EX-99.T3E-1 4 d601030dex99t3e1.htm EX-99.T3E-1 EX-99.T3E-1

Exhibit T3E-1

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

 

 

In re:

 

PETROQUEST ENERGY, INC., et al.,

 

Debtors.1

  

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Chapter 11

 

Case No. 18-36322 (DRJ)

 

(Jointly Administered)

 

  

FIRST AMENDED DISCLOSURE STATEMENT FOR THE

DEBTORS’ CHAPTER 11 PLAN OF REORGANIZATION

 

PORTER HEDGES LLP

John F. Higgins (TX 09597500)

Joshua W. Wolfshohl (TX 24038592)

M. Shane Johnson (TX 24083263)

1000 Main Street, 36th Floor

Houston, Texas 77002

PROPOSED ATTORNEYS FOR THE DEBTORS

Dated: November 14, 2018

 

THIS IS NOT A SOLICITATION OF AN ACCEPTANCE OR REJECTION OF THE PLAN. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL THIS DISCLOSURE STATEMENT HAS BEEN CONDITIONALLY APPROVED BY THE COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT BEEN CONDITIONALLY APPROVED BY THE COURT FOR PURPOSES OF SOLICITATION. THE INFORMATION IN THIS DISCLOSURE STATEMENT IS SUBJECT TO CHANGE. THIS DISCLOSURE STATEMENT IS NOT AN OFFER TO SELL ANY SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY ANY SECURITIES.

 

 

1 

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are as follows: PetroQuest Energy, Inc. (0714), PetroQuest Energy, L.L.C. (2439), TDC Energy LLC (8877), PetroQuest Oil & Gas, L.L.C. (1170), PQ Holdings LLC (7576), Pittrans Inc. (1747), and Sea Harvester Energy Development, L.L.C. (5903). The address of the Debtors’ headquarters is: 400 E. Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana 70508.


THE DEBTORS ARE PROVIDING THE INFORMATION IN THIS DISCLOSURE STATEMENT TO HOLDERS OF CLAIMS FOR PURPOSES OF SOLICITING VOTES TO ACCEPT OR REJECT THE DEBTORS’ CHAPTER 11 PLAN OF REORGANIZATION ATTACHED HERETO AS EXHIBIT A. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE RELIED UPON OR USED BY ANY ENTITY FOR ANY OTHER PURPOSE. PRIOR TO DECIDING WHETHER AND HOW TO VOTE ON THE PLAN, EACH HOLDER ENTITLED TO VOTE SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS DISCLOSURE STATEMENT, INCLUDING THE RISK FACTORS DESCRIBED IN ARTICLE VIII HEREIN.

THE PLAN IS SUPPORTED BY THE DEBTORS, PREPETITION TERM LOAN LENDERS, AND COMBINED CONSENTING SECOND LIEN NOTEHOLDERS PURSUANT TO THE RESTRUCTURING SUPPORT AGREEMENT, AND ALL SUCH PARTIES URGE HOLDERS OF CLAIMS WHOSE VOTES ARE BEING SOLICITED TO ACCEPT THE PLAN.

HOLDERS OF CLAIMS SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, SECURITIES, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS BEFORE VOTING ON THE PLAN.

THIS DISCLOSURE STATEMENT CONTAINS, AMONG OTHER THINGS, SUMMARIES OF THE PLAN, CERTAIN STATUTORY PROVISIONS, AND CERTAIN ANTICIPATED EVENTS IN THE DEBTORS’ CHAPTER 11 CASES. ALTHOUGH THE DEBTORS BELIEVE THAT THESE SUMMARIES ARE FAIR AND ACCURATE, THESE SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS OR EVERY DETAIL OF SUCH ANTICIPATED EVENTS. IN THE EVENT OF ANY INCONSISTENCY OR DISCREPANCY BETWEEN A DESCRIPTION IN THIS DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS OF THE PLAN OR ANY OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE, THE PLAN OR SUCH OTHER DOCUMENTS WILL GOVERN FOR ALL PURPOSES. FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE DEBTORS’ MANAGEMENT EXCEPT WHERE OTHERWISE SPECIFICALLY NOTED. THE DEBTORS DO NOT REPRESENT OR WARRANT THAT THE INFORMATION CONTAINED HEREIN OR ATTACHED HERETO IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION.

THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 3016(B) AND IS NOT NECESSARILY PREPARED IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER SIMILAR LAWS.


THIS DISCLOSURE STATEMENT WAS NOT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE AUTHORITY AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DEBTORS WILL RELY ON SECTION 1145(a) OF THE BANKRUPTCY CODE TO EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND BLUE SKY LAWS THE OFFER, ISSUANCE, AND DISTRIBUTION OF NEW EQUITY AND NEW SECOND LIEN PIK NOTES UNDER THE PLAN. NEITHER THE SOLICITATION NOR THIS DISCLOSURE STATEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.

CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING STATEMENTS INCORPORATED BY REFERENCE, PROJECTED FINANCIAL INFORMATION, AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. THIS DISCLOSURE STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE SAFE HARBOR ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND THESE STATEMENTS, INCLUDING THOSE RELATING TO THE INTENT, BELIEFS, PLANS OR EXPECTATIONS OF THE DEBTORS ARE BASED UPON CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND ASSUMPTIONS DESCRIBED HEREIN.

FURTHER, READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS HEREIN ARE BASED ON ASSUMPTIONS THAT ARE BELIEVED TO BE REASONABLE, BUT ARE SUBJECT TO A WIDE RANGE OF RISKS IDENTIFIED IN THIS DISCLOSURE STATEMENT. DUE TO THESE UNCERTAINTIES, READERS CANNOT BE ASSURED THAT ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT. THE DEBTORS ARE UNDER NO OBLIGATION TO (AND EXPRESSLY DISCLAIM ANY OBLIGATION TO) UPDATE OR ALTER ANY FORWARD-LOOKING STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, UNLESS INSTRUCTED TO DO SO BY THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS (THE “COURT”).

NO INDEPENDENT AUDITOR OR ACCOUNTANT HAS REVIEWED OR APPROVED THE FINANCIAL PROJECTIONS OR THE LIQUIDATION ANALYSIS HEREIN. THE DEBTORS HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR ADVICE, OR TO MAKE ANY REPRESENTATION, IN CONNECTION WITH THE PLAN OR THIS DISCLOSURE STATEMENT.


THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE, AND MAY NOT BE CONSTRUED AS, AN ADMISSION OF FACT, LIABILITY, STIPULATION, OR WAIVER. THE DEBTORS MAY SEEK TO INVESTIGATE, FILE, AND PROSECUTE CLAIMS AND MAY OBJECT TO CLAIMS AFTER THE CONFIRMATION OR EFFECTIVE DATE OF THE PLAN IRRESPECTIVE OF WHETHER THIS DISCLOSURE STATEMENT IDENTIFIES ANY SUCH CLAIMS OR OBJECTIONS TO CLAIMS.

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE STATEMENT.

THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN OR OBJECTING TO CONFIRMATION. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY PARTY FOR ANY OTHER PURPOSE. ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.

IF THE PLAN IS CONFIRMED BY THE COURT AND THE EFFECTIVE DATE OCCURS, ALL HOLDERS OF CLAIMS AND INTERESTS (INCLUDING THOSE HOLDERS OF CLAIMS WHO DO NOT SUBMIT BALLOTS (AS DEFINED BELOW) TO ACCEPT OR REJECT THE PLAN, OR WHO ARE NOT ENTITLED TO VOTE ON THE PLAN) WILL BE BOUND BY THE TERMS OF THE PLAN AND THE RESTRUCTURING TRANSACTION CONTEMPLATED THEREBY.


TABLE OF CONTENTS

 

              Page  

I.

  INTRODUCTION      1  

II.

  OVERVIEW OF THE DEBTORS’ OPERATIONS      6  
  A.    The Debtors’ Business      6  
  B.    The Debtors’ History      6  
  C.    The Debtors’ Corporate Structure      10  
  D.    Directors and Officers      10  
  E.    The Debtors’ Capital Structure      11  

III.

  KEY EVENTS LEADING TO CHAPTER 11 CASES      15  
  A.    Restructuring Negotiations      16  
  B.    The Restructuring Support Agreement      16  

IV.

  DEVELOPMENTS AND ANTICIPATED EVENTS DURING THE CHAPTER 11 CASES      19  
  A.    First Day Pleadings      19  
  B.    Other Administrative Motions and Retention Applications      20  
  C.    Claims Bar Date      21  
  D.    Assumption and Rejection of Executory Contracts and Unexpired Leases      21  
  E.    Litigation Matters      21  

V.

