting (A) to the extent
necessary to ensure that any legally required supplement or amendment to the
Joint Proxy Statement/Prospectus is provided to Parent's stockholders or (B)
if, as of the time for which the Parent Stockholders Meeting is scheduled,
there are insufficient shares of Parent Common Stock represented (either in
person or by proxy) to constitute a quorum necessary to conduct business at
such Parent Stockholders Meeting and (ii) may adjourn or postpone the Parent
Stockholders Meeting with the written consent of the Company if, as of the
time for which the Parent Stockholders Meeting is scheduled, there are
insufficient shares of Parent Common Stock represented (either in person or by
proxy) to obtain the Parent Stockholder Approval;
provided
,
however
, that (x) unless otherwise agreed to by the Parties, the Parent Stockholders
Meeting shall not be adjourned or postponed to a date that is more than ten
(10) Business Days after the date for which the meeting was previously
scheduled except as may be required by applicable Law; (y) the Parent
Stockholders Meeting shall not be adjourned or postponed to a date on or after
five (5) Business Days prior to the Outside Date; and (z) no such adjournment
or postponement may have the effect of changing the record date for
determining the stockholders of Parent entitled to notice of or to vote at the
Parent Stockholders Meeting without the written consent of the Company (which
consent shall not be unreasonably withheld, conditioned, or delayed). If
requested by the Company, Parent shall promptly provide the Company with all
voting tabulation reports relating to the Parent Stockholders Meeting that
have been prepared by Parent or Parent's transfer agent, proxy solicitor or
other Representative, and shall otherwise keep the Company reasonably informed
regarding the status of the solicitation and any material oral or written
communications from or to Parent's stockholders with respect thereto. Unless
there has been a Parent Change of Recommendation made in accordance with
Section 6.4
, the Parties agree to cooperate and use their reasonable best efforts to
defend against any efforts by any of Parent's stockholders or any other Person
to prevent Parent Stockholder Approval from being obtained. Parent, in
consultation with the Company, shall fix a record date for determining the
stockholders of Parent entitled to notice of, and to vote at, the Parent
Stockholders Meeting and Parent shall not change such record date or establish
a different record date for the Parent Stockholders Meeting without the prior
written consent of the Company (which consent shall not be unreasonably
withheld, conditioned or delayed). Without the prior written consent of the
Company or as required by applicable Law, (i) the Parent Stock Issuance shall
be the only matter that Parent shall propose to be acted on by the
stockholders of Parent at the Parent Stockholders Meeting and Parent shall not
submit any other proposal to such stockholders in connection with the Parent
Stockholders Meeting or otherwise (including any proposal inconsistent with
the adoption of this Agreement or the consummation of the Transactions) and
(ii) Parent shall not call any meeting of the stockholders of Parent (or
solicit any other stockholder action by written consent) other than the Parent
Stockholders Meeting.
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(c) The Parties shall cooperate and use their reasonable best efforts to set
the record dates for and hold the Company Stockholders Meeting and the Parent
Stockholders Meeting, as applicable, on the same day and at approximately the
same time.
(d) Promptly following the execution of this Agreement, Parent shall cause
the adoption of this Agreement (i) in its capacity as the sole stockholder of
Merger Sub in accordance with applicable Law and the Organizational Documents
of Merger Sub and (ii) in its capacity as sole member of LLC Sub in accordance
with applicable Law and the Organizational Documents of LLC Sub and, in each
case, deliver to the Company evidence of such votes or actions by written
consent so approving and adopting this Agreement.
Section 6.7
Access to Information
.
(a) Subject to applicable Law and the other provisions of this
Section 6.7
, the Company and Parent each shall (and shall cause its Subsidiaries to),
upon reasonable advance written notice by the other, use reasonable best
efforts to furnish the other with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as
may be reasonably necessary or advisable in connection with the Joint Proxy
Statement/Prospectus, the Registration Statement, or any other statement,
filing, notice or application made by or on behalf of Parent, the Company or
any of their respective Subsidiaries to any third party or any Governmental
Entity in connection with the Transactions. The Company and Parent shall, and
shall cause each of its Subsidiaries to, the other Party, use reasonable best
efforts to afford the other Party's officers and its Representatives, during
the period prior to the earlier of the Effective Time and the termination of
this Agreement pursuant to the terms of
Section 8.1
, reasonable access, at reasonable times upon reasonable prior notice, to the
officers, key employees, agents, properties, offices and other facilities of
the other Party and its Subsidiaries and to their books, records, contracts
and documents and shall, and shall cause each of its Subsidiaries to, furnish
reasonably promptly to such Party and its Representatives such information
concerning its and its Subsidiaries' business, properties, contracts, records
and personnel as may be reasonably requested, from time to time, by or on
behalf of the other Party;
provided
, that such access may be limited by either Party to the extent reasonably
necessary to comply with applicable Law;
provided
, further, that if any access is withheld pursuant to the immediately
preceding proviso, the withholding Party shall use commercially reasonable
efforts to seek an alternative means to provide the access to the withheld
information in a manner that does not violate any such Law. Each Party and its
Representatives shall conduct any such activities in such a manner as not to
interfere unreasonably with the business or operations of the other Party or
its Subsidiaries or otherwise cause any unreasonable interference with the
prompt and timely discharge by the employees of the other Party and its
Subsidiaries of their normal duties. Notwithstanding the foregoing:
(i) No Party shall be required to, or to cause any of its Subsidiaries to,
grant access or furnish information, as applicable, to the other Party or any
of its Representatives to the extent that such information is subject to an
attorney/client privilege or the attorney work product doctrine or that such
access or the furnishing of such information, as applicable, is prohibited by
applicable Law or an existing contract or agreement (
provided
,
however
, the Company or Parent, as applicable, shall inform the other Party as to the
general nature of what is being withheld and the Company and Parent shall
reasonably cooperate to make appropriate substitute arrangements to permit
reasonable disclosure that does not suffer from any of the foregoing
impediments, including through the use of commercially reasonable efforts to
(A) obtain the required consent or waiver of any third party required to
provide such information and (B) implement appropriate and mutually agreeable
measures to permit the disclosure of such information in a manner to remove
the basis for the objection, including by arrangement of appropriate clean
room procedures, redaction or entry into a customary joint defense agreement
with respect to any information to be so provided, if the Parties determine
that doing so would reasonably permit the disclosure of such information
without violating applicable Law or jeopardizing such privilege);
(ii) No Party shall have access to personnel records of the other Party or
any of its Subsidiaries relating to individual performance or evaluation
records, medical histories or other personnel information that in the other
Party's good faith opinion the disclosure of which could subject the other
Party or any of its Subsidiaries to risk of liability;
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(iii) No Party shall be required to, or to cause any of its Subsidiaries to,
grant access or furnish information, as applicable, to the other Party or any
of its Representatives to the extent that such results in the disclosure of
competitively sensitive information or information concerning the valuation of
the Company, Parent or any of their respective Subsidiaries;
(iv) Notwithstanding the foregoing, neither Party shall be permitted to
conduct any invasive or intrusive sampling, testing or analysis (commonly
known as a "
Phase II
") of any environmental media or building materials at any facility of the
other Party or its Subsidiaries without the prior written consent of the other
Party (which may be granted or withheld in such Party's sole discretion); and
(v) No investigation or information provided pursuant to this
Section 6.7
shall affect or be deemed to modify any representation or warranty made by the
Company, Parent, Merger Sub or LLC Sub herein and no Party shall, and each
Party shall use their reasonable best efforts to cause their respective
Representatives to not, use any information obtained pursuant to this
Section 6.7
for any purpose unrelated to the evaluation, negotiation or consummation of
the Transactions;
provided
, that in event that the Company or Parent, as applicable, objects to any
request submitted pursuant to and in accordance with this
Section 6.7(a)
and withholds information on the basis of the foregoing
clauses (i)
through
(v)
, the Company or Parent, as applicable, shall inform the other Party in
writing as to the general nature of what is being withheld and shall use
reasonable best efforts to make appropriate substitute arrangements to permit
reasonable disclosure that does not suffer from any of the foregoing
impediments. Each of the Company and Parent, as it deems advisable and
necessary, may reasonably designate competitively sensitive material provided
to the other as "Outside Counsel Only Material" or with similar restrictions.
Such materials and the information contained therein shall be given only to
the outside legal counsel of the recipient, or otherwise as the restriction
indicates, and be subject to any additional confidentiality or joint defense
agreement between the Parties. All requests for information made pursuant to
this
Section 6.7(a)
shall be directed to the Person designated by the Company or Parent, as
applicable.
(b) The Confidentiality Agreement between Parent and the Company (the "
Confidentiality Agreement
") shall survive the execution and delivery of this Agreement and shall apply
to all information furnished thereunder or hereunder;
provided
that, for the avoidance of doubt, the restrictions set forth in the
Confidentiality Agreement shall not limit the disclosure or dissemination of
information (including publicly) if required by Law or requested by any
Governmental Entity, Financial Industry Regulatory Authority, NYSE or NASDAQ.
From and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement in accordance with
Article VIII
, each Party shall continue to provide access to the other Party and its
Representatives to the electronic data room relating to the Transactions
maintained by or on behalf of it to which the other Party and its
Representatives were provided access prior to the date of this Agreement.
Section 6.8
HSR and Other Approvals
.
(a) Except for the Consents and other matters related to Antitrust Laws to
which
Sections 6.8(b)
and
6.8(c)
, and not this
Section 6.8(a)
, shall apply, promptly following the execution of this Agreement, the Parties
shall proceed to prepare and file with the appropriate Governmental Entities
and other third parties all Consents that are necessary in order to consummate
the Transactions and shall diligently and expeditiously prosecute, and shall
cooperate fully with each other in the prosecution of, such matters.
Notwithstanding the foregoing, in no event shall either the Company or Parent
or any of their respective Affiliates be required to pay any consideration to
any third parties or give anything of value to obtain any such Person's
Consent to effectuate the Transactions, other than filing, recordation or
similar fees. Parent and the Company shall have the right to review in advance
and, to the extent reasonably practicable, each will consult with the other on
and consider in good faith the views of the other in connection with, all of
the information relating to Parent or the Company, as applicable, and any of
their respective Subsidiaries or Affiliates, that appears in any filing made
with, or written materials submitted to, any third party or any Governmental
Entity in connection with the Transactions (including the Joint Proxy
Statement/Prospectus) under this
Section 6.8(a)
. The Company and its Subsidiaries and Affiliates shall not agree to any
actions, restrictions or conditions with respect to obtaining any
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Consents in connection with the Transactions without the prior written consent
of Parent (which consent may be withheld in Parent's sole discretion).
(b) As promptly as reasonably practicable but in no event later than fifteen
(15) Business Days after the date of this Agreement (unless Parent and the
Company agree in writing to a later date), the Parties shall, or shall cause
their Affiliates to, make any filings required under the HSR Act in connection
with the Transactions. Each Party shall use reasonable best efforts to obtain
the expiration or termination of any waiting period under the HSR Act
applicable to the Transactions and bring about the Closing as promptly as
reasonably practicable (and in any event before the Outside Date). In
furtherance of the foregoing, each Party shall:
(i) cooperate fully with the other Party and furnish to it such necessary
information and reasonable assistance as it may reasonably request in
connection with its preparation of any required filings under the HSR Act;
(ii) use reasonable best efforts to respond appropriately as promptly as
reasonably practicable to any request for information in connection with the
Transactions from any Governmental Entity under the HSR Act or any other Law
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization, restraint of trade or lessening
competition through merger or acquisition (collectively, "
Antitrust Laws
");
(iii) keep the other Party apprised of any substantive communications with,
and any inquiries or requests for additional information from, any
Governmental Entity in connection with the Transactions;
(iv) provide copies to the other Party of all substantive written
communications relating to the Transactions to or from any Governmental Entity,
provided
, that each Party may redact or withhold materials due to reasonable
good-faith confidentiality or privilege concerns or designate such
communications as "Outside Counsel Only Material";
(v) permit the other Party a reasonable opportunity to review any proposed
substantive written communications to a Governmental Entity, and consider in
good faith the other Party's comments thereon;
(vi) not participate in any substantive discussion with any Governmental
Entity in relation to the Transactions without giving the other Party
reasonable notice and an opportunity to participate;
(vii) use reasonable efforts to share information protected from disclosure
under the attorney-client privilege, work product doctrine, joint defense
privilege or any other privilege pursuant to this
Section 6.8(b)
so as to preserve any applicable privilege; and
(viii) not enter into any timing agreement with any Governmental Entity that
would reasonably be expected to extend beyond the Outside Date, without the
prior written consent of the other Party.
(c) In furtherance of the foregoing, the Parties shall each use reasonable
best efforts to take, or cause to be taken, all actions and to do or cause to
be done, all things necessary, proper or advisable to consummate the
Transactions as promptly as reasonably practicable (taking into account the
time reasonably needed to respond to and resolve concerns or requirements of
applicable regulators), including (i) proposing, negotiating, agreeing to, and
effecting the sale, leasing, licensing, divestiture or other disposition of
any assets, operations, businesses or interests of the Company or Parent and
their respective Subsidiaries and Affiliates; (ii) terminating existing
relationships, contractual rights or obligations of the Company or Parent and
their respective Subsidiaries and Affiliates; (iii) terminating any venture or
other arrangement of the Company or Parent and their respective Subsidiaries
and Affiliates; (iv) creating any relationship, contractual rights or
obligations binding on the Company or Parent and their respective Subsidiaries
and Affiliates; (v) effectuating any other change or restructuring of the
Company or Parent and their respective Subsidiaries and Affiliates; or (vi)
agreeing to restrictions or actions that after the Closing would limit
Parent's or its Subsidiaries' freedom of action or operation
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(any such action, a "
Remedy Action
"), and, in connection therewith, entering into appropriate agreements with or
stipulating to the entry of an order by any Governmental Entity;
provided
,
however
, that (x) any Remedy Action shall be conditioned on the Closing and (y)
notwithstanding anything to the contrary contained in this Agreement, nothing
in this
Section 6.8
or otherwise in this Agreement shall require Parent or any of its Subsidiaries
or Affiliates to offer, propose, negotiate, commit to, agree to, effect or
take any Remedy Action that would, or would reasonably be expected to, either
individually or in the aggregate, have a material adverse effect on the
financial condition, business, assets, or results of operations of Parent, the
Company and their respective Subsidiaries, taken as a whole,
provided
,
however
, that for this purpose, Parent, the Company and their respective
Subsidiaries, taken as a whole, shall be deemed a consolidated group of
entities of the size and scale of a hypothetical company that is 100% of the
size of the Company and its Subsidiaries, taken as a whole, taking into
account the terms of any divestiture or other disposition of assets, as of the
date of this Agreement. The Company shall (and shall cause its Subsidiaries
and Affiliates to) take, or agree to take, any Remedy Action that Parent
requests in writing,
provided
that such Remedy Action is conditioned on the Closing. The Company shall not
(and shall cause its Subsidiaries and Affiliates not to) offer, propose,
negotiate, commit to, agree to, effect or take any Remedy Action without
Parent's prior written consent. If a Proceeding is instituted by any
Governmental Entity challenging the validity or legality or seeking to
restrain the consummation of the Transactions, the Parties shall each use
their reasonable best efforts to resist, resolve, or, if necessary defend,
such Proceeding. Parent shall, upon reasonable consultation with the Company
and in consideration of the Company's views in good faith, and, subject to the
penultimate sentence of
Section 6.8(b)
, control, lead and direct all actions, decisions and strategy for, and make
all final determinations as to the timing and appropriate course of action
with respect to, making and obtaining Consents with or from Governmental
Entities in connection with the Transactions and responding to and defending
any Proceeding by or with any Governmental Entity in connection with the
Transactions, including all matters relating to Antitrust Laws,
provided
,
however
, that Parent shall afford the Company a reasonable opportunity to participate
therein and shall consider the views of the Company in good faith in
connection with the foregoing.
(d) Neither Party shall take any action that would reasonably be expected to
prevent or materially delay the Closing or the expiration or termination of
the waiting period under the HSR Act. In furtherance of the foregoing, each
Party shall not, and shall cause its respective Subsidiaries and Affiliates
not to, acquire or merge with any Person or portion thereof (or agree to do
the foregoing), if the entering into of a definitive agreement relating to or
the consummation of such transaction would reasonably be expected to (x)
materially delay the Closing or the expiration or termination of the waiting
period under the HSR Act, (y) materially increase the risk of any Governmental
Entity instituting a Proceeding seeking to prohibit the Transactions, or (z)
materially increase the risk of any Governmental Entity entering an order
prohibiting the Transactions.
Section 6.9
Employee Matters
.
(a) Until the date that is twelve (12) months following the Closing Date,
(or, if earlier, the date of the applicable employee's termination of
employment with Parent or one of its Subsidiaries), Parent shall cause each
individual who was employed immediately prior to the Closing by the Company or
a Subsidiary thereof (a "
Company Employee
") and who remains employed by Parent or any of its Subsidiaries (including
the Surviving Corporation, LLC Sub and their respective Subsidiaries) to be
provided with (i) a base salary or wages, as applicable, that are no less
favorable than those provided to such Company Employee immediately prior to
the Closing Date; (ii) a total annual cash incentive opportunity that is no
less favorable than that provided to such Company Employee immediately prior
to the Closing Date; (iii) equity compensation or long-term cash incentive
compensation opportunity, as applicable, that is substantially comparable to
that provided to such Company Employee immediately prior to the Closing Date,
provided
that the amount of such equity compensation or long-term cash incentive
compensation opportunity, as applicable, may be adjusted to avoid duplication
that otherwise may arise as a result of differences in timing of grants by the
Company prior to the Closing Date and by Parent following the Closing Date,
provided further
that such long-term cash incentive compensation opportunity may instead be in
the form of equity compensation; and (iv) employee benefits (excluding for the
avoidance of doubt, incentives and equity compensation, which are covered
above, and severance benefits, which are covered below) at a level that is no
less favorable in the aggregate than
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either the employee benefits in effect for such Company Employee immediately
prior to the Closing Date or the employee benefits provided to similarly
situated employees of Parent and its Subsidiaries. In the case of a Company
Employee who is terminated during the 12-month period following Closing, such
Company Employee will be eligible for severance benefits under and subject to
the terms and conditions of the Southwestern Energy Change in Control
Severance Plan or, if applicable, such Company Employee's individual severance
agreement entered into with the Company.
(b) Parent shall, or shall cause the Surviving Corporation, LLC Sub and
their respective Subsidiaries, to assume and honor their respective
obligations under all employment, severance, change in control, retention and
other agreements, if any, between the Company (or a Subsidiary thereof) and a
Company Employee.
(c) From and after the Effective Time, as applicable, Parent shall, or shall
cause its Subsidiaries (including the Surviving Corporation, LLC Sub and their
respective Subsidiaries), to credit the Company Employees for purposes of
vesting, eligibility and benefit accrual under the Parent Plans and any other
benefit or compensation plan, program, policy, agreement or arrangement of
Parent or any of its Subsidiaries (including the Surviving Corporation, LLC
Sub and their respective Subsidiaries) (other than with respect to any
"defined benefit plan" as defined in Section 3(35) of ERISA, retiree medical,
dental, life or disability benefits, or to the extent such credit would result
in a duplication of benefits) in which the Company Employees participate, for
such Company Employees' service with the Company and its Subsidiaries, to the
same extent and for the same purposes that such service was taken into account
under a corresponding Company Benefit Plan immediately prior to the Closing
Date. Parent shall, or shall cause its Subsidiaries (including the Surviving
Corporation and its Subsidiaries) to, give service credit for long term
disability coverage purposes for the Company Employees' service with the
Company and its Subsidiaries.
(d) From and after the Effective Time, as applicable, Parent shall, or shall
cause its Subsidiaries (including the Surviving Corporation, LLC Sub and their
respective Subsidiaries) to, take commercially reasonable efforts to, for the
plan year in which the Closing Date occurs, (i) waive any limitation on health
and welfare coverage of any Company Employee and his or her eligible
dependents due to pre-existing conditions and/or waiting periods, active
employment requirements and requirements to show evidence of good health under
the applicable health and welfare Parent Plan to the extent such Company
Employee and his or her eligible dependents are covered under a Company
Benefit Plan immediately prior to the Closing Date, and such conditions,
periods or requirements are satisfied or waived under such Company Benefit
Plan and (ii) give each Company Employee credit towards applicable deductibles
and annual out-of-pocket limits for medical expenses incurred prior to the
Closing Date for which payment has been made.
(e) It is acknowledged and agreed that the consummation of the transactions
contemplated hereby will constitute a "change of control" (or "change in
control" or transaction of similar import) of the Company and its Subsidiaries
under the terms of the Company Benefit Plans.
(f) If requested by Parent in writing not less than ten (10) days prior to
the Effective Time, the Company shall, or shall cause its applicable
Subsidiaries to, adopt resolutions necessary to terminate each Company Benefit
Plan that is intended to be qualified under Section 401(a) of the Code and
that contains a cash or deferred arrangement within the meaning of Section
401(k) of the Code (collectively, the "
Company 401(k) Plans
"), effective as of the day immediately prior to the Closing Date, and the
Company shall provide Parent with copies of such resolutions to terminate the
Company 401(k) Plans, the form of such resolutions shall be subject to the
reasonable approval of Parent. To the extent the Company 401(k) Plans are
terminated pursuant to Parent's request, the Company Employees shall be
eligible to participate immediately after the Closing in a 401(k) plan
maintained by Parent or one of its Subsidiaries ("
Parent 401(k) Plan
"). Parent shall or shall cause the Parent 401(k) Plan to accept the rollover
of any "eligible rollover distribution" (within the meaning of Section
402(c)(4) of the Code) from the Company 401(k) Plans that is in cash but
including plan loans.
(g) For purposes of determining the number of vacation days and other paid
time off to which each Company Employee is entitled during the calendar year
in which the Closing occurs, Parent, LLC Sub, the Surviving Corporation or one
of their Subsidiaries will credit such Company Employee for
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such Company Employee's service with the Company and its Subsidiaries, to the
same extent and for the same purposes that such service was taken into account
under the applicable Company Benefit Plans, and Parent, the Surviving
Corporation or one of their Subsidiaries will assume and honor all unused
vacation and other paid time off days accrued or earned by each Company
Employee through the Closing, pursuant to the terms of the applicable Company
Benefit Plan as in effect immediately prior to the Closing,
provided
that the foregoing shall not prohibit Parent or the Surviving Corporation from
amending or modifying its applicable vacation policies as in effect from time
to time so long as Parent and Surviving Corporation comply with the provisions
of this
Section 6.9(g)
.
(h) If the Effective Time occurs in 2024, each Company Employee who as of
immediately prior to the Effective Time is eligible for an annual bonus for
2024 (each a "
Participating Employee
") and who remains employed with Parent or its Subsidiaries through the
payment date, shall receive in cash, on Parent's regular payment date for
annual bonuses (the "
Bonus Payment Date
"), the following bonus to the extent such bonus is not otherwise paid prior
to the Effective Time: (i) for the period from January 1, 2024 through the
Effective Time (or the last day of the month immediately preceding the
Effective Time, if the Effective Time does not occur on the last day of a
month) a bonus in an amount determined based on the level of attainment of the
applicable performance measures measured as of the Effective Time (or the last
day of the month immediately preceding the Effective Time, if the Effective
Time does not occur on the last day of a month) against budgeted performance
for such period, but in no event less than 100% of the target amount of such
bonus, which bonus, for the avoidance of doubt, will be prorated to reflect
the number of calendar days during such period and (ii) if applicable, for the
post-Effective Time portion of 2024, an annual bonus opportunity prorated for
the post-Effective Time portion of the year in which the Effective Time occurs
in accordance with
Section 6.9(a)(i)
, with payout based on the satisfaction of performance objectives determined
by Parent with respect to such post-Closing period, but in no event less than
100% of the target amount of such bonus opportunity.
(i) Nothing in this Agreement shall constitute an establishment of,
amendment to, or be construed as amending or terminating, any Parent Plan,
Company Benefit Plan or other Employee Benefit Plan which, in each case, is
sponsored, maintained or contributed to by the Company, Parent or any of their
respective Subsidiaries. The provisions of this
Section 6.9
are for the sole benefit of the Parties and nothing herein, expressed or
implied, is intended or will be construed to confer upon or give to any Person
(including, for the avoidance of doubt, any Company Employee or other current
or former employee of the Company, Parent or any of their respective
Affiliates), other than the Parties and their respective permitted successors
and assigns, any third-party beneficiary, legal or equitable or other rights
or remedies (including with respect to the matters provided for in this
Section 6.9
) under or by reason of any provision of this Agreement. Nothing in this
Agreement is intended to prevent Parent, LLC Sub, the Surviving Corporation or
any of their Affiliates (i) from amending or terminating any of their
respective Employee Benefit Plans or, after the Closing, any Company Benefit
Plan in accordance with their terms or (ii) after the Closing, from
terminating the employment of any Company Employee at any time and for any
reason.
Section 6.10
Indemnification; Directors' and Officers' Insurance
.
(a) Without limiting any other rights that any Indemnified Person may have
pursuant to any employment agreement, organizational document or indemnification
agreement in effect on the date hereof or otherwise, and to the fullest
extent permitted by applicable Law, from the Effective Time and until the six
(6) year anniversary of the Effective Time, Parent and the Surviving
Corporation shall, jointly and severally, indemnify, defend and hold harmless
in the same manner as provided by the Company immediately prior to the date of
this Agreement, each Person who is now, or has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Time, a director
or officer of the Company or any of its Subsidiaries or who acts as a
fiduciary under any Company Benefit Plan, in each case, when acting in such
capacity (the "
Indemnified Persons
") against all losses, claims, damages, costs, fines, penalties, expenses
(including attorneys' and other professionals' fees and expenses), liabilities
or judgments or amounts that are paid in settlement, of or incurred in
connection with any threatened or actual Proceeding to which such Indemnified
Person is or is threatened to be made a party by reason of the fact that such
Person is or was a director or officer of the Company or any of its
Subsidiaries, a fiduciary under any Company Benefit Plan or, while a director
or officer of the Company
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or any of its Subsidiaries, is or was serving at the request of the Company or
any of its Subsidiaries as a director, officer or fiduciary of another
corporation, partnership, limited liability company, joint venture, Employee
Benefit Plan, trust or other enterprise, as applicable, whether pertaining to
any act or omission occurring or existing at or prior to, but not after, the
Effective Time and whether asserted or claimed prior to, at or after the
Effective Time ("
Indemnified Liabilities
"), including all Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to, this Agreement or the
Transactions, in each case to the fullest extent permitted under applicable
Law (and Parent and the Surviving Corporation shall, jointly and severally,
pay expenses incurred in connection therewith in defending any such Proceeding
in advance of the final disposition of any such Proceeding to each Indemnified
Person to the fullest extent permitted under applicable Law upon receipt of an
undertaking from such Person to repay any such amounts so advanced if it shall
ultimately be determined that such Person is not entitled to indemnification
from Parent or the Surviving Corporation therefor). Any Indemnified Person
wishing to claim indemnification or advancement of expenses under this
Section 6.10
, upon learning of any such Proceeding, shall notify Parent and the Surviving
Corporation (but the failure so to notify shall not relieve a Party from any
obligations that it may have under this
Section 6.10
except to the extent such failure prejudices Parent, the Surviving Corporation
or such Party's position with respect to such claims or liability therefor).
With respect to any determination of whether any Indemnified Person is
entitled to indemnification by Parent or Surviving Corporation under this
Section 6.10
, such Indemnified Person shall have the right, as contemplated by the DGCL,
to require that such determination be made by special, independent legal
counsel selected by the Indemnified Person and approved by Parent or Surviving
Corporation, as applicable (which approval shall not be unreasonably withheld
or delayed), and who has not otherwise performed material services for Parent,
Surviving Corporation or the Indemnified Person within the last three (3)
years.
(b) Parent and the Surviving Corporation agree that, until the six (6) year
anniversary date of the Effective Time, that neither Parent nor the Surviving
Corporation shall amend, repeal or otherwise modify any provision in the
Organizational Documents of the Surviving Corporation or its Subsidiaries in
any manner that would affect (or manage the Surviving Corporation or its
Subsidiaries, with the intent to or in a manner that would) adversely the
rights thereunder or under the Organizational Documents of the Surviving
Corporation or any of its Subsidiaries of any Indemnified Person to
indemnification, exculpation and advancement except to the extent required by
applicable Law. Parent shall, and shall cause the Surviving Corporation and
its Subsidiaries to, fulfill and honor any indemnification, expense
advancement or exculpation agreements between the Company or any of its
Subsidiaries and any of their respective directors or officers existing and in
effect immediately prior to the Effective Time.
(c) Parent and the Surviving Corporation shall indemnify any Indemnified
Person against all reasonable costs and expenses (including reasonable and
documented attorneys' fees and expenses), such amounts to be payable in
advance upon request as provided in
Section 6.10(a)
, relating to the enforcement of such Indemnified Person's rights under this
Section 6.10
or under any charter, bylaw or Contract;
provided
, that if any such payment is for costs or expenses relating to a loss or
liability that is determined by a court of competent jurisdiction to have
resulted primarily from the fraud, bad faith, willful misconduct or gross
negligence of such Indemnified Person, such Indemnified Person shall promptly
repay such amount to Parent or the Surviving Corporation, as applicable.
(d) Parent and the Surviving Corporation shall cause to be put in place, and
Parent shall fully prepay immediately prior to the Effective Time, "tail"
insurance policies with a claims reporting or discovery period of at least six
(6) years from the Effective Time (the "
Tail Period
") from an insurance carrier with the same or better credit rating as the
Company's current insurance carrier with respect to directors' and officers'
liability insurance ("
D&O Insurance
") in an amount and scope at least as favorable as the Company's existing
policies with respect to matters, acts or omissions existing or occurring at,
prior to, or after, the Effective Time;
provided
,
however
, that in no event shall the aggregate cost of the D&O Insurance exceed during
the Tail Period 300% of the current aggregate annual premium paid by the
Company for such purpose for the 2023 fiscal year; and
provided
,
further
, that if the cost of such insurance coverage exceeds such amount, the
Surviving Corporation shall obtain a policy with the greatest coverage
reasonably available for a cost not exceeding such amount.
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(e) In the event that, prior to the six (6) year anniversary date of the
Effective Time, Parent, the Surviving Corporation or any of their respective
successors or assignees (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving company or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, in each such case, proper
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this
Section 6.10
. The provisions of this
Section 6.10
are intended to be for the benefit of, and shall be enforceable by, the
Parties and each Person entitled to indemnification or insurance coverage or
expense advancement pursuant to this
Section 6.10
, and his heirs and Representatives. The rights of the Indemnified Persons
under this
Section 6.10
are in addition to any rights such Indemnified Persons may have under the
Organizational Documents of Parent, the Company or any of their respective
Subsidiaries, or under any applicable contracts or Law.
Section 6.11
Transaction Litigation
. In the event any Proceeding (but excluding any Proceeding under or related
to Antitrust Laws, for which
Section 6.8
shall control) by any Governmental Entity or other Person (other than the
Parties hereto) is commenced or, to the Knowledge of the Company or Parent, as
applicable, threatened against such Party, that questions the validity or
legality of the Transactions or seeks damages or an injunction in connection
therewith, including stockholder litigation ("
Transaction Litigation
"), the Company or Parent, as applicable, shall promptly notify the other
Party of such Transaction Litigation and shall keep the other Party reasonably
informed with respect to the status thereof. Each Party shall give the other
Party a reasonable opportunity to participate in the defense or settlement of
any Transaction Litigation (at such other Party's cost) and shall consider in
good faith, acting reasonably, the other Party's advice with respect to such
Transaction Litigation;
provided
, that the Party that is subject to such Transaction Litigation shall not
offer or agree to settle any Transaction Litigation without the prior written
consent of the other Party (which consent shall not be unreasonably withheld,
conditioned or delayed).
Section 6.12
Public Announcements
. The initial press release with respect to the execution of this Agreement
shall be a joint press release to be reasonably agreed upon by the Parties. No
Party shall, and each will use its reasonable best efforts to cause its
Representatives not to, issue any public announcements or make other public
disclosures regarding this Agreement or the Transactions, without the prior
written approval of the other Party. Notwithstanding the foregoing, but
subject to the provisions of
Section 6.3
and
Section 6.4
, a Party, its Subsidiaries or their Representatives may issue a public
announcement or other public disclosures (a) required by applicable Law, (b)
required by the rules of any stock exchange upon which such Party's or its
Subsidiary's capital stock is traded or (c) consistent with the final form of
the joint press release announcing the Merger and the investor presentation
given to investors on the morning of announcement of the Merger; provided, in
each case, such Party uses reasonable best efforts to afford the other Party
an opportunity to first review the content of the proposed disclosure and
provide reasonable comments thereon (which such comments shall be considered
in good faith by the disclosing party); and
provided
,
however
, that no provision in this Agreement shall be deemed to restrict in any
manner a Party's ability to communicate directly and confidentially with its
employees and that neither Party shall be required by any provision of this
Agreement to consult with or obtain any approval from any other Party with
respect to a public announcement or press release issued in connection with
the receipt and existence of a Company Competing Proposal or a Parent
Competing Proposal, as applicable, and matters related thereto or a Company
Change of Recommendation or a Parent Change of Recommendation, other than as
set forth in
Section 6.3
or
Section 6.4
, as applicable.
Section 6.13
Advice on Certain Matters; Control of Business
. Subject to compliance with applicable Law, the Company and Parent, as the
case may be, shall confer on a regular basis with each other and shall
promptly advise each other orally and in writing of any change or event
having, or that would be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or Parent Material Adverse
Effect, as the case may be. Except with respect to Antitrust Laws as provided
in
Section 6.8
, the Company and Parent shall promptly provide each other (or their
respective counsel) copies of all filings made by such Party or its
Subsidiaries with the SEC or any other Governmental Entity in connection with
this Agreement and the Transactions. Without limiting in any way any Party's
rights or obligations under this Agreement, nothing contained in this
Agreement shall give any Party, directly or indirectly, the right to control
or direct the other Party and their respective Subsidiaries' operations prior
to the Effective Time. Prior
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to the Effective Time, each of the Parties shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its and its Subsidiaries' respective operations.
Section 6.14
Financing Cooperation
.
(a) Until the earlier of the Closing and the termination of this Agreement
pursuant to
Article VIII
, the Company shall use commercially reasonable efforts to provide, and shall
cause its Subsidiaries and use commercially reasonable efforts to cause its
and their respective Representatives to provide, such cooperation, at Parent's
sole cost and expense, as may be reasonably requested by Parent in connection
(i) with any evaluation or analysis of, or diligence with respect to, the
existing Indebtedness of the Company or any of its Subsidiaries, including (a)
reasonably promptly furnishing any pertinent and customary information
regarding the Company and its Subsidiaries as may be reasonably requested by
Parent relating to the existing Indebtedness of the Company or any of its
Subsidiaries (including using commercially reasonable efforts to ensure that
lenders and/or holders of the existing Indebtedness of the Company or any of
its Subsidiaries and their advisors and consultants shall have sufficient
access to the Company and its Subsidiaries and its and their respective
Representatives) and (b) upon reasonable notice and at reasonable, mutually
agreed times and locations, participating in meetings and presentations with
lenders and/or holders of the existing Indebtedness of the Company or any of
its Subsidiaries (in each case which shall be telephonic or virtual meetings
or sessions, as circumstances require) and (ii) with any consents from, or
agreements with, lenders or noteholders, or any internal reorganization
transactions, in each case with respect to the assumption of the existing
Indebtedness of the Company by Parent (other than, for the avoidance of doubt,
the Company Credit Facility) and the waiver of any requirement to consummate
any redemption thereof.
(b) Until the earlier of the Closing and the termination of this Agreement
pursuant to
Article VIII
, the Company shall use commercially reasonable efforts to provide, and shall
cause its Subsidiaries and use commercially reasonable efforts to cause its
and their respective Representatives to provide, such cooperation, at Parent's
sole cost and expense, as may be reasonably requested by Parent in connection
with the arrangement of any debt financing that may be arranged by Parent or
any of its Affiliates in connection with the Transactions (the "
Debt Financing
"), including by using commercially reasonable efforts to (i) upon reasonable
advance notice and at mutually agreeable times and locations, participate in a
reasonable number of bank meetings, due diligence sessions and similar
presentations to and with prospective arrangers, underwriters or lenders with
respect to the Debt Financing (including the parties to any commitment
letters, engagement letters, joinder agreements, indentures or credit
agreements entered into pursuant to or relating to any Debt Financing, the "
Debt Financing Sources
") and rating agencies, including direct contact between senior management and
the other Representatives of the Company, on the one hand, and the actual and
potential Debt Financing Sources and ratings agencies, on the other hand, (ii)
furnish Parent with such customary historical financial and other factual
information that is readily available to, and in the form customarily prepared
by, the Company and its Subsidiaries regarding the Company and its
Subsidiaries as may be reasonably requested by Parent's actual and potential
Debt Financing Sources and is customarily provided in connection with
financings of the type contemplated by any Debt Financing, (iii) reasonably
assist with the preparation of (as applicable) customary bank books, "road
show presentations", information memoranda, prospectuses, pricing term sheets,
offering or private placement memoranda, and other marketing materials or
customary information packages (A) suitable for use in a customary syndication
process or "road show", in each case, regarding the business, operations,
financial condition and projections of the Company (which prospectuses,
offering or private placement memoranda or other customary information for use
in a "road show" will be in a form that will enable the independent registered
public accountants of Company to render a customary "comfort letter"
(including customary "negative assurances") on the Closing Date) or (B)
reasonably requested by Parent or its financing sources in connection with the
syndication or other marketing of the Debt Financing (subject to advance
review of and consultation with respect to such use), (iv) reasonably assist
with the preparation of any pledge and security documents, any loan agreement,
currency or interest hedging agreement, other definitive financing documents
for any Debt Financing, including information in respect of the oil and gas
reserves attributable to the Oil and Gas Properties of the Company and its
Subsidiaries and schedules to the definitive documentation for any Debt
Financing, or other certificates, legal opinions delivered by counsel to
Parent or documents as may be reasonably requested by Parent and usual and
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customary for transactions of the type contemplated by such Debt Financing,
(v) reasonably facilitate the pledging of collateral for any Debt Financing
(including cooperation in connection with the pay-off of existing Indebtedness
to the extent contemplated by this Agreement or the Debt Financing and the
release of related Encumbrances and termination of security interests
(including delivering prepayment or termination notices as required by the
terms of any existing Indebtedness and delivering customary payoff letters))
and (vi) provide to Parent and its Debt Financing Sources at least three (3)
Business Days prior to the Closing Date all documentation and other
information required by Governmental Entities under applicable "know your
customer" and anti-money laundering rules and regulations to the extent
reasonably requested in writing by Parent at least ten (10) Business Days
prior to the Closing. Parent shall be permitted to disclose confidential
information to any parties providing commitments for any Debt Financing,
rating agencies and prospective lenders during syndication of such Debt
Financing, subject to such parties providing commitments, rating agencies and
prospective lenders entering into customary confidentiality undertakings for a
syndication with respect to such information.