  SUMMARY OF THE PLAN      21  
  A.    Administrative Claims, Professional Fee Claims, and Priority Claims      21  
  B.    Classification of Claims and Interests      24  
  C.    Treatment of Claims and Interests      24  
  D.    Means for Implementation of the Plan      31  
  E.    Treatment of Executory Contracts and Unexpired Leases      41  
  F.    Provisions Governing Distributions      44  
  G.    Procedures for Resolving Contingent, Unliquidated, and Disputed Claims      50  
  H.    Settlement, Release, Injunction, and Related Provisions      53  
  I.    Conditions Precedent to Confirmation and Consummation of the Plan      60  
  A.    Modification, Revocation, or Withdrawal of the Plan      63  
  B.    Retention of Jurisdiction      63  
  C.    Miscellaneous Provisions      66  
  D.    United States Reservation of Rights      69  

VI.

  TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES LAWS      70  

VII.

  CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN      72  
  A.    Introduction      72  
  B.    Certain U.S. Federal Income Tax Consequences of the Plan to the Debtors      73  


  C.    Certain U.S. Federal Income Tax Consequences to Certain U.S. Holders of Claims      76  
  D.    Certain U.S. Federal Income Tax Consequences to Certain Non-U.S. Holders of Claims      84  
  E.    Information Reporting and Backup Withholding      90  

VIII.

  CERTAIN RISK FACTORS TO BE CONSIDERED      91  
  A.    Certain Bankruptcy Law Considerations      91  
  B.    Additional Factors Affecting the Value of the Reorganized Debtors and Recoveries Under the Plan      94  
  C.    Risks Relating to the Debtors’ Business and Financial Condition      96  
  D.    Factors Relating to Securities to Be Issued Under the Plan      98  
  E.    Additional Factors      99  

IX.

  VOTING PROCEDURES AND REQUIREMENTS      100  
  A.    Parties Entitled to Vote      100  
  B.    Voting Procedures      101  
  C.    Voting Deadline      102  
  D.    Waivers of Defects and Irregularities      103  

X.

  CONFIRMATION OF THE PLAN      104  
  A.    Confirmation Hearing      104  
  B.    Objections to Confirmation      104  
  C.    Requirements for Confirmation of the Plan      105  
  D.    Best Interests Test/Liquidation Analysis      107  
  E.    Feasibility      107  
  F.    Acceptance by Impaired Classes      108  
  G.    Additional Requirements for Nonconsensual Confirmation      108  
  H.    Valuation of the Debtors      109  

XI.

  ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN      110  
  A.    Alternative Plan of Reorganization      110  
  B.    Sale Under Section 363 of the Bankruptcy Code      110  
  C.    Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law      110  

XII.

  CONCLUSION AND RECOMMENDATION      111  

 

ii


EXHIBITS

 

EXHIBIT A    Plan of Reorganization
EXHIBIT B    Restructuring Support Agreement
EXHIBIT C    Liquidation Analysis
EXHIBIT D    Financial Projections
EXHIBIT E    Valuation Analysis
EXHIBIT F    Summary of Litigation
EXHIBIT G    Exit Facility Subscription Form

 

iii


I.

INTRODUCTION

PetroQuest Energy, Inc. (“PetroQuest”) and its debtor affiliates, as debtors and debtors in possession (collectively, the “Debtors”) submit this disclosure statement (the “Disclosure Statement”) pursuant to section 1125 of the Bankruptcy Code in connection with the solicitation of votes on the Debtors’ Chapter 11 Plan of Reorganization, dated November 6, 2018 (the “Plan,” attached hereto as Exhibit A).2 The Plan constitutes a separate chapter 11 plan for PetroQuest and each of the other Debtors. To the extent any inconsistencies exist between this Disclosure Statement and the Plan, the Plan governs.

The Debtors are commencing this solicitation after extensive discussions over the past several months among the Debtors and certain of their key creditor constituencies, including the holders of the fulcrum security, the Combined Prepetition Second Lien Noteholders. As a result of these negotiations, certain creditors holding 100% of the Debtors’ First Lien Claims and approximately 85% of the Debtors’ Second Lien Notes Claims entered into a restructuring support agreement (the “Restructuring Support Agreement”) with the Debtors, a copy of which is attached hereto as Exhibit B. Under the terms of the Restructuring Support Agreement, the Prepetition Term Loan Lenders and the Combined Prepetition Second Lien Noteholders who are, or later become, signatories to the Restructuring Support Agreement have agreed to a deleveraging transaction that would restructure the existing debt obligations of the Debtors in chapter 11 through the Plan (the “Restructuring”).