(c) Notwithstanding anything in this Agreement to the contrary, nothing
herein shall require (i) the Company, its Subsidiaries or any of their
respective Representatives to execute or enter into any certificate,
instrument, agreement or other document in connection with any Debt Financing
which will be effective prior to the Closing, (ii) cooperation or other
actions or efforts on the part of the Company, any of its Subsidiaries, or any
of their respective Representatives, in connection with any Debt Financing to
the extent, in the Company's reasonable judgment, it would (A) interfere
unreasonably with the business or operations of the Company or its
Subsidiaries, (B) subject any director, manager, officer or employee of the
Company or a Subsidiary thereof to any actual or potential personal liability
or (C) result in a failure of any condition to the obligations of the parties
hereto to consummate the Transactions, (iii) the Company or its Subsidiaries
or any of their respective Representatives to pay any commitment or other fee
or incur any other liability in connection with any Debt Financing that is not
reimbursed by Parent, (iv) the board of directors or similar governing body of
any of the Company or its Subsidiaries, prior to the Closing, to adopt
resolutions approving, or otherwise approve, the agreements, documents or
instruments pursuant to which any Debt Financing is made, (v) the Company and
its Subsidiaries to provide any access or information if (A) doing so would
reasonably be expected to violate any fiduciary duty, applicable Law or
existing Contract to which the Company or such Subsidiary is party, (B) doing
so would reasonably be expected to result in the loss of the ability to
successfully assert attorney-client, work product or similar privileges or (C)
doing so would reasonably be expected to violate any Company policies
regarding access to such books, Contracts and records or jeopardize the health
and safety of any employee, independent contract or other agent of the Company
or any of its Subsidiaries;
provided
, that the Company and its Subsidiaries shall, in the case of
clauses (A)
through
(C)
, use commercially reasonable efforts to make appropriate substitute
arrangements under circumstances in which the foregoing restrictions do not
apply, (vi) cooperation that would violate, or result in the waiver of any
benefit under this Agreement, any other material Contract (not entered in
contemplation hereof) or any Law to which Company, any of its Subsidiaries, or
any of their respective Representatives, is a party or subject or (vii) the
Company or its Subsidiaries or any of their respective Representatives to
prepare or provide (and Parent shall be solely responsible for) (A) pro forma
financial information, including pro forma cost savings, synergies,
capitalization or other pro forma adjustments in each case giving effect to
the transactions desired to be incorporated into any pro forma financial
information in connection with any Debt Financing, (B) any description of all
or any component of any Debt Financing, or (C) projections or other
forward-looking statements relating to all or any component of any debt
financing. Parent shall be responsible for all fees and expenses related to
any Debt Financing, including the compensation of any contractor or advisor of
Parent or the Company directly related to actions taken pursuant to
Section 6.14(a)
or
Section 6.14(b)
. Accordingly, notwithstanding anything to the contrary herein, Parent shall
promptly, upon written request by the Company, reimburse the Company for all
reasonable and documented out-of-pocket costs and expenses (including
reasonable and documented compensation or other fees of any contractor or
advisor) incurred in connection with the Debt Financing incurred by the
Company and its Subsidiaries and their respective Representatives in
connection with the Debt Financing, including the cooperation of the Company
and the Subsidiaries thereof contemplated by this
Section 6.14
, and shall indemnify and hold harmless the Company and its Subsidiaries and
their respective Representatives from and against any and all losses, claims,
damages, liabilities, judgments, obligations, causes of action, payments,
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charges, fines, assessments and costs and expenses (including reasonable
attorneys' fees, legal and other expenses incurred in connection therewith)
suffered or incurred by any of them in connection with this
Section 6.14
, the arrangement of the Debt Financing or any information used in connection
therewith, in each case, except to the extent suffered or incurred as a result
of the gross negligence, bad faith or willful misconduct by the Company or any
of its Subsidiaries or, in each case, their respective Representatives.
(d) Notwithstanding anything to the contrary herein, the condition set forth
in
Section 7.2(b)
as it applies to the Company's obligations under this
Section 6.14
, shall be deemed satisfied unless (i) the Company has failed to satisfy its
obligations under
Section 6.14
in any material respect, (ii) Parent has notified the Company of such failure
in writing a reasonably sufficient amount of time prior to the Closing Date to
afford the Company with a reasonable opportunity to cure such failure and
(iii) such failure has been the primary cause of Parent's failure to
consummate any Debt Financing. Parent acknowledges and agrees that obtaining
any Debt Financing is not a condition to Closing. If any Debt Financing has
not been obtained, Parent shall continue to be obligated, until such time as
the Agreement is terminated in accordance with
Article VIII
and subject to the waiver or fulfillment of the conditions set forth in
Article VII
, to complete the transactions contemplated by this Agreement.
Section 6.15
Reasonable Best Efforts; Notification
.
(a) Except to the extent that the Parties' obligations are specifically set
forth elsewhere in this
Article VI
, and subject to the terms of
Section 6.8
, which shall control with respect to Consents and other matters related to
Antitrust Laws, upon the terms and subject to the conditions set forth in this
Agreement (including
Section 6.3
), each of the Parties shall use reasonable best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other Party in doing, all things necessary, proper or
advisable to consummate and make effective, as promptly as reasonably
practicable, the Transactions.
(b) Subject to applicable Law and as otherwise required by any Governmental
Entity, and subject to the terms of
Section 6.8
, which shall control with respect to Consents and other matters related to
Antitrust Laws, the Company and Parent each shall keep the other apprised of
the status of matters relating to the consummation of the Transactions,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as applicable, or any of its
Subsidiaries, from any third party or any Governmental Entity with respect to
the Transactions (including those alleging that the approval or consent of
such Person is or may be required in connection with the Transactions). The
Company shall give prompt written notice to Parent, and Parent shall give
prompt written notice to the Company, upon becoming aware of (i) any
condition, event or circumstance that will result in any of the conditions in
Section 7.2(a)
or
7.3(a)
not being met, or (ii) the failure by such Party to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement;
provided
,
however
, that no such notification shall affect the representations, warranties,
covenants or agreements of the Parties or the conditions to the obligations of
the Parties under this Agreement.
Section 6.16
Section 16 Matters
. Prior to the Effective Time, Parent, Merger Sub, LLC Sub and the Company
shall take all such steps as may be reasonably required to cause any
dispositions of equity securities of the Company (including derivative
securities) or acquisitions of equity securities of Parent (including
derivative securities) in connection with this Agreement by each individual
who is subject to the reporting requirements of Section 16(a) of the Exchange
Act with respect to the Company, or will become subject to such reporting
requirements with respect to Parent, to be exempt under Rule 16b-3 under the
Exchange Act, to the extent permitted by applicable Laws.
Section 6.17
Stock Exchange Listing and Delistings
. Parent shall take all action necessary to cause the Parent Common Stock to
be issued in the Merger to be approved for listing on NASDAQ prior to the
Effective Time, subject to official notice of issuance. Prior to the Closing
Date, the Company shall cooperate with Parent and use reasonable best efforts
to take, or cause to be taken, all actions, and do or cause to be done all
things, reasonably necessary, proper or advisable on its part under applicable
Law and rules and policies of the NYSE to enable the delisting by the
Surviving Corporation of the shares of Company Common Stock from the NYSE and
the deregistration of the shares of Company Common Stock under the Exchange
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Act as promptly as practicable after the Effective Time, and in any event no
more than ten (10) days after the Effective Time. If the Surviving Corporation
is required to file any quarterly or annual report pursuant to the Exchange
Act by a filing deadline that is imposed by the Exchange Act and that falls on
a date within the fifteen (15) days following the Closing Date, the Company
shall make available to Parent, at least five (5) Business Days prior to the
Closing Date, a substantially final draft of any such annual or quarterly
report reasonably likely to be required to be filed during such period.
Section 6.18
Certain Indebtedness
. The Company and its Subsidiaries shall deliver to Parent at least two (2)
Business Days prior to the Closing Date a copy of a payoff letter, setting
forth the total amounts payable pursuant to the Company Credit Facility to
fully satisfy all principal, interest, fees, costs, and expenses owed to each
holder of Indebtedness under the Company Credit Facility as of the anticipated
Closing Date (and the daily accrual thereafter), together with appropriate
wire instructions, and the agreement from the administrative agent under the
Company Credit Facility that upon payment in full of all such amounts owed to
such holder, all Indebtedness under the Company Credit Facility shall be
discharged and satisfied in full, the Loan Documents (as defined in the
Company Credit Facility) shall be terminated with respect to the Company and
its Subsidiaries that are borrowers or guarantors thereof (or the assets or
equity of which secure such Indebtedness) and all liens on the Company and its
Subsidiaries and their respective assets and equity securing the Company
Credit Facility shall be released and terminated, together with any applicable
documents reasonably necessary to evidence the release and termination of all
liens on the Company and its Subsidiaries and their respective assets and
equity securing, and any guarantees by the Company and its Subsidiaries in
respect of, such Company Credit Facility. The Company shall reasonably
cooperate with Parent in replacing any letters of credit issued pursuant to
the Company Credit Facility evidencing the above referenced Indebtedness or
obligations.
Section 6.19
Tax Matters
.
(a) Each of Parent, Merger Sub, LLC Sub and the Company will (and will cause
its respective Subsidiaries to) use its reasonable best efforts to cause the
Integrated Mergers, taken together, to qualify, and will not take or knowingly
fail to take (and will cause its Subsidiaries not to take or knowingly fail to
take) any actions that would, or would reasonably be expected to, prevent or
impede the Integrated Mergers, taken together, from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code. Each of
Parent, Merger Sub, LLC Sub and the Company will notify the other Party
promptly after becoming aware of any reason to believe that the Integrated
Mergers, taken together, may not qualify as a "reorganization" within the
meaning of Section 368(a) of the Code. Each of Parent, Merger Sub, LLC Sub and
the Company will comply (and will cause its respective Subsidiaries to comply)
with all representations, warranties and covenants contained in the Parent Tax
Certificate and the Company Tax Certificate, respectively, to the extent
necessary to cause the Integrated Mergers, taken together, to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
(b) This Agreement and the LLC Sub Merger Agreement, taken together, are
intended to constitute, and the Parties hereto adopt the foregoing as, a "plan
of reorganization" for purposes of Sections 354 and 361 of the Code and within
the meaning of Treasury Regulations (s)(s)1.368-2(g) and 1.368-3(a).
(c) Parent and the Company will cooperate to facilitate the issuance of the
opinion described in
Section 7.3(d)
and any other opinions to be filed in connection with the Registration
Statement or the Joint Proxy Statement/Prospectus regarding the U.S. federal
income tax treatment of the Integrated Mergers. In connection therewith, (i)
Parent shall deliver to Kirkland & Ellis LLP and/or Latham & Watkins LLP (or
other applicable legal counsel), as applicable, a duly executed certificate
containing such representations, warranties and covenants as shall be
reasonably necessary or appropriate to enable the relevant counsel to render
the opinion described in
Section 7.3(d)
and any opinions to be filed in connection with the declaration of
effectiveness of the Registration Statement or the Joint Proxy Statement/Prospec
tus regarding the U.S. federal income tax treatment of the Integrated Mergers,
taken together (the "
Parent Tax Certificate
"), and (ii) the Company shall deliver to Kirkland & Ellis LLP and/or Latham &
Watkins LLP (or other applicable legal counsel), as applicable a duly executed
certificate containing such representations, warranties and covenants as shall
be reasonably necessary or appropriate to enable the relevant counsel to
render the opinion described in
Section 7.3(d)
and any opinions to be filed in connection with the declaration of
effectiveness of the Registration Statement or
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the Joint Proxy Statement/Prospectus regarding the U.S. federal income tax
treatment of the Integrated Mergers, taken together (the "
Company Tax Certificate
"), in each case, dated as of the Closing Date (and such additional dates as
may be necessary in connection with the preparation, filing and delivery of
the Registration Statement or the Joint Proxy Statement/Prospectus). Parent
and the Company shall provide such other information as reasonably requested
by Kirkland & Ellis LLP and/or Latham & Watkins LLP (or other applicable legal
counsel), as applicable, for purposes of rendering the opinion described in
Section 7.3(d)
and any opinions to be filed in connection with the Registration Statement or
the Joint Proxy Statement/Prospectus.
Section 6.20
Takeover Laws
. None of the Parties will take any action that would cause the Transactions
to be subject to requirements imposed by any Takeover Laws, and each of them
will take all reasonable steps within its control to exempt (or ensure the
continued exemption of) the Transactions from the Takeover Laws of any state
that purport to apply to this Agreement or the Transactions.
Section 6.21
Obligations of Merger Sub and LLC Sub
. Parent shall take all action necessary to cause Merger Sub and LLC Sub to
perform its obligations under this Agreement and the LLC Sub Merger Agreement
and to consummate the transactions contemplated hereby, including the
Integrated Mergers, upon the terms and subject to the conditions set forth in
this Agreement and the LLC Sub Merger Agreement.
Section 6.22
Transfer Taxes
. All Transfer Taxes imposed with respect to the Merger or the transfer of
shares of Company Common Stock pursuant to the Merger shall be borne by the
Surviving Corporation. The Parties will cooperate, in good faith, in the
filing of any Tax Returns with respect to such Transfer Taxes and the
minimization, to the extent reasonably permissible under applicable Law, of
the amount of any such Transfer Taxes.
Section 6.23
Derivative Contracts; Hedging Matters
. Until the earlier of the Closing and the termination of this Agreement
pursuant to
Article VIII
, each Party shall use commercially reasonable efforts to cooperate with the
other Party as reasonably requested by the other Party, in connection with the
development of a post-Closing hedging strategy for the Parent and the
mechanics for implementing that strategy, including, without limitation, the
amendment, assignment, termination or novation of any Derivative Transaction
(including any commodity hedging arrangement or related Contract) of the
Company or any of its Subsidiaries on terms that are reasonably requested by
Parent and effective at and conditioned upon the Closing. Each Party shall be
responsible for its own costs and expenses in connection with the foregoing.
Notwithstanding the foregoing, among other potential reasons, any such
requested cooperation under this
Section 6.23
will not be considered commercially reasonably if it would materially or
unreasonably interfere with the operations of the Party (or any of its
Subsidiaries) requested to provide such cooperation.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1
Conditions to Each Party's Obligation to Consummate the Merger
. The respective obligation of each Party to consummate the Merger is
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived jointly by the Parties, in whole
or in part, to the extent permitted by applicable Law:
(a)
Stockholder Approvals
. (i) The Company Stockholder Approval shall have been obtained in
accordance with applicable Law and the Organizational Documents of the Company
and (ii) the Parent Stockholder Approval shall have been obtained in
accordance with applicable Law and the Organizational Documents of Parent.
(b)
Regulatory Approval
. All waiting periods (and any extensions thereof) applicable to the
Transactions under the HSR Act, and any commitment to, or agreement (including
any timing agreement) with, any Governmental Entity to delay the consummation
of, or not to consummate before a certain date, the Transactions, shall have
expired or been terminated.
(c)
No Injunctions or Restraints
. No Law shall be in effect restraining, enjoining, making illegal or
unlawful, or otherwise prohibiting the consummation of the Transactions (it
being understood for avoidance of doubt that an HSR Reservation Notice shall
not constitute such a Law).
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(d)
Registration Statement
. The Registration Statement shall have been declared effective by the SEC
under the Securities Act and shall not be the subject of any stop order or
Proceedings seeking a stop order.
(e)
NASDAQ Listing
. The shares of Parent Common Stock issuable to the holders of shares of
Company Common Stock pursuant to this Agreement shall have been authorized for
listing on NASDAQ, subject to official notice of issuance.
Section 7.2
Additional Conditions to Obligations of Parent, Merger Sub and LLC Sub
. The obligations of Parent and Merger Sub to consummate the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived exclusively by Parent, in whole
or in part, to the extent permitted by applicable Law:
(a)
Representations and Warranties of the Company
. (i) The representations and warranties of the Company set forth in the
first sentence of
Section 4.1
(Organization, Standing and Power),
Section 4.2(a)
(Capital Structure),
Section 4.2(b)
(Capital Structure), the third and fifth sentences of
Section 4.2(c)
(Capital Structure),
Section 4.3(a)
(Authority),
Section 4.6(a)
(Absence of Certain Changes or Events) and
Section 4.24
(Brokers) shall have been true and correct as of the date of this Agreement
and shall be true and correct as of the Closing Date, as though made on and as
of the Closing Date (except, with respect to
Section 4.2(a)
,
Section 4.2(b)
, the third and fifth sentences of
Section 4.2(c)
and
Section 4.24
, for any
de minimis
inaccuracies) (except that representations and warranties that speak as of a
specified date or period of time shall have been true and correct only as of
such date or period of time), (ii) all other representations and warranties of
the Company set forth in
Section 4.2(c)
(Capital Structure) shall have been true and correct in all material respects
as of the date of this Agreement and shall be true and correct in all material
respects as of the Closing Date, as though made on and as of the Closing Date
(except that representations and warranties that speak as of a specified date
or period of time shall have been true and correct in all material respects
only as of such date or period of time), and (iii) all other representations
and warranties of the Company set forth in
Article IV
shall have been true and correct as of the date of this Agreement and shall be
true and correct as of the Closing Date, as though made on and as of the
Closing Date (except that representations and warranties that speak as of a
specified date or period of time shall have been true and correct only as of
such date or period of time), except, in the case of this
clause (iii)
, where the failure of such representations and warranties to be so true and
correct (without regard to qualification or exceptions contained therein as to
"materiality," "in all material respects" or "Company Material Adverse
Effect") would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b)
Performance of Obligations of the Company
. The Company shall have performed, or complied with, in all material
respects all agreements and covenants required to be performed or complied
with by it under this Agreement on or prior to the Effective Time.
(c)
Compliance Certificate
. Parent shall have received a certificate of the Company signed by an
executive officer of the Company, dated the Closing Date, confirming that the
conditions in
Section 7.2(a)
and
(b)
have been satisfied.
Section 7.3
Additional Conditions to Obligations of the Company.
The obligation of the Company to consummate the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived exclusively by the Company, in whole or in
part, to the extent permitted by applicable Law:
(a)
Representations and Warranties of Parent, Merger Sub and LLC Sub
. (i) The representations and warranties of Parent, Merger Sub and LLC Sub
set forth in the first sentence of
Section 5.1
(Organization, Standing and Power),
Section 5.2(a)
(Capital Structure),
Section 5.2(b)
(Capital Structure), the second sentence, fifth sentence and seventh sentence of
Section 5.2(e)
(Capital Structure),
Section 5.3(a)
(Authority),
Section 5.6(a)
(Absence of Certain Changes or Events) and
Section 5.24
(Brokers) shall have been true and correct as of the date of this Agreement
and shall be true and correct as of the Closing Date, as though made on and as
of the Closing Date (except, with respect to
Section 5.2(a)
,
Section 5.2(b)
, the fourth sentence and sixth sentence of
Section 5.2(e)
and
Section 5.24
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for any
de minimis
inaccuracies) (except that representations and warranties that speak as of a
specified date or period of time shall have been true and correct only as of
such date or period of time), (ii) all other representations and warranties of
Parent set forth in
Section 5.2(e)
(Capital Structure) shall have been true and correct in all material respects
as of the date of this Agreement and shall be true and correct in all material
respects as of the Closing Date, as though made on and as of the Closing Date
(except that representations and warranties that speak as of a specified date
or period of time shall have been true and correct in all material respects
only as of such date or period of time), and (iii) all other representations
and warranties of Parent, Merger Sub and LLC Sub set forth in
Article V
shall have been true and correct as of the date of this Agreement and shall be
true and correct as of the Closing Date, as though made on and as of the
Closing Date (except that representations and warranties that speak as of a
specified date or period of time shall have been true and correct only as of
such date or period of time), except where the failure of such representations
and warranties to be so true and correct (without regard to qualification or
exceptions contained therein as to "materiality," "in all material respects"
or "Parent Material Adverse Effect") that would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
(b)
Performance of Obligations of Parent, Merger Sub and LLC Sub
. Parent, Merger Sub and LLC Sub each shall have performed, or complied
with, in all material respects all agreements and covenants required to be
performed or complied with by them under this Agreement at or prior to the
Effective Time.
(c)
Compliance Certificate
. The Company shall have received a certificate of Parent signed by an
executive officer of Parent, dated the Closing Date, confirming that the
conditions in
Section 7.3(a)
and
(b)
have been satisfied.
(d)
Tax Opinion
. The Company shall have received an opinion from Kirkland & Ellis LLP (or
other legal counsel selected by the Company and reasonably satisfactory to
Parent), in form and substance reasonably satisfactory to the Company, dated
as of the Closing Date, to the effect that, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion, the
Integrated Mergers, taken together, will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code. In rendering the opinion described
in this
Section 7.3(d)
, Kirkland & Ellis LLP (or other applicable legal counsel) shall have received
and may rely upon the Parent Tax Certificate and the Company Tax Certificate
and such other information reasonably requested by and provided to it by the
Company or Parent for purposes of rendering such opinion.
Section 7.4
Frustration of Closing Conditions
. None of the Parties may rely, either as a basis for not consummating the
Merger or for terminating this Agreement, on the failure of any condition set
forth in
Section 7.1
,
Section 7.2
or
Section 7.3
, as the case may be, to be satisfied if such failure was caused by such
Party's breach in any material respect of any provision of this Agreement.
ARTICLE VIII
TERMINATION
Section 8.1
Termination
. This Agreement may be terminated and the Transactions may be abandoned at
any time prior to the Effective Time, whether (except as expressly set forth
below) before or after the Company Stockholder Approval or the Parent
Stockholder Approval has been obtained:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent:
(i) if any Law permanently restraining, enjoining, making illegal or
unlawful, or otherwise prohibiting the consummation of any of the Transactions
has become final and nonappealable;
provided
,
however
, that the right to terminate this Agreement under this
Section 8.1(b)(i)
shall not be available to any Party whose material breach of any covenant or
agreement under this Agreement has been the primary cause of or resulted in
the action or event described in this
Section 8.1(b)(i)
occurring;
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(ii) if the Merger shall not have been consummated on or before 5:00 p.m.
Houston time on January 10, 2025 (such date, the "
Outside Date
");
provided
,
however
, that if five (5) days prior to the Outside Date, all of the conditions to
closing in
Article VII
have been satisfied or waived, other than any of the conditions in
Section 7.1(b)
or
Section 7.1(c)
(solely if the applicable Law relates to any Antitrust Law) and conditions to
be satisfied at the Closing (so long as such conditions remain capable of
being satisfied), the Outside Date shall automatically be extended to July 10,
2025, which later date shall thereafter be deemed the Outside Date;
provided
,
however
, that if five (5) days prior to such extended date, all of the conditions to
closing in
Article VII
have been satisfied or waived, other than any of the conditions in
Section 7.1(b)
or
Section 7.1(c)
(solely if the applicable Law relates to any Antitrust Law) and conditions to
be satisfied at the Closing (so long as such conditions remain capable of
being satisfied), the Outside Date shall automatically be extended to January
10, 2026, which later date shall thereafter be deemed the Outside Date;
provided
,
further
,
however
, that the right to terminate this Agreement under this
Section 8.1(b)(ii)
shall not be available to any Party whose material breach of any covenant or
agreement under this Agreement has been the primary cause of or resulted in
the failure of the Merger to be consummated on or before such date;
(iii) in the event of a breach by the other Party of any representation,
warranty, covenant or other agreement contained in this Agreement which would
give rise to the failure of a condition set forth in
Sections 7.2(a)
or
(b)
or
Sections 7.3(a)
or
(b)
, as applicable (and such breach is not curable prior to the Outside Date, or
if curable prior to the Outside Date, has not been cured by the earlier of (A)
thirty (30) days after the giving of written notice to the breaching Party of
such breach and (B) two (2) Business Days prior to the Outside Date) (a "
Terminable Breach
");
provided
,
however
, that the terminating Party is not then in Terminable Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement;
(iv) if the Company Stockholder Approval shall not have been obtained upon a
vote held at a duly held Company Stockholders Meeting, or at any final
adjournment or postponement thereof; or
(v) if the Parent Stockholder Approval shall not have been obtained upon a
vote held at a duly held Parent Stockholders Meeting, or at any final
adjournment or postponement thereof;
(c) by Parent:
(i) prior to, but not after, the time the Company Stockholder Approval is
obtained, (A) if the Company Board or a committee thereof shall have effected
a Company Change of Recommendation (whether or not such Company Change of
Recommendation is permitted by this Agreement) or (B) if the Company shall
have Willfully and Materially Breached any of its obligations under
Section 6.3
, in a manner that materially impedes, interferes with or prevents the
consummation of the Transaction on or before the Outside Date; or
(ii) prior to, but not after, the time the Parent Stockholder Approval is
obtained, in order to enter into a definitive agreement with respect to a
Parent Superior Proposal;
provided
,
however
, that (i) Parent has received a Parent Superior Proposal after the date of
this Agreement that did not result from a breach of
Section 6.4
, (ii) Parent has complied with
Section 6.4
with respect to such Parent Superior Proposal (including the requirements set
forth in
Section 6.4(f)(ii)
), (iii) the Parent Board has authorized Parent to enter into, and Parent
substantially concurrently enters into, a definitive written agreement
providing for such Parent Superior Proposal (it being agreed that Parent may
enter into such definitive written agreement concurrently with any such
termination), and (iv) Parent shall have contemporaneously with such
termination paid the Company the Parent Termination Fee pursuant to
Section 8.3
;
(d) by the Company:
(i) prior to, but not after, the time the Parent Stockholder Approval is
obtained, (A) if the Parent Board or a committee thereof shall have effected a
Parent Change of Recommendation (whether or not such Parent Change of
Recommendation is permitted by this Agreement) or (B) if Parent shall have
Willfully and Materially Breached any of its obligations under
Section 6.4
, in a
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manner that materially impedes, interferes with or prevents the consummation
of the Transaction on or before the Outside Date; or
(ii) prior to, but not after, the time the Company Stockholder Approval is
obtained, in order to enter into a definitive agreement with respect to a
Company Superior Proposal;
provided
,
however
, that (i) the Company has received a Company Superior Proposal after the date
of this Agreement that did not result from a breach of
Section 6.3
, (ii) the Company has complied with
Section 6.3
with respect to such Company Superior Proposal (including the requirements set
forth in
Section 6.3(f)(ii)
), (iii) the Company Board has authorized the Company to enter into, and the
Company substantially concurrently enters into, a definitive written agreement
providing for such Company Superior Proposal (it being agreed that the Company
may enter into such definitive written agreement concurrently with any such
termination), and (iv) the Company shall have contemporaneously with such
termination paid Parent the Company Termination Fee pursuant to
Section 8.3
.
Section 8.2
Notice of Termination; Effect of Termination
.
(a) A terminating Party shall provide written notice of termination to the
other Party specifying with particularity the reason for such termination and,
if made in accordance with this Agreement, any termination shall be effective
immediately upon delivery of such written notice to the other Party.
(b) In the event of termination of this Agreement by any Party as provided in
Section 8.1
, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of any Party except with respect to this
Section 8.2(b)
,
Section 6.7(b)
,
Section 6.18
,
Section 8.3
and
Article I
and
Article IX
(and the provisions that substantively define any related defined terms not
substantively defined in
Article I
);
provided
,
however
, that notwithstanding anything to the contrary herein, no such termination
shall relieve any Party from liability for any damages or liability for a
Willful and Material Breach of any of its representations, warranties,
covenants, agreements or obligations hereunder or fraud; in which case the
non-breaching Party shall be entitled to all rights and remedies available at
law or in equity.
Section 8.3
Expenses and Other Payments
.
(a) Except as otherwise provided in this Agreement, each Party shall pay its
own expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the Transactions, whether or not the Merger
shall be consummated;
provided
,
however
, that Parent and the Company shall each be responsible for the payment of 50%
of the HSR filing fee applicable to the Merger.
(b) If (i) Parent terminates this Agreement pursuant to
Section 8.1(c)(i)(A)
(Company Change of Recommendation) or
Section 8.1(c)(i)(B)
(Company Willful Breach of Non-Solicit), or (ii) Parent or the Company
terminates this Agreement pursuant to
Section 8.1(b)(ii)
(Outside Date) or
Section 8.1(b)(iv)
(Failure to Obtain Company Stockholder Approval) at a time when Parent would
have been entitled to terminate this Agreement pursuant to
Section 8.1(c)(i)
(Company Change of Recommendation), then the Company shall pay Parent the
Company Termination Fee in cash by wire transfer of immediately available
funds to an account designated by Parent no later than three (3) Business Days
after notice of termination of this Agreement.
(c) If (i) the Company terminates this Agreement pursuant to
Section 8.1(d)(i)(A)
(Parent Change of Recommendation) or
Section 8.1(d)(i)(B)
(Parent Willful Breach of Non-Solicit), or (ii) Parent or the Company
terminates this Agreement pursuant to
Section 8.1(b)(ii)
(Outside Date) or
Section 8.1(b)(v)
(Failure to Obtain Parent Stockholder Approval) at a time when the Company
would have been entitled to terminate this Agreement pursuant to
Section 8.1(d)(i)
(Parent Change of Recommendation), then Parent shall pay the Company the
Parent Termination Fee in cash by wire transfer of immediately available funds
to an account designated by the Company no later than three (3) Business Days
after notice of termination of this Agreement.
(d) If the Company terminates this Agreement pursuant to
Section 8.1(d)(ii)
(Company Superior Proposal), then the Company shall pay Parent the Company
Termination Fee, in cash by wire
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transfer of immediately available funds to an account designated by Parent,
prior to or concurrently with the termination of this Agreement.
(e) If Parent terminates this Agreement pursuant to
Section 8.1(c)(ii)
(Parent Superior Proposal), then Parent shall pay the Company the Parent
Termination Fee, in cash by wire transfer of immediately available funds to an
account designated by the Company, prior to or concurrently with the
termination of this Agreement.
(f) If (i) (A) Parent or the Company terminates this Agreement pursuant to
Section 8.1(b)(iv)
(Failure to Obtain Company Stockholder Approval), and on or before the date of
any such termination, a Company Competing Proposal shall have been publicly
announced or publicly disclosed and not publicly withdrawn without
qualification at least seven (7) Business Days prior to the Company
Stockholders Meeting or (B) (1) the Company terminates this Agreement pursuant
to
Section 8.1(b)(ii)
(Outside Date) at a time when Parent would be permitted to terminate this
Agreement pursuant to
Section 8.1(b)(iii)
(Company Terminable Breach) or (2) Parent terminates this Agreement pursuant to
Section 8.1(b)(iii)
(Company Terminable Breach) and, in the case of each of
clauses (1)
and
(2)
, following the execution of this Agreement and on or before the date of any
such termination a Company Competing Proposal shall have been announced,
disclosed or otherwise communicated to the Company Board and not withdrawn
without qualification at least seven (7) Business Days prior to the date of
such termination, and (ii) within twelve (12) months of the date of such
termination, the Company enters into a definitive agreement with respect to a
Company Competing Proposal (or publicly approves or recommends to the
stockholders of the Company or otherwise does not oppose, in the case of a
tender or exchange offer, a Company Competing Proposal) or consummates a
Company Competing Proposal, then the Company shall pay Parent the Company
Termination Fee (less any amount previously paid by the Company pursuant to
Section 8.3(h)
) within three (3) Business Days after the earlier to occur of (x) the
consummation of such Company Competing Proposal or (y) entering into a
definitive agreement relating to a Company Competing Proposal. For purposes of
this
Section 8.3(f)
any reference in the definition of Company Competing Proposal to "20% or more"
shall be deemed to be a reference to "more than 50%".
(g) If (i) (A) Parent or the Company terminates this Agreement pursuant to
Section 8.1(b)(v)
(Failure to Obtain Parent Stockholder Approval)
,
and on or before the date of any such termination, a Parent Competing Proposal
shall have been publicly announced or publicly disclosed and not publicly
withdrawn without qualification at least seven (7) Business Days prior to the
Parent Stockholders Meeting or (B) (1) Parent terminates this Agreement
pursuant to
Section 8.1(b)(ii)
(Outside Date) at a time when the Company would be permitted to terminate this
Agreement pursuant to
Section 8.1(b)(iii)
(Parent Terminable Breach) or (2) the Company terminates this Agreement
pursuant to
Section 8.1(b)(iii)
(Parent Terminable Breach) and, in the case of each of
clauses (1)
and
(2)
, following the execution of this Agreement and on or before the date of any
such termination a Parent Competing Proposal shall have been announced,
disclosed or otherwise communicated to the Parent Board and not withdrawn
without qualification at least seven (7) Business Days prior to the date of
such termination, and (ii) within twelve (12) months of the date of such
termination, Parent enters into a definitive agreement with respect to a
Parent Competing Proposal (or publicly approves or recommends to the
stockholders of Parent or otherwise does not oppose, in the case of a tender
or exchange offer, a Parent Competing Proposal) or consummates a Parent
Competing Proposal, then Parent shall pay the Company the Parent Termination
Fee (less any amount previously paid by Parent pursuant to
Section 8.3(i)
) within three (3) Business Days after the earlier to occur of (x) the
consummation of such Parent Competing Proposal or (y) entering into a
definitive agreement relating to a Parent Competing Proposal. For purposes of
this
Section 8.3(g)
, any reference in the definition of Parent Competing Proposal to "20% or
more" shall be deemed to be a reference to "more than 50%".
(h) If Parent or the Company terminates this Agreement pursuant to
Section 8.1(b)(iv)
(Failure to Obtain Company Stockholder Approval)
,
then the Company shall pay Parent the Parent Expenses no later than three (3)
Business Days after notice of termination of this Agreement.
(i) If Parent or the Company terminates this Agreement pursuant to
Section 8.1(b)(v)
(Failure to Obtain Parent Stockholder Approval)
,
then Parent shall pay the Company the Company Expenses no later than three (3)
Business Days after notice of termination of this Agreement.
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(j) In no event shall Parent or the Company, respectively, be entitled to
receive more than one payment of the Company Termination Fee or Parent
Termination Fee, as applicable, or Parent Expenses or Company Expenses, as
applicable. Notwithstanding anything in this Agreement to the contrary, the
payment of the Parent Expenses or of the Company Expenses shall not relieve
the Company or Parent, respectively, of any subsequent obligation to pay the
Company Termination Fee or the Parent Termination Fee, as applicable;
provided
, that the Company shall be entitled to credit any prior Parent Expenses
actually paid by the Company pursuant to
Section 8.3(h)
against the amount of any Company Termination Fee required to be paid and
Parent shall be entitled to credit any prior Company Expenses actually paid by
Parent pursuant to
Section 8.3(i)
against the amount of any Parent Termination Fee required to be paid. The
Parties agree that the agreements contained in this
Section 8.3
are an integral part of the Transactions, and that, without these agreements,
the Parties would not enter into this Agreement. Each of the Parties
acknowledges and agrees that the Company Termination Fee and the Parent
Termination Fee, as applicable, is not intended to be a penalty, but rather is
liquidated damages in a reasonable amount that will compensate Parent or the
Company, as applicable, in the circumstances in which such Company Termination
Fee or Parent Termination Fee is due and payable and which do not involve
fraud or Willful And Material Breach, for the efforts and resources expended
and opportunities forgone while negotiating this Agreement and in reliance on
this Agreement and on the expectation of the consummation of the Transactions
contemplated by this Agreement, which amount would otherwise be impossible to
calculate with precision. If a Party fails to promptly pay the amount due by
it pursuant to this
Section 8.3
, interest shall accrue on such amount from the date such payment was required
to be paid pursuant to the terms of this Agreement until the date of payment
at the rate of 8% per annum (compounded annually). If in order to obtain such
payment, the other Party commences a Proceeding that results in judgment for
such Party for such amount, the defaulting Party shall pay the other Party its
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees and expenses,
provided
, that, in no event shall attorneys' fees that are based on a contingency fee,
"success" fee or any other type of fee arrangement dependent on the outcome of
the Proceeding be deemed to constitute reasonable out-of-pocket attorneys'
fees) incurred in connection with such Proceeding. The Parties agree that the
monetary remedies set forth in this
Section 8.3
and the specific performance remedies set forth in
Section 9.10
shall be the sole and exclusive remedies of (i) the Company and its
Subsidiaries against Parent and its Subsidiaries and any of their respective
former, current or future directors, officers, stockholders, Representatives
or Affiliates for any loss suffered as a result of the failure of any of the
Integrated Mergers to be consummated except in the case of fraud or a Willful
and Material Breach of any representation, warranty, covenant, agreement or
obligation (in which case only Parent shall be liable for damages for such
fraud or Willful and Material Breach), and upon payment of such amount, none
of Parent or any of its former, current or future directors, officers,
stockholders, Representatives or Affiliates shall have any further liability
or obligation relating to or arising out of this Agreement or the
Transactions, except for the liability of Parent in the case of fraud or a
Willful and Material Breach of any representation, warranty, covenant,
agreement or obligation; and (ii) Parent and its Subsidiaries against the
Company and its Subsidiaries and any of their respective former, current or
future directors, officers, stockholders, Representatives or Affiliates for
any loss suffered as a result of the failure of any of the Integrated Mergers
to be consummated except in the case of fraud or a Willful and Material Breach
of any representation, warranty, covenant, agreement or obligation (in which
case only the Company shall be liable for damages for such fraud or Willful
and Material Breach), and upon payment of such amount, none of the Company and
its Subsidiaries or any of their respective former, current or future
directors, officers, stockholders, Representatives or Affiliates shall have
any further liability or obligation relating to or arising out of this
Agreement or the Transactions, except for the liability of the Company in the
case of fraud or a Willful and Material Breach of any representation,
warranty, covenant, agreement or obligation.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1
Schedule Definitions
. All capitalized terms in the Company Disclosure Letter and the Parent
Disclosure Letter shall have the meanings ascribed to them herein (including
in Annex A) except as otherwise defined therein.
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Section 9.2
Survival; Exclusive Remedy
.
(a) Except as otherwise provided in this Agreement, none of the
representations, warranties, agreements and covenants contained in this
Agreement will survive the Closing;
provided
,
however
, that
Article I
(and the provisions that substantively define any related defined terms not
substantively defined in
Article I
), this
Article IX
and the agreements of the Parties in
Article II
and
III
, and
Section 4.27
(No Additional Representations),
Section 5.29
(No Additional Representations),
Section 6.9
(Employee Matters),
Section 6.10
(Indemnification; Directors' and Officers' Insurance),
Section 6.18
(Certain Indebtedness and Financing Cooperation),
Section 6.19
(Tax Matters), and those other covenants and agreements contained herein that
by their terms apply, or that are to be performed in whole or in part, after
the Closing, shall survive the Closing. The Confidentiality Agreement shall
(i) survive termination of this Agreement in accordance with its terms and
(ii) terminate as of the Effective Time.