WHO IS ENTITLED TO VOTE: Under the Bankruptcy Code, only Holders of Claims or Interests in “impaired” Classes are entitled to vote on the Plan (unless, for reasons discussed in more detail below, such Holders are deemed to accept the Plan pursuant to section 1126(f) of the Bankruptcy Code or are deemed to reject the Plan pursuant to section 1126(g) of the Bankruptcy Code). Under section 1124 of the Bankruptcy Code, a Class of Claims or Interests is deemed to be “impaired” under the Plan unless (i) the Plan leaves unaltered the legal, equitable, and contractual rights to which such Claim or Interest entitles the Holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such Claim or Interest, the Plan, among other things, cures all existing defaults (other than defaults resulting from the initiation of these Chapter 11 Cases) and reinstates the maturity of such Claim or Interest as it existed before the default.

The following table summarizes: (i) the treatment of Claims and Interests under the Plan, (ii) which Classes are Impaired by the Plan, (iii) which Classes are entitled to vote on the Plan, and (iv) the estimated recoveries for Holders of Claims and Interests. The table is qualified in its entirety by reference to the full text of the Plan. For a more detailed summary of the terms and provisions of the Plan, see Section V—Summary of the Plan below.

 

2 

Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the Plan.


Class

  

Claim or

Equity Interest

  

Treatment

  

Impaired or

Unimpaired

  

Entitled to Vote

   Approx.
%
Recovery
1   

Other Priority

Claims

   In full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Other Priority Claim, each Holder thereof shall receive (i) payment in full, in Cash, of the unpaid portion of its Allowed Other Priority Claim or (ii) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.    Unimpaired   

No (Deemed

to Accept)

   100%
2    Other Secured Claims    Except to the extent that a Holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Other Secured Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Other Secured Claim, (iii) the return or abandonment of the collateral securing such Allowed Other Secured Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.    Unimpaired    No (Deemed to Accept)    100%
3    Secured Tax Claims    Except to the extent that a Holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Secured Tax Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Secured Tax Claim, (iii) the return or abandonment of the collateral securing such Allowed Secured Tax Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.    Unimpaired    No (Deemed to Accept)    100%
4    First Lien Claims    On or before the Effective Date, each Holder of a First Lien Claim will receive Cash equal to the amount of its Allowed Claim from funds available pursuant to the Exit Facility.    Unimpaired    No (Deemed to Accept)    100%

 

2


Class

  

Claim or

Equity Interest

  

Treatment

  

Impaired or

Unimpaired

  

Entitled to Vote

   Approx.
%
Recovery
5    Prepetition Second Lien Notes Claims    Except to the extent that a Holder of an Allowed Prepetition Second Lien Notes Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $275,045,768 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien PIK Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium and $80 million in New Second Lien PIK Notes.    Impaired    Yes    21-49%3
6    Prepetition Second Lien PIK Notes Claims    Except to the extent that a Holder of an Allowed Prepetition Second Lien PIK Notes Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien PIK Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $9,427,000 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New Second Lien PIK Notes.    Impaired    Yes    21-49%4

 

3 

The estimated range of recoveries for Class 5 is based on the Reorganized Debtors’ Value in the Valuation Analysis attached hereto as Exhibit E.

4 

The estimated range of recoveries for Class 6 is based on the Reorganized Debtors’ Value in the Valuation Analysis attached hereto as Exhibit E.