(b) From and after the Closing, except for claims of fraud, the remedies
expressly provided for in this Agreement shall be the sole and exclusive
remedies for any and all claims against any Party to the extent arising under,
out of, related to or in connection with this Agreement including with respect
to the Comprehensive Environmental Response, Compensation and Liability Act or
any other Environmental Law. Without limiting the generality of the foregoing,
each of Company and Parent hereby waives, as of the Closing, to the fullest
extent permitted under applicable Law, any and all rights, claims and causes
of action that it or any of their respective Affiliates may have against the
other Party or any of its Affiliates or its or their respective Representatives
with respect to the subject matter of this Agreement, whether under any
contract, misrepresentation, tort, or strict liability theory, or under
applicable Law, and whether in Law or in equity;
provided
that the foregoing waiver shall not apply to any claims for fraud.
Section 9.3
Notices
. All notices, requests and other communications to any Party under, or
otherwise in connection with, this Agreement shall be in writing and shall be
deemed to have been duly given (a) upon delivery in person to the Party to be
notified; (b) if transmitted by electronic mail ("
e-mail
"), upon confirmation by non-automated reply email;
provided
that each notice Party shall use reasonable best efforts to confirm receipt of
any such email correspondence promptly upon receipt of such request; or (c)
upon delivery if transmitted by national overnight courier (with confirmation
of delivery) in each case as addressed as follows:
(i)
if to Parent, Merger Sub or LLC Sub, to:
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attention:
Benjamin E. Russ
E-mail:
ben.russ@chk.com
with a required copy to (which copy shall not constitute notice):
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attention:
Kevin M. Richardson
William N. Finnegan IV
Ryan J. Lynch
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E-mail:
kevin.richardson@lw.com
bill.finnegan@lw.com
ryan.lynch@lw.com
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention:
David A. Katz
E-mail:
DAKatz@wlrk.com
(ii)
if to the Company, to:
Southwestern Energy Company
10000 Energy Drive
Spring, Texas 77389
Attention:
Chris Lacy
E-mail:
Chris_Lacy@swn.com
with a required copy to (which copy shall not constitute notice):
Kirkland & Ellis LLP
609 Main Street, Suite 4700
Houston, Texas 77002
Attention:
Douglas E. Bacon, P.C.
Kim Hicks, P.C.
Patrick Salvo
E-mail:
douglas.bacon@kirkland.com
kim.hicks@kirkland.com
patrick.salvo@kirkland.com
Section 9.4
Rules of Construction
.
(a) Each of the Parties acknowledges that it has been represented by
independent counsel of its choice throughout all negotiations that have
preceded the execution of this Agreement and that it has executed the same
with the advice of said independent counsel. Each Party and its counsel
cooperated in the drafting and preparation of this Agreement and the documents
referred to herein, and any and all drafts relating thereto exchanged between
the Parties shall be deemed the work product of the Parties and may not be
construed against any Party by reason of its preparation. Accordingly, any
rule of Law or any legal decision that would require interpretation of any
ambiguities in this Agreement against any Party that drafted it is of no
application and is hereby expressly waived.
(b) The inclusion of any information in the Company Disclosure Letter or
Parent Disclosure Letter shall not be deemed an admission or acknowledgment,
in and of itself and solely by virtue of the inclusion of such information in
the Company Disclosure Letter or Parent Disclosure Letter, as applicable, that
such information is required to be listed in the Company Disclosure Letter or
Parent Disclosure Letter, as applicable, that such items are material to the
Company and its Subsidiaries, taken as a whole, or Parent and its
Subsidiaries, taken as a whole, as the case may be, or that such items have
resulted in a Company Material Adverse Effect or a Parent Material Adverse
Effect. The headings, if any, of the individual sections of each of the Parent
Disclosure Letter and the Company Disclosure Letter are inserted for
convenience only and shall not be deemed to constitute a part thereof or a
part of this Agreement. The Company Disclosure Letter and Parent Disclosure
Letter are arranged in sections corresponding to the Sections of this
Agreement merely for convenience, and the disclosure of an item in one section
of the Company Disclosure Letter or Parent Disclosure Letter, as applicable,
as an exception to a particular representation or warranty shall be deemed
adequately disclosed as an exception with respect to all other representations
or warranties to the extent that the relevance of such item to such
representations or warranties is reasonably apparent on its face,
notwithstanding the
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presence or absence of an appropriate section of the Company Disclosure Letter
or Parent Disclosure Letter with respect to such other representations or
warranties or an appropriate cross reference thereto.
(c) The specification of any dollar amount in the representations and
warranties or otherwise in this Agreement or in the Company Disclosure Letter
or Parent Disclosure Letter is not intended and shall not be deemed to be an
admission or acknowledgment of the materiality of such amounts or items, nor
shall the same be used in any dispute or controversy between the Parties to
determine whether any obligation, item or matter (whether or not described
herein or included in any schedule) is or is not material for purposes of this
Agreement.
(d) All references in this Agreement to Annexes, Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions refer to the
corresponding Annexes, Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections or
other subdivisions of this Agreement are for convenience only, do not
constitute any part of such Articles, Sections, subsections or other
subdivisions, and shall be disregarded in construing the language contained
therein. The words "this Agreement," "herein," "hereby," "hereunder" and
"hereof" and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "this
Section," "this subsection" and words of similar import, refer only to the
Sections or subsections hereof in which such words occur. The word "including"
(in its various forms) means "including, without limitation." Pronouns in
masculine, feminine or neuter genders shall be construed to state and include
any other gender and words, terms and titles (including terms defined herein)
in the singular form shall be construed to include the plural and vice versa,
unless the context otherwise expressly requires. Unless the context otherwise
requires, all defined terms contained herein shall include the singular and
plural and the conjunctive and disjunctive forms of such defined terms. Unless
the context otherwise requires, all references to a specific time shall refer
to Houston, Texas time. Unless otherwise clearly indicated to the contrary or
expressly specified herein by the context or use thereof: (i) the word "or" is
not exclusive; (ii) the word "extent" in the phrase "to the extent" shall mean
the degree to which a subject or other thing extends and such phrase shall not
mean simply "if"; and (iii) references to "written" or "writing" and words of
similar import includes printing, typing and other means of reproducing words
(including, electronic form, and, for the avoidance of doubt, including e-mail
transmission or electronic communication by .pdf, but not text messages) in a
visible form. The term "dollars" and the symbol "$" mean United States
Dollars. The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(e) In this Agreement, except as the context may otherwise require,
references to: (i) any agreement (including this Agreement), contract, statute
or regulation are to the agreement, contract, statute or regulation as
amended, modified, supplemented, restated or replaced from time to time (in
the case of an agreement or contract, to the extent permitted by the terms
thereof and, if applicable, by the terms of this Agreement); (ii) any
Governmental Entity includes any successor to that Governmental Entity; (iii)
any applicable Law refers to such applicable Law as amended, modified,
supplemented or replaced from time to time (and, in the case of statutes,
include any rules and regulations promulgated under such statute) and
references to any section of any applicable Law or other law include any
successor to such section; (iv) "days" mean calendar days; when calculating
the period of time within which, or following which, any act is to be done or
step taken pursuant to this Agreement, the date that is the reference day in
calculating such period shall be excluded and if the last day of the period is
a non-Business Day, the period in question shall end on the next Business Day
or if any action must be taken hereunder on or by a day that is not a Business
Day, then such action may be validly taken on or by the next day that is a
Business Day; and (v) "made available" means, with respect to any document,
that such document was filed with or furnished to the SEC and available on
Edgar or in the virtual data room, relating to the Transactions maintained by
the Company or Parent, as applicable, in each case, no later than 5:00 p.m.
(Houston time) on the day that is one (1) Business Day prior to the execution
of this Agreement.
Section 9.5
Counterparts
. This Agreement may be executed in two (2) or more counterparts, including
via facsimile or email in .pdf form transmission, all of which shall be
considered one and the
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same agreement and shall become effective when two (2) or more counterparts
have been signed by each of the Parties and delivered to the other Parties, it
being understood that all Parties need not sign the same counterpart.
Section 9.6
Entire Agreement; No Third Party Beneficiaries
. This Agreement (together with the Confidentiality Agreement and any other
documents and instruments executed pursuant hereto) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the Parties with respect to the subject matter hereof. Except
for the provisions of (a)
Article III
(including, for the avoidance of doubt, the rights of the former holders of
Company Common Stock and Company Incentive Awards to receive the Merger
Consideration) but only from and after the Effective Time and (b)
Section 6.10
(which from and after the Effective Time is intended for the benefit of, and
shall be enforceable by, the Persons referred to therein and by their
respective heirs and Representatives) but only from and after the Effective
Time, nothing in this Agreement, express or implied, is intended to or shall
confer upon any Person other than the Parties any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
Section 9.7
Governing Law; Venue; Waiver of Jury Trial
.
(a) SUBJECT TO
SECTION 9.15
, THIS AGREEMENT, AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT OR
TORT) THAT MAY BE BASED UPON, ARISE OUT OF RELATE TO THIS AGREEMENT, OR THE
NEGOTIATION, EXECUTION OR PERFORMANCE OF THIS AGREEMENT, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. NOTWITHSTANDING
THE FOREGOING, ALL MATTERS RELATING TO THE FIDUCIARY OBLIGATIONS OF THE PARENT
BOARD SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OKLAHOMA WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF
TO THE EXTENT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER JURISDICTION.
(b) SUBJECT TO
SECTION 9.15
, THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURT OF CHANCERY
OF THE STATE OF DELAWARE OR, IF THE COURT OF CHANCERY OF THE STATE OF DELAWARE
OR THE DELAWARE SUPREME COURT DETERMINES THAT, NOTWITHSTANDING SECTION 111 OF
THE DGCL, THE COURT OF CHANCERY DOES NOT HAVE OR SHOULD NOT EXERCISE SUBJECT
MATTER JURISDICTION OVER SUCH MATTER, THE SUPERIOR COURT OF THE STATE OF
DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE
STATE OF DELAWARE SOLELY IN CONNECTION WITH ANY DISPUTE THAT ARISES IN RESPECT
OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND
THE DOCUMENTS REFERRED TO IN THIS AGREEMENT OR IN RESPECT OF THE TRANSACTIONS,
AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR
PROCEEDING FOR INTERPRETATION OR ENFORCEMENT HEREOF OR ANY SUCH DOCUMENT THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SAID COURTS OR THAT SUCH
ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID
COURTS OR THAT VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR
ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES
IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION, SUIT OR
PROCEEDING SHALL BE HEARD AND DETERMINED EXCLUSIVELY BY SUCH DELAWARE STATE OR
FEDERAL COURT, AND EACH OF THE PARTIES AGREE NOT TO COMMENCE ANY SUCH ACTION,
SUIT OR PROCEEDING EXCEPT IN SUCH DELAWARE STATE OR FEDERAL COURT. THE PARTIES
HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF
SUCH PARTIES AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT
MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH SUCH ACTION, SUIT OR
PROCEEDING IN THE MANNER PROVIDED IN
SECTION 9.3
OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL BE VALID AND
SUFFICIENT SERVICE THEREOF.
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(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER; (II) SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THE FOREGOING WAIVER; (III) SUCH PARTY MAKES THE FOREGOING
WAIVER VOLUNTARILY AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS
SECTION 9.7
.
Section 9.8
Severability
. Each Party agrees that, should any court or other competent authority hold
any provision of this Agreement or part hereof to be invalid, illegal or
unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other term or provision of this
Agreement or invalidate or render unenforceable such other term or provision
in any other jurisdiction. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
the Transactions be consummated as originally contemplated to the greatest
extent possible. Except as otherwise contemplated by this Agreement, in
response to an order from a court or other competent authority for any Party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, to the extent that a Party took an action
inconsistent with this Agreement or failed to take action consistent with this
Agreement or required by this Agreement pursuant to such order, such Party
shall not incur any liability or obligation unless such Party did not in good
faith seek to resist or object to the imposition or entering of such order.
Section 9.9
Assignment
. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the Parties (whether by operation of Law
or otherwise) without the prior written consent of the other Party. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors
and permitted assigns. Any purported assignment in violation of this
Section 9.9
shall be void.
Section 9.10
Specific Performance
. The Parties agree that irreparable damage, for which monetary damages
would not be an adequate remedy, would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached by the Parties. Prior to the
termination of this Agreement pursuant to
Section 8.1
, it is accordingly agreed that the Parties shall be entitled to an injunction
or injunctions, or any other appropriate form of specific performance or
equitable relief, to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction, in each case in accordance with this
Section 9.10
, this being in addition to any other remedy to which they are entitled under
the terms of this Agreement at Law or in equity. Each Party accordingly agrees
not to raise any objections to the availability of the equitable remedy of
specific performance to prevent or restrain breaches or threatened breaches
of, or to enforce compliance with, the covenants and obligations of such Party
under this Agreement all in accordance with the terms of this
Section 9.10
. Each Party further agrees that no other Party or any other Person shall be
required to obtain, furnish or post any bond or similar instrument in
connection with or as a condition to obtaining any remedy referred to in this
Section 9.10
, and each Party irrevocably waives any right it may have to require the
obtaining, furnishing or posting of any such bond or similar instrument. If
prior to the Outside Date, any Party brings an action to enforce specifically
the performance of the terms and provisions hereof by any other Party, the
Outside Date shall automatically be extended by such other time period
established by the court presiding over such action.
Section 9.11
Affiliate Liability
. Each of the following is herein referred to as a "Company Affiliate": (a)
any direct or indirect holder of equity interests or securities in the Company
(whether stockholders or otherwise), and (b) any director, officer, employee,
Representative or agent of (i) the Company, or (ii) any
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Person who controls the Company. No Company Affiliate shall have any liability
or obligation to Parent, Merger Sub or LLC Sub of any nature whatsoever in
connection with or under this Agreement or the Transactions other than for
fraud, and Parent, Merger Sub and LLC Sub waive and release all claims of any
such liability and obligation, other than for fraud. Each of the following is
referred to as a "Parent Affiliate": (x) any direct or indirect holder of
equity interests or securities in Parent (whether stockholders or otherwise),
and (y) any director, officer, employee, Representative or agent of (i) Parent
or (ii) any Person who controls Parent. No Parent Affiliate shall have any
liability or obligation to the Company of any nature whatsoever in connection
with or under this Agreement or the Transactions other than for fraud, and the
Company waives and releases all claims of any such liability and obligation,
other than for fraud.
Section 9.12
Amendment
. This Agreement may be amended by the Parties at any time before or after
adoption of this Agreement by the stockholders of the Company, but, after any
such adoption, no amendment shall be made which by Law would require the
further approval by such stockholders without first obtaining such further
approval. Subject to
Section 9.15
, this Agreement may not be amended except by an instrument in writing signed
on behalf of each of the Parties.
Section 9.13
Extension; Waiver
. At any time prior to the Effective Time, the Company and Parent may, to
the extent legally allowed:
(a) extend the time for the performance of any of the obligations or acts of
the other Party hereunder;
(b) waive any inaccuracies in the representations and warranties of the
other Party contained herein or in any document delivered pursuant hereto; or
(c) waive compliance with any of the agreements or conditions of the other
Party contained herein.
Notwithstanding the foregoing, no failure or delay by the Company or Parent in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise of
any other right hereunder. No agreement on the part of a Party to any such
extension or waiver shall be valid unless set forth in an instrument in
writing signed on behalf of such Party. No waiver by any of the Parties of any
default, misrepresentation or breach of representation, warranty, covenant or
other agreement hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
Section 9.14
Non-Recourse
. This Agreement may only be enforced against, and any claim or cause of
action based upon, arising out of, or related to this Agreement or the
Transactions may only be brought against, the entities that are expressly
named as parties hereto and then only with respect to the specific obligations
set forth herein with respect to such party. Except to the extent a named
party to this Agreement (and then only to the extent of the specific
obligations undertaken by such named party in this Agreement and not
otherwise), no past, present or future director, manager, officer, employee,
incorporator, member, partner, equityholder, Affiliate, agent, attorney,
advisor, consultant, Debt Financing Source Related Party or Representative or
Affiliate of any of the foregoing shall have any liability (whether in
contract, tort, equity or otherwise) for any one or more of the representations,
warranties, covenants, agreements or other obligations or liabilities of any
one or more of Parent, the Company, Merger Sub or LLC Sub under this Agreement
(whether for indemnification or otherwise) or of or for any claim based on,
arising out of, or related to this Agreement or the Transactions.
Section 9.15
Debt Financing Sources
. Notwithstanding anything in this Agreement to the contrary, each of the
parties on behalf of itself and each of its Affiliates hereby: (a) agrees that
any legal action (whether in Law or in equity, whether in Contract or in tort
or otherwise), involving any Debt Financing Source Related Party, arising out
of or relating to this Agreement, any Debt Financing or any of the
transactions contemplated hereby or thereby or the performance of any services
thereunder, shall be subject to the exclusive jurisdiction of any New York
State court or federal court of the United States of America, in each case,
sitting in New York County and any appellate court thereof (each such court,
the "
Subject Courts
") and each party irrevocably submits itself and its property with respect to
any such legal action to the exclusive jurisdiction of such Subject Courts and
agrees that any such dispute shall be governed by, and construed in
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accordance with, the Laws of the State of New York, except as otherwise set
forth in any commitment letter in respect of such Debt Financing with respect
to (i) the determination of the accuracy of any "specified acquisition
agreement representation" (as such term or similar term is defined in such
commitment letter) and whether as a result of any inaccuracy thereof Parent or
any of its Affiliates has the right to terminate its or their obligations
hereunder pursuant to
Section 8.1(b)(iii)
or decline to consummate the Closing as a result thereof pursuant to
Section 7.2(a)
and (iii) the determination of whether the Closing has been consummated in all
material respects in accordance with the terms hereof, which shall in each
case be governed by and construed in accordance with the Laws of the State of
Delaware, without giving effect to any choice or conflict of Law provision or
rule that would cause the application of Laws of any other jurisdiction, (b)
agrees not to bring or support or permit any of its Affiliates to bring or
support any legal action (including any action, cause of action, claim,
cross-claim or third party claim of any kind or description, whether in Law or
in equity, whether in Contract or in tort or otherwise), against any Debt
Financing Source Related Party in any way arising out of or relating to this
Agreement, any Debt Financing or any of the transactions contemplated hereby
or thereby or the performance of any services thereunder in any forum other
than any Subject Court, (c) irrevocably waives, to the fullest extent that it
may effectively do so, the defense of an inconvenient forum to the maintenance
of such legal action in any such Subject Court, (d) knowingly, intentionally
and voluntarily waives to the fullest extent permitted by applicable Law trial
by jury in any legal action brought against any Debt Financing Source Related
Party in any way arising out of or relating to this Agreement, any Debt
Financing or any of the transactions contemplated hereby or thereby or the
performance of any services thereunder, (e) agrees that no Debt Financing
Source Related Party will have any liability to any of the Company, the
Company's Subsidiaries or their respective shareholders or Affiliates relating
to or arising out of this Agreement, any Debt Financing or any of the
transactions contemplated hereby or thereby or the performance of any services
thereunder and that none of the Company, the Company's Subsidiaries or any of
their respective Affiliates or shareholders shall bring or support any legal
action (including any action, cause of action, claim, cross-claim or third
party claim of any kind or description, whether in Law or in equity, whether
in Contract or in tort or otherwise), against any Debt Financing Source
Related Source relating to or in any way arising out of this Agreement, any
Debt Financing or any of the transactions contemplated hereby or thereby or
the performance of any services thereunder, (f) waives, and agrees not to
assert, by way of motion or as a defense, counterclaim or otherwise, in any
legal action involving any Debt Financing Source Related Party or the
transactions contemplated hereby, any claim that it is not personally subject
to the jurisdiction of the Subject Courts as described herein for any reason,
and (g) agrees (i) that any Debt Financing Source Related Parties are express
third party beneficiaries of, and may enforce, any of the provisions in this
Section 9.15
(or the definitions of any terms used in this
Section 9.15
) and (ii) to the extent any amendments to any provision of this
Section 9.15
(or, solely as they relate to such Section, the definitions of any terms used
in this
Section 9.15
) are materially adverse to any Debt Financing Source Related Party, such
provisions shall not be amended without the prior written consent of each
applicable Debt Financing Source. Notwithstanding anything contained herein to
the contrary, nothing in this
Section 9.15
shall in any way affect any party's or any of their respective Affiliates'
rights and remedies under any binding agreement to which a Debt Financing
Source is a party.
[
Signature Pages Follow
]
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IN WITNESS WHEREOF, each Party has caused this Agreement to be signed by its
respective officer thereunto duly authorized, all as of the date first written
above.
PARENT:
CHESAPEAKE ENERGY CORPORATION
By:
/s/ Domenic J. Dell'Osso, Jr.
Name:
Domenic J. Dell'Osso, Jr.
Title:
President and Chief Executive Officer
MERGER SUB:
HULK MERGER SUB, INC.
By:
/s/ Domenic J. Dell'Osso, Jr.
Name:
Domenic J. Dell'Osso, Jr.
Title:
President and Chief Executive Officer
LLC SUB:
HULK LLC SUB, LLC
By:
/s/ Domenic J. Dell'Osso, Jr.
Name:
Domenic J. Dell'Osso, Jr.
Title:
President and Chief Executive Officer
[
Signature Page to Agreement and Plan of Merger
]
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COMPANY:
SOUTHWESTERN ENERGY COMPANY
By:
/s/ Bill Way
Name:
Bill Way
Title:
President & Chief Executive Officer
[
Signature Page to Agreement and Plan of Merger
]
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TABLE OF CONTENTS
ANNEX A
Certain Definitions
"
Affiliate
" means, with respect to any Person, any other Person directly or indirectly,
controlling, controlled by, or under common control with, such Person, through
one or more intermediaries or otherwise.
"
Anti-Corruption Laws
" means (i) the United States Foreign Corrupt Practices Act of 1977, as
amended, (ii) the U.K. Bribery Act 2010, (iii) legislation adopted in
furtherance of the OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions and (iv) similar legislation
applicable to the Company or Parent and their respective Subsidiaries, as
applicable, from time to time.
"
Business Day
" means a day other than a day on which banks in the State of New York or the
State of Delaware are authorized or obligated to be closed.
"
Company Benefit Plan
" means an Employee Benefit Plan that is sponsored, maintained, contributed to
or required to be contributed to by the Company or any of its Subsidiaries or
with respect to which the Company or any of its Subsidiaries has any
obligation or liability (contingent or otherwise).
"
Company Competing Proposal
" means any contract, proposal, offer or indication of interest relating to
any transaction or series of related transactions (other than transactions
only with Parent or any of its Subsidiaries) involving, directly or
indirectly: (a) any acquisition (by asset purchase, stock purchase, merger, or
otherwise) by any Person or group of any business or assets of the Company or
any of its Subsidiaries (including capital stock of or ownership interest in
any Subsidiary) that generated 20% or more of the Company's and its
Subsidiaries' assets (by fair market value), net revenue or earnings before
interest, Taxes, depreciation and amortization for the preceding twelve (12)
months, or any license, lease or long-term supply agreement having a similar
economic effect, (b) any acquisition by any Person resulting in, or proposal
or offer, which if consummated would result in, any Person becoming the
beneficial owner of directly or indirectly, in one or a series of related
transactions, 20% or more of the total voting power or of any class of equity
securities of the Company or those of any of its Subsidiaries, or 20% or more
of the consolidated total assets (including, without limitation, equity
securities of its Subsidiaries) or (c) any merger, amalgamation, consolidation,
division, tender offer, exchange offer, deSPAC transaction, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries.
"
Company Credit Facility
" means that certain Amended and Restated Credit Agreement, dated as of April
8, 2022, by and among the Company, the financial institutions from time to
time party thereto and JPMorgan Chase Bank, N.A., as administrative agent as
amended by that certain Amendment No. 1 to Amended and Restated Credit
Agreement dated as of August 4, 2022.
"
Company Equity Plans
" means the Company's 2022 Incentive Plan, the Company's 2013 Incentive Plan,
and the Company's Nonemployee Director Deferred Compensation Plan, in each
case, as amended.
"
Company Expenses
" means a cash amount equal to $37,250,000 to be paid in respect of the
Company's costs and expenses in connection with the negotiation, execution and
performance of this Agreement and the Transactions.
"
Company Incentive Awards
" means the Company Option Awards, Company Performance Unit Awards, Company
Performance Cash Unit Awards, Company Restricted Stock Awards and Company
Restricted Stock Unit Awards.
"
Company Intervening Event
" means a development, event, effect, state of facts, condition, occurrence or
change in circumstance that materially affects the business or assets of the
Company and its Subsidiaries (taken as a whole) that occurs or arises after
the date of this Agreement that was not known to or reasonably foreseeable by
the Company Board as of the date of this Agreement (or, if known or reasonably
foreseeable, the magnitude or material consequences of which were not known or
reasonably foreseeable by the Company Board as of the date of this Agreement);
provided
,
however
, that in no event shall the following constitute a Company Intervening Event:
(i) the receipt, existence or terms of an actual or possible Company
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Competing Proposal or Company Superior Proposal, (ii) any Effect relating to
Parent or any of its Subsidiaries, (iii) any change, in and of itself, in the
price or trading volume of shares of Company Common Stock or Parent Common
Stock (it being understood that the underlying facts giving rise or
contributing to such change may be taken into account in determining whether
there has been a Company Intervening Event, to the extent otherwise permitted
by this definition), (iv) the fact that the Company or any of its Subsidiaries
exceeds (or fails to meet) internal or published projections or guidance or
any matter relating thereto or of consequence thereof (it being understood
that the underlying facts giving rise or contributing to such change may be
taken into account in determining whether there has been a Company Intervening
Event, to the extent otherwise permitted by this definition), (v) conditions
(or changes in such conditions) in the oil and gas exploration and production
industry (including changes in commodity prices, general market prices and
political or regulatory changes affecting the industry or any changes in
applicable Law) or (vi) any opportunity to acquire (by merger, joint venture,
partnership, consolidation, acquisition of stock or assets or otherwise),
directly or indirectly, any assets, securities, properties or businesses from,
or enter into any licensing, collaborating or similar arrangements with, any
other Person.
"
Company Option Award
" means an option to purchase shares of Company Common Stock granted to an
employee or individual service provider of the Company pursuant to a Company
Equity Plan.
"
Company Performance Cash Unit Award
" an award in the form of cash units, the value of which depends on the
performance of the Company over a specified time period.
"
Company Performance Unit Award
" means each award of restricted stock units granted pursuant to a Company
Equity Plan that is subject performance-based vesting conditions and for which
the applicable performance period has not been completed as of the applicable
determination date.
"
Company Restricted Stock Award
" means each award of Company Common Stock that vests based on continued
service to the Company, and which is granted pursuant to a Company Equity Plan.
"
Company Restricted Stock Unit Award
" means each award of restricted stock units relating to shares of Company
Common Stock that vests based on continued service to the Company granted
pursuant to a Company Equity Plan (but does not include Company Performance
Unit Awards).
"
Company Stockholder Approval
" means the adoption of this Agreement by the holders of a majority in voting
power of the outstanding shares of Company Common Stock entitled to vote
thereon in accordance with the DGCL and the Organizational Documents of the
Company.
"
Company Stockholders Meetin
g" means the meeting of the stockholders of the Company to be held for the
purposes of obtaining Company Stockholder Approval, including any
postponement, adjournment or recess thereof.
"
Company Superior Proposal
" means a
bona fide
Company Competing Proposal that is not solicited after the date of this
Agreement (or otherwise resulting from a breach of
Section 6.3
) by any Person or group (other than Parent or any of its Affiliates) to
acquire, directly or indirectly, (a) businesses or assets of the Company or
any of its Subsidiaries (including capital stock of or ownership interest in
any Subsidiary) that account for 50% or more of the fair market value of such
assets or that generated 50% or more of the Company's and its Subsidiaries'
net revenue or earnings before interest, Taxes, depreciation and amortization
for the preceding twelve (12) months, respectively, or (b) 50% or more of the
total voting power or of any class of equity securities of the Company or
those of any of its Subsidiaries, in each case whether by way of merger,
amalgamation, share exchange, tender offer, exchange offer, recapitalization,
consolidation, sale of assets or otherwise, that in the good faith
determination of the Company Board, (i) if consummated, would result in a
transaction more favorable to the Company's stockholders (in their capacity as
such) than the Merger (after taking into account the time likely to be
required to consummate such proposal and any binding irrevocable adjustments
or revisions to the terms of this Agreement offered by Parent in response to
such proposal or otherwise) and (ii) is reasonably likely to be consummated on
the terms proposed, in each case taking into account any legal, financial,
regulatory and stockholder approval requirements, including the sources,
availability and terms of any financing, financing market conditions and the
existence of a financing contingency, the likelihood of termination, the
timing of Closing, the identity of the Person or Persons making the proposal
and any other aspects considered relevant by the Company Board.
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"
Company Termination Fee
" means $260,000,000.
"
Consent
" means any filing, notice, notification, report, declaration, registration,
certification, approval, clearance, consent, ratification, permit, permission,
waiver, expiration or termination of waiting periods, or authorization.
"
Contract
" means any contract, legally binding commitment, license, promissory note,
loan, bond, mortgage, indenture, lease or other legally binding instrument or
agreement (whether written or oral).
"
control
" and its correlative terms, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"
Creditors' Rights
" means, collectively, bankruptcy, insolvency, reorganization, moratorium and
other Laws of general applicability relating to or affecting creditors' rights
and to general principles of equity regardless of whether such enforceability
is considered in a Proceeding in equity or at Law.
"
Debt Financing Source Related Parties
" means the Debt Financing Sources, the respective Affiliates of each of the
foregoing and the respective officers, directors, employees, controlling
Persons, agents, advisors and the other Representatives and successors of each
of the foregoing.
"
Derivative Transaction
" means any swap transaction, option, hedge, warrant, forward purchase or sale
transaction, futures transaction, cap transaction, floor transaction or collar
transaction relating to one or more currencies, commodities (including,
without limitation, natural gas, natural gas liquids, crude oil and
condensate), bonds, equity securities, loans, interest rates, catastrophe
events, weather-related events, credit-related events or conditions or any
indexes, or any other similar transaction (including any put, call or other
option with respect to any of these transactions) or combination of any of
these transactions, including collateralized mortgage obligations or other
similar instruments or any debt or equity instruments evidencing or embedding
any such types of transactions, and any related credit support, collateral or
other similar arrangements related to such transactions.
"
DTC
" means The Depositary Trust Company.
"
Edgar
" means the Electronic Data Gathering, Analysis and Retrieval System
administered by the SEC.
"
Employee Benefit Plan
" of any Person means any "employee benefit plan" (within the meaning of
Section 3(3) of ERISA, regardless of whether such plan is subject to ERISA),
and any personnel policy (oral or written), equity option, restricted equity,
equity purchase, equity compensation, phantom equity or appreciation rights,
bonus, incentive award, vacation or holiday pay, retention or severance,
deferred compensation, change in control, hospitalization or other medical,
dental, vision, accident, disability, or life, executive compensation or
supplemental income, consulting, employment, and any other benefit or
compensation plan, agreement, arrangement, program, or policy, including for
any present or former director, employee or contractor of the Person, but
excluding any such plan, program or arrangement that is administered by a
Governmental Entity.
"
Encumbrances
" means liens, pledges, charges, encumbrances, claims, hypothecation,
mortgages, deeds of trust, security interests, restrictions, rights of first
refusal, defects in title, prior assignment, license sublicense or other
burdens, options or encumbrances of any kind or any agreement, option, right
or privilege (whether by Law, contract or otherwise) capable of becoming any
of the foregoing (any action of correlative meaning, to "
Encumber
").
"
Environmental Laws
" means any and all Laws in effect as of or prior to the date hereof
pertaining to pollution, protection of the environment or natural resources
(including, without limitation, any natural resource damages), human health
and safety (to the extent relating to exposure to Hazardous Materials), and
the generation, treatment, storage, disposal, handling, use, manufacturing,
transportation, discharge, emission or Release of, or exposure to, Hazardous
Materials.
"
ERISA
" means the Employee Retirement Income Security Act of 1974, as amended.
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"
ERISA Affiliate
" means, with respect to any Person, any other Person that is treated as a
single employer with such Person within the meaning of Section 414 of the Code.
"
Ex-Im Law
" means all Laws and regulations relating to export, re-export, transfer or
import controls, including, without limitation, the Export Administration
Regulations administered by the U.S. Department of Commerce, and customs and
import Laws administered by U.S. Customs and Border Protection.
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended.
"
fraud
" means, with respect to any Party, knowing actual common law fraud under the
Laws of the State of Delaware in the making of any representation or warranty
made by such Party and set forth in
Article IV
or
Article V
of this Agreement.
"
Governmental Entity
" means any U.S. or non-U.S. federal, state, tribal, local or municipal court
or other adjudicative body or entity, legislature, governmental, regulatory or
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign.
"
group
" has the meaning ascribed to such term in Section 13(d) of the Exchange Act.
"
Hazardous Materials
" means any (a) chemical, product, material, substance or waste that is
defined or listed as hazardous or toxic, or as a pollutant or contaminant, or
that is otherwise regulated under, or for which standards of conduct or
liability may be imposed pursuant to, any Environmental Law due to its
hazardous or dangerous properties or characteristics; (b) asbestos or
asbestos-containing materials, whether in a friable or non-friable condition,
lead-containing material, polychlorinated biphenyls, per- and polyfluoroalkyl
substances, naturally occurring radioactive materials or radon; and (c) any
Hydrocarbons.
"
HSR Reservation Notice
" means a communication or notification from a Governmental Entity that an
investigation of the Transaction under Antitrust Laws may be conducted or
continue following the expiration of the waiting period under the HSR Act and
the consummation of the Merger.
"
Hydrocarbons
" means any hydrocarbon-containing substance, crude oil, natural gas,
casinghead gas, condensate, drip gas and natural gas liquids, coalbed gas,
ethane, propane, iso-butane, nor-butane, gasoline, scrubber liquids and other
liquids or gaseous hydrocarbons or other substances (including minerals or
gases), or any combination thereof, produced, derived, refined or associated
therewith.
"
Indebtedness
" of any Person means, without duplication: (a) indebtedness of such Person
for borrowed money; (b) obligations of such Person to pay the deferred
purchase or acquisition price for any property of such Person; (c)
reimbursement obligations of such Person in respect of drawn letters of credit
or similar instruments issued or accepted by banks and other financial
institutions for the account of such Person; (d) obligations of such Person
under a lease to the extent such obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person under GAAP;
and (e) indebtedness of others as described in
clauses (a)
through
(d)
above guaranteed by such Person; but Indebtedness does not include accounts
payable to trade creditors, or accrued expenses arising in the Ordinary
Course, in each case, that are not yet due and payable, or are being disputed
in good faith, and the endorsement of negotiable instruments for collection in
the Ordinary Course.
"
Intellectual Property
" means any and all proprietary, industrial and intellectual property rights,
under the applicable Law of any jurisdiction or rights under international
treaties, both statutory and common Law rights, including: (a) utility models,
supplementary protection certificates, invention disclosures, registrations,
patents and applications for same, and extensions, divisions, continuations,
continuations-in-part, reexaminations, revisions, renewals, substitutes, and
reissues thereof; (b) trademarks, service marks, certification marks,
collective marks, brand names, d/b/a's, trade names, slogans, domain names,
symbols, logos, trade dress and other identifiers of source, and registrations
and applications for registrations thereof and renewals of the same (including
all common Law rights and goodwill associated with the foregoing and
symbolized thereby); (c) published and unpublished works of authorship,
whether copyrightable or not, copyrights therein and thereto, together with
all common Law and moral rights therein, database rights, and registrations
and applications for registration of the foregoing, and all renewals,
extensions, restorations and reversions thereof; (d) trade secrets, know-how,
and other rights in information, including designs,
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formulations, concepts, compilations of information, methods, techniques,
procedures, and processes, whether or not patentable; (e) Internet domain
names and URLs; and (f) all other intellectual property, industrial or
proprietary rights.
"
IT Assets
" means computers, software, servers, networks, workstations, routers, hubs,
circuits, switches, data communications lines, and all other information
technology equipment, and all associated documentation.
"
Knowledge
" means the actual knowledge of, (a) in the case of the Company, the
individuals listed in
Schedule 1.1
of the Company Disclosure Letter, and (b) in the case of Parent, the
individuals listed in
Schedule 1.1
of the Parent Disclosure Letter.
"
Law
" means any law, statute, rule, regulation, ordinance, code, judgment, order,
decree, injunction, decision, ruling, writ, award, treaty or convention, U.S.
or non-U.S., of any Governmental Entity, including common law.
"
Material Adverse Effect
" means, when used with respect to any Party, any fact, circumstance, effect,
change, event or development ("
Effect
") that (a) would prevent, materially delay or materially impair the ability
of such Party or its Subsidiaries to consummate the Transactions or (b) has,
or would have, a material adverse effect on the financial condition, business,
or results of operations of such Party and its Subsidiaries, taken as a whole;
provided
,
however
, that with respect to this
clause (b)
only, no Effect (by itself or when aggregated or taken together with any and
all other Effects) to the extent directly or indirectly resulting from,
arising out of, attributable to, or related to any of the following shall be
deemed to be or constitute a "Material Adverse Effect" or shall be taken into
account when determining whether a "Material Adverse Effect" has occurred or
may, would or could occur:
(i)
general economic conditions (or changes in such conditions) or conditions in
the U.S. or global economies generally;
(ii)
conditions (or changes in such conditions) in the securities markets, credit
markets, commodity markets, currency markets or other financial markets,
including (A) changes in interest rates and changes in exchange rates for the
currencies of any countries and (B) any suspension of trading in securities
(whether equity, debt, derivative or hybrid securities) generally on any
securities exchange or over-the-counter market;
(iii)
conditions (or changes in such conditions) in the oil and gas exploration,
development or production industry (including changes in commodity prices,
general market prices and regulatory changes affecting the industry);
(iv)
political conditions (or changes in such conditions) or acts of war, sabotage
or terrorism (including any escalation or general worsening of any such acts
of war, sabotage or terrorism);
(v)
earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or
other natural disasters, pandemics, epidemics or other widespread health
crises or weather conditions;
(vi)
effects resulting from the negotiation, execution and announcement of this
Agreement or the pendency or consummation of the Transactions, including the
impact thereof on the relationship of such Party and its Subsidiaries with
customers, suppliers, partners, employees or governmental bodies, agencies,
officials or authorities (other than with respect to any representation or
warranty that is intended to address the consequences of the execution or
delivery of this Agreement or the announcement or consummation of the
Transactions);
(vii)
the execution and delivery of or compliance with the terms of, or the taking
of any action or failure to take any action which action or failure to act is
requested in writing by Parent or expressly permitted or required by, this
Agreement (except for any obligation under this Agreement to operate in the
Ordinary Course (or similar obligation) pursuant to
Sections 6.1
or
6.2
, as applicable), the public announcement of this Agreement or the
Transactions (
provided
that this
clause (vii)
shall not apply to any representation or warranty to the extent the purpose of
such representation or warranty is to address the consequences resulting from
the execution and delivery of this Agreement or the consummation of the
Transactions);
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(viii)
any litigation brought by any holder of Company Common Stock against the
Company or holder of Parent Common Stock against Parent, or against any of
their respective Subsidiaries and/or respective directors or officers relating
to the Merger and any of the other Transactions or this Agreement;
(ix)
changes in Law or other legal or regulatory conditions, or the interpretation
thereof, or changes in GAAP or other accounting standards (or the
interpretation thereof), or that result from any action taken for the purpose
of complying with any of the foregoing;
(x)
any Remedy Action or any effects arising due to Antitrust Law in relation to
the Transactions;
(xi)
any changes in such Party's stock price or the trading volume of such Party's
stock, or any failure by such Party to meet any analysts' estimates or
expectations of such Party's revenue, earnings or other financial performance
or results of operations for any period, or any failure by such Party or any
of its Subsidiaries to meet any internal or published budgets, plans or
forecasts of its revenues, earnings or other financial performance or results
of operations (it being understood that the facts or occurrences giving rise
to or contributing to such changes or failures may constitute, or be taken
into account in determining whether there has been or will be, a Material
Adverse Effect);
provided
,
however
, except to the extent such Effects directly or indirectly resulting from,
arising out of, attributable to or related to the matters described in the
foregoing
clauses (i)
through
(v)
and
(ix)
disproportionately adversely affect such Party and its Subsidiaries, taken as
a whole, as compared to other similarly situated participants operating in the
oil and gas exploration, development or production industry (in which case,
such adverse effects (if any) shall be taken into account when determining
whether a "Material Adverse Effect" has occurred or may, would or could occur
solely to the extent they are disproportionate).
"
NASDAQ
" means the Nasdaq Global Select Market.
"
Notes
" means the Company's (i) 4.950% Senior Notes due 2025, (ii) 8.375% Senior
Notes due 2028, (iii) 5.375% Senior Notes due 2029, (iv) 5.375% Senior Notes
due 2030, and (v) 4.750% Senior Notes due 2032, and each series of Notes in
the preceding clauses (i) through (v) a "Series of Notes".
"
NYSE
" means the New York Stock Exchange.
"
Oil and Gas Leases
" means all leases, subleases, licenses or other occupancy or similar
agreements (including any series of related leases with the same lessor) under
which a Person leases, subleases or licenses or otherwise acquires or obtains
rights to produce Hydrocarbons from real property interests.
"
Oil and Gas Properties
" means all interests in and rights with respect to (a) oil, gas, mineral, and
similar properties of any kind and nature, including working, leasehold and
mineral interests and operating rights and royalties, overriding royalties,
production payments, net profit interests and other non-working interests and
non-operating interests (including all Oil and Gas Leases, operating
agreements, unitization and pooling agreements and orders, division orders,
transfer orders, mineral deeds, royalty deeds, and in each case, interests
thereunder), surface interests, carried interests, fee interests, reversionary
interests, reservations and concessions and (b) all Wells.
"
Ordinary Course
" means, with respect to an action taken by any Person, that such action is
taken in the ordinary course of business consistent with the past practices of
such Person.
"
Organizational Documents
" means (a) with respect to a corporation, the charter, articles or
certificate of incorporation, as applicable, and bylaws thereof, (b) with
respect to a limited liability company, the certificate of formation or
organization, as applicable, and the operating or limited liability company
agreement thereof, (c) with respect to a partnership, the certificate of
formation or partnership and the partnership agreement, and (d) with respect
to any other Person the organizational, constituent and/or governing documents
and/or instruments of such Person.
"
other Party
" means (a) when used with respect to the Company, Parent, Merger Sub and LLC
Sub and (b) when used with respect to Parent, Merger Sub or LLC Sub, the
Company.
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"
Parent Competing Proposal
" means any contract, proposal, offer or indication of interest relating to
any transaction or series of related transactions (other than transactions
only with the Company or any of its Subsidiaries) involving, directly or
indirectly: (a) any acquisition (by asset purchase, stock purchase, merger, or
otherwise) by any Person or group of any business or assets of Parent or any
of its Subsidiaries (including capital stock of or ownership interest in any
Subsidiary) that generated 20% or more of Parent's and its Subsidiaries'
assets (by fair market value), net revenue or earnings before interest, Taxes,
depreciation and amortization for the preceding twelve (12) months, or any
license, lease or long-term supply agreement having a similar economic effect,
(b) any acquisition by any Person resulting in, or proposal or offer, which if
consummated would result in, any Person becoming the beneficial owner of
directly or indirectly, in one or a series of related transactions, 20% or
more of the total voting power or of any class of equity securities of Parent
or those of any of its Subsidiaries, or 20% or more of the consolidated total
assets (including, without limitation, equity securities of its Subsidiaries)
or (c) any merger, amalgamation, consolidation, division, tender offer,
exchange offer, deSPAC transaction, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Parent or any of its Subsidiaries.
"
Parent Credit Facility
" means that certain Credit Agreement, dated as of December 9, 2022, by and
among Parent, the financial institutions from time to time party thereto and
JPMorgan Chase Bank, N.A., as administrative agent.
"
Parent Expenses
" means a cash amount equal to $55,600,000 to be paid in respect of Parent's
costs and expenses in connection with the negotiation, execution and
performance of this Agreement and the Transactions.
"
Parent Intervening Event
" means a development, event, effect, state of facts, condition, occurrence or
change in circumstance that materially affects the business or assets of
Parent and its Subsidiaries (taken as a whole) that occurs or arises after the
date of this Agreement that was not known to or reasonably foreseeable by the
Parent Board as of the date of this Agreement (or, if known or reasonably
foreseeable, the magnitude or material consequences of which were not known or
reasonably foreseeable by the Parent Board as of the date of this Agreement);
provided
,
however
, that in no event shall the following constitute a Parent Intervening Event:
(i) the receipt, existence or terms of an actual or possible Parent Competing
Proposal or Parent Superior Proposal, (ii) any Effect relating to the Company
or any of its Subsidiaries, (iii) any change, in and of itself, in the price
or trading volume of shares of Parent Common Stock or Company Common Stock (it
being understood that the underlying facts giving rise or contributing to such
change may be taken into account in determining whether there has been a
Parent Intervening Event, to the extent otherwise permitted by this
definition), (iv) the fact that Parent or any of its Subsidiaries exceeds (or
fails to meet) internal or published projections or guidance or any matter
relating thereto or of consequence thereof (it being understood that the
underlying facts giving rise or contributing to such change may be taken into
account in determining whether there has been a Parent Intervening Event, to
the extent otherwise permitted by this definition), (v) conditions (or changes
in such conditions) in the oil and gas exploration and production industry
(including changes in commodity prices, general market prices and political or
regulatory changes affecting the industry or any changes in applicable Law) or
(vi) any opportunity to acquire (by merger, joint venture, partnership,
consolidation, acquisition of stock or assets or otherwise), directly or
indirectly, any assets, securities, properties or businesses from, or enter
into any licensing, collaborating or similar arrangements with, any other
Person.
"
Parent Plan
" means an Employee Benefit Plan and any successor plan thereto that, in each
case, is sponsored, maintained, contributed to or required to be contributed
to by Parent or any of its Subsidiaries or with respect to which Parent or any
of its Subsidiaries has any obligation or liability (contingent or otherwise).
"
Parent Stockholder Approval
" means the approval of the Parent Stock Issuance by the affirmative vote of a
majority of the votes cast at the Parent Stockholders Meeting in accordance
with the rules and regulations of NASDAQ and the Organizational Documents of
Parent.
"
Parent Stockholders Meetin
g" means the meeting of the stockholders of the Parent to be held for the
purposes of obtaining Parent Stockholder Approval, including any postponement
adjournment or recess thereof.
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"
Parent Superior Proposal
" means a
bona fide
Parent Competing Proposal that is not solicited after the date of this
Agreement (or otherwise resulting from a breach of
Section 6.4
) by any Person or group to acquire, directly or indirectly, (a) businesses or
assets of Parent or any of its Subsidiaries (including capital stock of or
ownership interest in any Subsidiary) that account for 50% or more of the fair
market value of such assets or that generated 50% or more of Parent's and its
Subsidiaries' net revenue or earnings before interest, Taxes, depreciation and
amortization for the preceding twelve (12) months, respectively, or (b) 50% or
more of the total voting power or of any class of equity securities of Parent
or those of any of its Subsidiaries, in each case whether by way of merger,
amalgamation, share exchange, tender offer, exchange offer, recapitalization,
consolidation, sale of assets or otherwise, that in the good faith
determination of the Parent Board, (i) if consummated, would result in a
transaction more favorable to Parent's stockholders (in their capacity as
such) than the Merger (after taking into account the time likely to be
required to consummate such proposal and any binding irrevocable adjustments
or revisions to the terms of this Agreement offered by the Company in response
to such proposal or otherwise) and (ii) is reasonably likely to be consummated
on the terms proposed, in each case taking into account any legal, financial,
regulatory and stockholder approval requirements, including the sources,
availability and terms of any financing, financing market conditions and the
existence of a financing contingency, the likelihood of termination, the
timing of Closing, the identity of the Person or Persons making the proposal
and any other aspects considered relevant by the Parent Board.
"
Parent Termination Fee
" means $389,000,000.
"
Parent Warrant Agreements
" means that certain (i) Class A Warrant Agreement, dated as of February 9,
2021, between Parent and Equiniti Trust Company, (ii) Class B Warrant
Agreement, dated as of February 9, 2021, between Parent and Equiniti Trust
Company and (iii) Class C Warrant Agreement, dated as of February 9, 2021,
between Parent and Equiniti Trust Company.
"
Party
" or "
Parties
" means a party or the parties to this Agreement, except as the context may
otherwise require.
"
Permitted Encumbrances
" means:
(i)
to the extent not applicable to the Transactions or otherwise waived prior to
the Effective Time, preferential purchase rights, rights of first refusal,
purchase options and similar rights granted pursuant to any contracts,
including joint operating agreements, joint ownership agreements,
participation agreements, development agreements, stockholders agreements,
consents and other similar agreements and documents;
(ii)
(A) contractual or statutory mechanic's, materialmen's, warehouseman's,
journeyman's, vendor's, repairman's, construction and carrier's liens and
other similar Encumbrances arising in the Ordinary Course for amounts not yet
delinquent and (B) Encumbrances for Taxes or assessments or other governmental
charges that are not yet delinquent or, in all instances, if delinquent, that
are being contested in good faith by appropriate Proceeding and for which
adequate reserves have been established on the financial statements of the
Company or Parent, as applicable, in accordance with GAAP;
(iii)
Production Burdens payable to third parties that are deducted in the
calculation of discounted present value in the Company Reserve Report or the
Parent Reserve Report, as applicable;
(iv)
Encumbrances arising in the Ordinary Course under operating agreements, joint
venture agreements, partnership agreements, Oil and Gas Leases, farm-out
agreements, division orders, contracts for the sale, purchase, transportation,
processing or exchange of oil, gas or other Hydrocarbons, unitization and
pooling declarations and agreements, area of mutual interest agreements,
development agreements, joint ownership arrangements and other agreements that
are customary in the oil and gas business,
provided
,
however
, that, in each case, such Encumbrance (i) secures obligations that are not
Indebtedness or a deferred purchase price and are not delinquent and (ii)
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect, on the value, use or operation of the property
encumbered thereby;
(v)
such Encumbrances as the Company (in the case of Encumbrances with respect to
properties or
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assets of Parent or its Subsidiaries) or Parent (in the case of Encumbrances
with respect to properties or assets of the Company or its Subsidiaries), as
applicable, have expressly waived in writing;
(vi)
all easements, zoning restrictions, conditions, covenants, rights-of-way,
servitudes, permits, surface leases and other similar rights in respect of
surface operations, and easements for pipelines, facilities, streets, alleys,
highways, telephone lines, power lines, railways removal of timber, grazing,
logging operations, canals, ditches, reservoirs and other easements and
rights-of-way, on, over or in respect of any of the properties of the Company
or Parent, as applicable, or any of their respective Subsidiaries, that are
customarily granted in the oil and gas industry and do not materially
interfere with the operation, value or use of the property or asset affected;
(vii)
any Encumbrances to be discharged at or prior to the Effective Time (including
Encumbrances securing any Indebtedness that will be paid off in connection
with Closing);
(viii)
Encumbrances imposed or promulgated by applicable Law or any Governmental
Entity with respect to real property, including zoning, building or similar
restrictions;
(ix)
Encumbrances, exceptions, defects or irregularities in title, easements,
imperfections of title, claims, charges, security interests, rights-of-way,
covenants, restrictions and other similar matters that would be accepted by a
reasonably prudent purchaser of oil and gas interests in the geographic area
where such oil and gas interests are located, that would not reduce the net
revenue interest share of the Company or Parent (without at least a
proportionate increase in net revenue interest), as applicable, or such
Party's Subsidiaries, in any Oil and Gas Lease below the net revenue interest
share shown in the Company Reserve Report, with respect to such lease, or
increase the working interest of the Company or Parent, as applicable, or of
such Party's Subsidiaries, in any Oil and Gas Lease above the working interest
shown on the Company Reserve Report, with respect to such lease and, in each
case, that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect or Parent
Material Adverse Effect, as applicable;
(x)
with respect to (i) Parent and its Subsidiaries, Encumbrances arising under
the Parent Credit Facility and (ii) the Company and its Subsidiaries,
Encumbrances arising under the Company Credit Facility;
(xi)
Encumbrances arising from precautionary Uniform Commercial Code financing
statements or similar filings made in respect of operating leases;
(xii)
Encumbrances that are contractual rights of set-off, revocation, refund, or
chargeback (i) relating to the establishment of depository relations with
banks not given in connection with the issuance of Indebtedness, (ii) relating
to pooled deposits or sweep accounts to permit satisfaction of overdraft or
similar obligations incurred in the Ordinary Course or (iii) relating to
purchase orders and other agreements entered in the Ordinary Course;
(xiii)
Encumbrances solely on any cash earnest money deposits or escrow arrangements
in connection with any letter of intent or purchase agreement relating to any
acquisition of property permitted hereunder;
(xiv)
Encumbrances on insurance policies and the proceeds thereof securing the
financing of the related insurance premiums;
(xv)
ground leases in respect of real property on which facilities owned or leased
by the Company, Parent or any of their respective Subsidiaries are located;
(xvi)
any right which any municipal or governmental body or agency may have by
virtue of any franchise, license, contract or statute to purchase, or
designate a purchaser of or order the sale or disposition of, any property
upon payment of reasonable compensation therefor or to terminate any
franchise, license or other rights or to regulate the property and business of
the Company or Parent, as applicable;
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(xvii)
Encumbrances on (x) property of the Company or a Subsidiary thereof securing
its obligations owing to the Company or a wholly owned Subsidiary thereof and
(y) property of Parent or a Subsidiary thereof securing its obligations owing
to Parent or a wholly owned Subsidiary thereof; and
(xviii)
Encumbrances consisting of deposits which secure public or statutory
obligations, or surety, custom or appeal bonds, or the payment of contested
taxes or import duties.
"
Person
" means any individual, partnership, limited liability company, corporation,
joint stock company, trust, estate, joint venture, Governmental Entity,
association or unincorporated organization, or any other form of business or
professional entity.
"
Personal Information
" means any information that (i) alone or in combination with other
information held by the Company or any of its Subsidiaries, identifies or
could reasonably be used to identify an individual, and/or (ii) is considered
"personally identifiable information," "personal information," "personal
data," or any similar term by any applicable Laws.
"
Proceeding
" means any cause of action, action, audit, demand, litigation, suit,
proceeding, investigation, citation, inquiry, hearing, arbitration or other
proceeding at Law or in equity or order or ruling, in each case whether civil,
criminal, administrative, investigative or otherwise, whether in contract, in
tort or otherwise.
"
Production Burdens
" means any royalties (including lessor's royalties), overriding royalties,
production payments, net profit interests or other similar interests that
constitute a burden on, and are measured by or are payable out of the
production of Hydrocarbons or the proceeds realized from the sale or other
disposition thereof.
"
Release
" means any releasing, depositing, spilling, leaking, pumping, pouring,
placing, emitting, discarding, abandoning, emptying, discharging, injecting,
escaping, leaching, dumping, dispersing or disposing into or onto the indoor
or outdoor environment.
"
Representatives
" means, with respect to any Person, the officers, directors, employees,
accountants, consultants, agents, legal counsel, financial advisors and other
representatives of such Person.
"
Sanctioned Person
" means, at any time, any Person: (a) listed on any Sanctions-related list of
designated or blocked Persons; (b) resident in or organized under the Laws of
a country or territory that is the subject of comprehensive Sanctions from
time to time; or (c) majority owned or controlled by any of the foregoing.
"
Sanctions
" means those trade, economic and financial sanctions Laws, regulations,
embargoes and restrictive measures (in each case having the force of Law)
administered, enacted or enforced from time to time by (a) the United States
(including, without limitation, the Department of Treasury, Office of Foreign
Assets Control), (b) the European Union and enforced by its member states, (c)
the United Nations or (d) Her Majesty's Treasury.
"
Sarbanes-Oxley Act
" means the Sarbanes-Oxley Act of 2002.
"
SEC
" means the United States Securities and Exchange Commission.
"
Securities Act
" means the Securities Act of 1933, as amended.
"
Subsidiary
" means, with respect to a Person, any Person, whether incorporated or
unincorporated, of which (a) more than 50% of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions, (b) a
general partner interest or (c) a managing member interest, is directly or
indirectly owned or controlled by the subject Person or by one or more of its
respective Subsidiaries.
"
Takeover Law
" means any "fair price," "moratorium," "control share acquisition," "business
combination" or any other anti-takeover statute or similar statute enacted
under applicable Law, including Section 203 of the DGCL and Sections 1090.3
and 1145 through 1155 of the Oklahoma General Corporation Act.
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"
Tax Returns
" means any return, report, statement, information return or other document
(including any related or supporting information) filed or required to be
filed with any Taxing Authority in connection with the determination,
assessment, collection or administration of any Taxes, including any schedule
or attachment thereto and any amendment thereof.
"
Taxes
" means any and all taxes and similar charges, duties, levies or other
assessments, each in the nature of a tax, including, but not limited to,
income, estimated, business, occupation, corporate, gross receipts, transfer,
stamp, employment, occupancy, license, severance, capital, impact fee,
production, ad valorem, excise, property, sales, use, turnover, value added
and franchise taxes, deductions, withholdings and custom duties, imposed by
any Governmental Entity, including interest, penalties, and additions to tax
imposed with respect thereto.
"
Taxing Authority
" means any Governmental Entity having jurisdiction in matters relating to Tax
matters.
"
Transactions
" means the Merger, the LLC Sub Merger and the other transactions contemplated
by this Agreement and each other agreement to be executed and delivered in
connection with this Agreement.
"
Transfer Taxes
" means any transfer, sales, use, stamp, registration or other similar Taxes;
provided
, for the avoidance of doubt, that Transfer Taxes shall not include any
income, franchise or similar taxes.
"
Voting Debt
" of a Person means bonds, debentures, notes or other Indebtedness having the
right to vote (or convertible into securities having the right to vote) on any
matters on which stockholders of such Person may vote.
"
Wells
" means all oil or gas wells, whether producing, operating, shut-in or
temporarily abandoned, located on an Oil and Gas Lease or any pooled,
communitized or unitized acreage that includes all or a part of such Oil and
Gas Lease or otherwise associated with an Oil and Gas Property of the
applicable Person or any of its Subsidiaries, together with all oil, gas and
mineral production from such well.
"
Willful and Material Breach
" including the correlative term "Willfully and Materially Breach," shall mean
a breach that is material (or the committing of a breach that is material)
that is a consequence of an act or failure to take an act by the breaching
party with the knowledge (actual or constructive) that the taking of such act
(or the failure to take such act) would constitute, or would reasonably be
expected to result in, a breach of this Agreement.
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EXHIBIT A
Form of Certificate of Incorporation of the Surviving Corporation
[
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EXHIBIT B
Form of Bylaws of the Surviving Corporation
[
Omitted.
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EXHIBIT C
Form of LLC Sub Merger Agreement
[
Omitted.
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Annex B
January 10, 2024
The Board of Directors
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma, 73118
Members of the Board of Directors:
We understand that Chesapeake Energy Corporation ("
Chesapeake
") proposes to enter into an Agreement and Plan of Merger (the "
Merger Agreement
"), with Southwestern Energy Company ("
Southwestern
"), Hulk Merger Sub, Inc., a wholly owned subsidiary of Chesapeake ("
Merger Sub
") and Hulk LLC Sub, LLC, a wholly owned subsidiary of Chesapeake ("
LLC Sub
"). Pursuant to the Merger Agreement, (i) Merger Sub will merge with and into
Southwestern, with Southwestern being the surviving corporation as a wholly
owned subsidiary of Chesapeake (the "
Merger
"), and (ii) immediately after the Merger, the surviving corporation shall be
merged with and into LLC Sub, with LLC Sub being the surviving entity as a
wholly owned subsidiary of Chesapeake. As a result of the Merger, each
outstanding share of common stock, par value $0.01 per share, of Southwestern
(the "
Southwestern Common Stock
"), other than Excluded Shares (as defined in the Merger Agreement), will be
converted into the right to receive 0.0867 (the "
Exchange Ratio
") shares of common stock, par value $0.01 per share, of Chesapeake (the "
Chesapeake Common Stock
"). The terms and conditions of the Merger are more fully set forth in the
Merger Agreement.
The Board of Directors has asked us whether, in our opinion, the Exchange
Ratio pursuant to the Merger Agreement is fair, from a financial point of
view, to Chesapeake.
In connection with rendering our opinion, we have, among other things:
(i)
reviewed certain publicly available business and financial information
relating to Southwestern and Chesapeake that we deemed to be relevant,
including publicly available research analysts' estimates;
(ii)
reviewed certain internal projected financial and reserves data relating to
Southwestern and furnished to us by the management of Chesapeake and certain
internal projected financial and reserves data relating to Chesapeake prepared
and furnished to us by management of Chesapeake, each as approved for our use
by Chesapeake (the "
Forecasts
");
(iii)
reviewed certain estimates prepared and furnished to us by the management of
Chesapeake of the cost savings and revenue synergies (together, the "
Synergies
") estimated to result from the Merger and the amounts and the timing of the
realization of such Synergies, as approved for our use by Chesapeake;
(iv)
discussed with managements of Chesapeake and Southwestern their assessment of
the past and current operations of Southwestern, the current financial
condition and prospects of Southwestern and the Forecasts relating to
Southwestern, and discussed with management of Chesapeake their assessment of
the past and current operations of Chesapeake, the current financial condition
and prospects of Chesapeake, and the Forecasts, including the Synergies;
(v)
reviewed the reported prices and the historical trading activity of
Southwestern Common Stock and Chesapeake Common Stock;
(vi)
compared the financial performance of Southwestern and Chesapeake and their
respective stock market trading multiples with those of certain other publicly
traded companies that we deemed relevant;
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(vii)
reviewed the financial terms and conditions of a draft, dated January 10,
2024, of the Merger Agreement; and
(viii)
performed such other analyses and examinations and considered such other
factors that we deemed appropriate.
For purposes of our analysis and opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information publicly
available, and all of the information supplied or otherwise made available to,
discussed with, or reviewed by us, without any independent verification of
such information (and have not assumed responsibility or liability for any
independent verification of such information), and have further relied upon
the assurances of the management of Chesapeake that they are not aware of any
facts or circumstances that would make such information inaccurate or
misleading. With respect to the Forecasts as well as the Synergies, we have
assumed with your consent that they have been reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the management of Chesapeake as to the future financial performance of
Chesapeake and Southwestern and the other matters covered thereby. We have
relied, at the direction of Chesapeake on the assessments of the management of
Chesapeake as to Chesapeake's ability to achieve the Synergies and have been
advised by Chesapeake, and have assumed with your consent that the Synergies
will be realized in the amounts and at the times projected. We express no view
as to the Forecasts, the Synergies, or the assumptions on which they are based.
For purposes of our analysis and opinion, we have assumed, in all respects
material to our analysis, that the final executed Merger Agreement will not
differ (other than in immaterial respects) from the draft Merger Agreement
reviewed by us, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger will be satisfied without waiver or modification thereof. We have
further assumed, in all respects material to our analysis, that all
governmental, regulatory or other consents, approvals or releases necessary
for the consummation of the Merger will be obtained without any delay,
limitation, restriction or condition that would have an adverse effect on
Southwestern, Chesapeake or the consummation of the Merger or reduce the
contemplated benefits to Chesapeake of the Merger.
We have not conducted a physical inspection of the properties or facilities of
Southwestern or Chesapeake and have not made or assumed any responsibility for
making any independent valuation or appraisal of the assets or liabilities
(including any contingent, derivative or other off-balance sheet assets and
liabilities) of Southwestern or Chesapeake, nor have we been furnished with
any such valuations or appraisals, nor have we evaluated the solvency or fair
value of Southwestern or Chesapeake under any state or federal laws relating
to bankruptcy, insolvency or similar matters. Our opinion is necessarily based
upon information made available to us as of the date hereof and financial,
economic, market and other conditions as they exist and as can be evaluated on
the date hereof. It is understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise or reaffirm
this opinion.
We have not been asked to pass upon, and express no opinion with respect to,
any matter other than the fairness to Chesapeake, from a financial point of
view, of the Exchange Ratio. We do not express any view on, and our opinion
does not address, the fairness of the proposed transaction to, or any
consideration received in connection therewith by, the holders of any class of
securities, creditors or other constituencies of Southwestern, nor as to the
fairness of the amount or nature of any compensation to be paid or payable to
any of the officers, directors or employees of Chesapeake or Southwestern, or
any class of such persons, whether relative to the Exchange Ratio or
otherwise. We have not been asked to, nor do we express any view on, and our
opinion does not address, any other term or aspect of the Merger Agreement or
the Merger, including, without limitation, the structure or form of the
Merger, or any term or aspect of any other agreement or instrument
contemplated by the Merger Agreement or entered into or amended in connection
with the Merger Agreement. Our opinion does not address the relative merits of
the Merger as compared to other business or financial strategies that might be
available to Chesapeake, nor does it address the underlying business decision
of Chesapeake to engage in the Merger. We do not express any view on, and our
opinion does not address, what the value of Chesapeake Common Stock actually
will be when issued or
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the prices at which Chesapeake Common Stock will trade at any time, including
following announcement or consummation of the Merger. Our opinion does not
constitute a recommendation to the Board of Directors or to any other persons
in respect of the Merger, including as to how any holder of shares of
Chesapeake Common Stock should vote or act in respect of the Merger. We are
not expressing any opinion as to the prices at which shares of Southwestern
Common Stock will trade at any time, as to the potential effects of volatility
in the credit, financial and stock markets on Southwestern or the Merger or as
to the impact of the Merger on the solvency or viability of Southwestern or
the ability of Southwestern to pay its obligations when they come due. We are
not legal, regulatory, accounting or tax experts and have assumed the accuracy
and completeness of assessments by Chesapeake and its advisors with respect to
legal, regulatory, accounting and tax matters.
We have acted as financial advisor to Chesapeake in connection with the Merger
and have received retainer fees for our services and will receive additional
fees, a portion of which is payable upon rendering this opinion and a
substantial portion of which is contingent upon the consummation of the
Merger. We may receive an additional discretionary fee in connection with the
Merger as determined by Chesapeake in its sole discretion. Chesapeake has also
agreed to reimburse our expenses and to indemnify us against certain
liabilities arising out of our engagement. During the two year period prior to
the date hereof, Evercore Group L.L.C. and its affiliates have provided
financial advisory or other services to Chesapeake and received fees for the
rendering of these services. In addition, during the two year period prior to
the date hereof, Evercore Group L.L.C. and its affiliates have not been
engaged to provide financial advisory or other services to Southwestern and we
have not received any compensation from Southwestern during such period. We
may provide financial advisory or other services to Chesapeake and
Southwestern in the future, and in connection with any such services we may
receive compensation.
Evercore Group L.L.C. and its affiliates engage in a wide range of activities
for our and their own accounts and the accounts of customers, including
corporate finance, mergers and acquisitions, equity sales, trading and
research, private equity, placement agent, asset management and related
activities. In connection with these businesses or otherwise, Evercore Group
L.L.C. and its affiliates and/or our or their respective employees, as well as
investment funds in which any of them may have a financial interest, may at
any time, directly or indirectly, hold long or short positions and may trade
or otherwise effect transactions for their own accounts or the accounts of
customers, in debt or equity securities, senior loans and/or derivative
products or other financial instruments of or relating to Chesapeake,
Southwestern, potential parties to the Merger and/or any of their respective
affiliates or persons that are competitors, customers or suppliers of
Chesapeake or Southwestern.
Our financial advisory services and this opinion are provided for the
information and benefit of the Board of Directors (in its capacity as such) in
connection with its evaluation of the proposed Merger. The issuance of this
opinion has been approved by an Opinion Committee of Evercore Group L.L.C.
This opinion may not be disclosed, quoted, referred to or communicated (in
whole or in part) to any third party for any purpose whatsoever except with
our prior written approval, except Chesapeake may reproduce this opinion in
full in any document that is required to be filed with the U.S. Securities and
Exchange Commission and required to be mailed by Chesapeake to its
stockholders relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to
Chesapeake.
Very truly yours,
EVERCORE GROUP L.L.C.
By:
Dan Ward
Senior Managing Director
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Annex C
200 West Street | New York, NY 10282-2198
Tel: 212-902-1000 | Fax: 212-902-3000
PERSONAL AND CONFIDENTIAL
January 10, 2024
Board of Directors
Southwestern Energy Company
10000 Energy Drive
Spring, TX 77389
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than Chesapeake Energy Corporation ("Parent") and
its affiliates) of the outstanding shares of common stock, par value $0.01 per
share (the "Company Shares"), of Southwestern Energy Company (the "Company")
of the exchange ratio of 0.0867 shares of common stock, par value $0.01 per
share (the "Parent Shares"), of Parent to be paid to such holders for each
Company Share (the "Exchange Ratio") pursuant to the Agreement and Plan of
Merger, dated as of January 10, 2024 (the "Agreement"), by and among Parent,
Hulk Merger Sub, Inc., a wholly owned subsidiary of Parent, Hulk LLC Sub, LLC,
a wholly owned subsidiary of Parent, and the Company.
Goldman Sachs & Co. LLC and its affiliates are engaged in advisory,
underwriting, lending, and financing, principal investing, sales and trading,
research, investment management and other financial and non-financial
activities and services for various persons and entities. Goldman Sachs & Co.
LLC and its affiliates and employees, and funds or other entities they manage
or in which they invest or have other economic interests or with which they
co-invest, may at any time purchase, sell, hold or vote long or short
positions and investments in securities, derivatives, loans, commodities,
currencies, credit default swaps and other financial instruments of the
Company, Parent, any of their respective affiliates and third parties, and any
of their respective affiliates or any currency or commodity that may be
involved in the transactions contemplated by the Agreement (the "Transaction").
We have acted as financial advisor to the Company in connection with, and have
participated in certain of the negotiations leading to, the Transaction. We
expect to receive fees for our services in connection with the Transaction,
the principal portion of which is contingent upon consummation of the
Transaction, and the Company has agreed to reimburse certain of our expenses
arising, and indemnify us against certain liabilities that may arise, out of
our engagement. We may in the future provide financial advisory and/or
underwriting services to the Company, Parent and their respective affiliates
for which Goldman Sachs Investment Banking may receive compensation.
In connection with this opinion, we have reviewed, among other things, the
Agreement; annual reports to stockholders and Annual Reports on Form 10-K of
the Company and Parent for the five fiscal years ended December 31, 2022;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and Parent; certain other communications from the Company and
Parent to their respective stockholders; certain publicly available research
analyst reports for the Company and Parent; certain internal financial
analyses and forecasts for Parent standalone prepared by the management of
Parent; and certain internal financial analyses and forecasts for the Company,
certain financial analyses and forecasts for Parent standalone, certain
financial analyses and forecasts for Parent pro forma for the Transaction, and
certain forecasts related to the expected utilization by the Company of
certain net operating loss carryforwards and tax credits, in each case, as
prepared by the management of the Company and approved for our use by the
Company (the "Forecasts"), including certain operating synergies projected by
the management of the Company to result from the Transaction, as approved for
our use by the Company (the "Synergies"). We have also held discussions with
members of the senior management of the Company and Parent regarding their
assessment of the strategic rationale for, and the potential benefits of, the
Transaction and the past and
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current business operations, financial condition and future prospects of the
Company and Parent; reviewed the reported price and trading activity for the
Company Shares and the Parent Shares; compared certain financial and stock
market information for the Company and Parent with similar information for
certain other companies the securities of which are publicly traded; reviewed
the financial terms of certain recent business combinations in the exploration
and production industry; and performed such other studies and analyses, and
considered such other factors, as we deemed appropriate.
For purposes of rendering this opinion, we have, with your consent, relied
upon and assumed the accuracy and completeness of all of the financial, legal,
regulatory, tax, accounting and other information provided to, discussed with
or reviewed by, us, without assuming any responsibility for independent
verification thereof. In that regard, we have assumed with your consent that
the Forecasts, including the Synergies, have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of the Company. We have not made an independent evaluation or
appraisal of the assets and liabilities (including any contingent, derivative
or other off-balance-sheet assets and liabilities) of the Company or Parent or
any of their respective subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have assumed that all governmental,
regulatory or other consents and approvals necessary for the consummation of
the Transaction will be obtained without any adverse effect on the Company or
Parent or on the expected benefits of the Transaction in any way meaningful to
our analysis. We have assumed that the Transaction will be consummated on the
terms set forth in the Agreement, without the waiver or modification of any
term or condition the effect of which would be in any way meaningful to our
analysis.
Our opinion does not address the underlying business decision of the Company
to engage in the Transaction, or the relative merits of the Transaction as
compared to any strategic alternatives that may be available to the Company;
nor does it address any legal, regulatory, tax or accounting matters. We were
not requested to solicit, and did not solicit, interest from other parties
with respect to an acquisition of, or other business combination with, the
Company or any other alternative transaction. This opinion addresses only the
fairness from a financial point of view to the holders (other than Parent and
its affiliates) of the Company Shares, as of the date hereof, of the Exchange
Ratio pursuant to the Agreement. We do not express any view on, and our
opinion does not address, any other term or aspect of the Agreement or
Transaction or any term or aspect of any other agreement or instrument
contemplated by the Agreement or entered into or amended in connection with
the Transaction, including, the fairness of the Transaction to, or any
consideration received in connection therewith by, the holders of any other
class of securities, creditors, or other constituencies of the Company; nor as
to the fairness of the amount or nature of any compensation to be paid or
payable to any of the officers, directors or employees of the Company, or
class of such persons, in connection with the Transaction, whether relative to
the Exchange Ratio pursuant to the Agreement or otherwise. We are not
expressing any opinion as to the prices at which the Parent Shares or the
Company Shares will trade at any time or, as to the potential effects of
volatility in the credit, financial and stock markets on the Company, Parent
or the Transaction or as to the impact of the Transaction on the solvency or
viability of the Company or Parent or the ability of the Company or Parent to
pay their respective obligations when they come due. Our opinion is
necessarily based on economic, monetary, market and other conditions as in
effect on, and the information made available to us as of, the date hereof and
we assume no responsibility for updating, revising or reaffirming this opinion
based on circumstances, developments or events occurring after the date
hereof. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the Transaction and such opinion does not
constitute a recommendation as to how any holder of the Company Shares should
vote with respect to such Transaction or any other matter. This opinion has
been approved by a fairness committee of Goldman Sachs & Co. LLC.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, Exchange Ratio pursuant to the Agreement is fair from a financial
point of view to the holders (other than Parent and its affiliates) of the
Company Shares.
Very truly yours,
(GOLDMAN SACHS & CO. LLC)
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SOUTHWESTERN ENERGY COMPANY ATTN: MELISSA D. MCCARTY10000 ENERGY DRIVE SPRING,
TX 77389 SCAN TO VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode
aboveUse the Internet to transmit your voting instructions and for electronic
delivery of information. Vote by 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date for shares held directly or in a Plan. Have your
proxy card in hand when you access the web site and follow the instructions to
obtain your records and to create an electronic voting instruction
form.ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALSIf you would like to reduce
the costs incurred by our company in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet and, when
prompted, indicate that you agree to receive or access proxy materials
electronically in future years.VOTE BY PHONE - 1-800-690-6903Use any touch-
tone telephone to transmit your voting instructions . Vote by 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date for shares held
directly or in a Plan. Have your proxy card in hand when you call and then
follow the instructions.VOTE BY MAILMark, sign and date your proxy card and
return it in the postage-paid envelope we have provided or return it to Vote
Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: V33306-TBD KEEP THIS PORTION FOR
YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND
RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
SOUTHWESTERN ENERGY COMPANY The Board of Directors recommends a vote FOR
Proposals 1, 2 and 3. For Against Abstain 1.Approval of the Agreement and Plan
of Merger, dated as of January 10, 2024, by and among Southwestern Energy
Company ("Southwestern") and Chesapeake Energy Corporation ("Chesapeake") and
Hulk Merger Sub, Inc. and Hulk LLC Sub, LLC, each a newly formed, wholly owned
subsidiary of Chesapeake, a copy of which is attached as Annex A to the joint
proxy statement/prospectus (the "Merger Proposal"). ! ! ! 2.Approval, on a
non-binding, advisory basis, of the compensation that may be paid or become
payable to Southwestern's named executive officers that is based on or
otherwise related to the Merger. ! ! ! 3.Approval of the adjournment of the
Southwestern Special Meeting, if necessary or appropriate, to solicit
additional votes from shareholders if there are not sufficient votes to adopt
the Merger Proposal. ! ! ! Please sign exactly as your name(s) appear(s)
hereon. When signing as attorney, executor, administrator, or other fiduciary,
please give full title as such. Joint owners should each sign personally. All
holders must sign. If a corporation or partnership, please sign in full
corporate or partnership name by authorized officer. Signature [PLEASE SIGN
WITHIN BOX]DateSignature (Joint Owners)Date
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Important Notice Regarding the Availability of Proxy Materials for the Special
Meeting: The Notice & Proxy Statement is available at www.proxyvote.com.
V33307-TBD SOUTHWESTERN ENERGY COMPANYSPECIAL MEETING OF SHAREHOLDERS10000
ENERGY DRIVE SPRING, TEXAS 77389THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS The shareholder(s) hereby appoint(s) William J. Way and
Christopher W. Lacy, or either of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote,
as designated on the reverse side of this ballot, all of the shares of Common
Stock of SOUTHWESTERN ENERGY COMPANY that the shareholder(s) is/are entitled
to vote at the Special Meeting of Shareholders to be held at 10:00 a.m, CDT on
June 18, 2024, 2024, at www.virtualshareholdermeeting.com/SWN2024SM, and any
adjournment or postponement thereof. This proxy, when properly executed, will
be voted in the manner directed herein. If no such direction is made, this
proxy will be voted in accordance with the recommendation of the Board of
Directors, FOR Proposals 1, 2 and 3. Continued and to be signed on reverse side
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