 

3


Class

  

Claim or

Equity Interest

  

Treatment

  

Impaired or

Unimpaired

  

Entitled to Vote

   Approx.
%
Recovery
7    General Unsecured Claims    Except to the extent that a Holder of an Allowed General Unsecured Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of each Allowed General Unsecured Claim and of and in exchange for each Allowed General Unsecured Claim, each such Holder shall receive its Pro Rata share of the General Unsecured Claims Distribution on the Effective Date; provided, however, that to the extent that Class 7 votes to accept the Plan, the Holders of Second Lien Notes Claims shall not receive any distribution on account of their Allowed Second Lien Deficiency Claims.    Impaired    Yes    Class 7
Accepts:

9-38%5

 

Class 7
Rejects:

0.1-0.2%6

8    Section 510(b) Claims    Section 510(b) Claims, if any, shall be discharged, canceled, released, and extinguished as of the Effective Date, and shall be of no further force or effect, and Holders of Section 510(b) Claims shall not receive any distribution on account of such Section 510(b) Claims.    Impaired    No (Deemed to Reject)    0%
9    Intercompany Claims    Intercompany Claims shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Claims other than in the ordinary course of business of the Reorganized Debtors, as applicable. For the avoidance of doubt, Intercompany Claims that are Reinstated as of the Effective Date, if any, shall be subordinated in all respects to the Exit Facility and the New Second Lien PIK Notes.    Unimpaired / Impaired    No (Deemed to Either Accept or Reject)    N/A
10    Intercompany Interests    Intercompany Interests shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Interests.    Unimpaired / Impaired    No (Deemed to Either Accept or Reject)    N/A
11    PetroQuest Interests    On the Effective Date, or as soon thereafter as reasonably practicable, all PetroQuest Interests will be extinguished and the Holders of PetroQuest Interests shall not receive or retain any distribution, property, or other value on account of their PetroQuest Interests.    Impaired    No (Deemed to Reject)    0%

 

5 

Includes the waiver of the Second Lien Deficiency Claims, a range of rejection damage claims from $0-$608,000, and for illustrative purposes only, Class 7 includes a range from $0-$2.5 million for the litigation Claims, which are currently disputed, unliquidated Claims. This range is not an estimate of the value of the litigation Claims because among other reasons, the Debtors believe they have complete defenses to the litigation Claims and several of the lawsuits do not claim or allege specific amounts as damages.

6 

Includes a range of the Allowed amount of the Second Lien Deficiency Claims from $156,577,000-$239,877,000.

 

4


WHERE TO FIND ADDITIONAL INFORMATION: PetroQuest currently files annual, quarterly and current reports, proxy statements, and other information with the SEC. Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov and performing a search under the “Company Filings” link. Information including, but not limited to, that in the following filings incorporated by reference is deemed to be part of this Disclosure Statement, except for any information superseded or modified by information contained expressly in this Disclosure Statement. You should not assume that the information in this Disclosure Statement is current as of any date other than the date on the first page of the Disclosure Statement. Any information PetroQuest files under Section 13(a), 13(c), 14 or 15(d) of the Securities Act that updates information in the filings incorporated by reference will update and supersede that information:

 

   

Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed on March 8, 2018 and amended on March 29, 2018 and April 27, 2018, including portions of the definitive Proxy Statement on Schedule 14A filed on April 7, 2018 incorporated by reference therein;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, filed after the Petition Date;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed on August 7, 2018;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed on May 8, 2018; and

 

   

Current Reports on Form 8-K filed on October 31, 2018, October 19, 2018, October 5, 2018, September 28, 2018, September 17, 2018, August 31, 2018, August 15, 2018, July 31, 2018, July 10, 2018, June 22, 2018, May 18, 2018, May 7, 2018, April 17, 2018, February 20, 2018, and February 1, 2018.

DECIDING HOW TO VOTE ON THE PLAN: All Holders of Claims are encouraged to read this Disclosure Statement, its exhibits, and the Plan carefully and in their entirety before, if applicable, deciding to vote either to accept or to reject the Plan. This Disclosure Statement contains important information about the Plan, considerations pertinent to acceptance or rejection of the Plan and developments concerning the Chapter 11 Cases.

IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE OF 5:00 P.M., PREVAILING CENTRAL TIME, ON DECEMBER 17, 2018, UNLESS EXTENDED BY THE DEBTORS AND THE REQUISITE CREDITORS. IF YOU HOLD YOUR CLAIMS THROUGH A NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR NOMINEE FOR RETURNING YOUR VOTING INSTRUCTIONS. UNLESS OTHERWISE INSTRUCTED, PLEASE RETURN YOUR BENEFICIAL HOLDER BALLOT TO YOUR NOMINEE OR YOUR VOTE WILL NOT BE COUNTED.

 

5


EACH BALLOT ADVISES THAT CREDITORS WHO (A) VOTE TO ACCEPT THE PLAN OR (B) DO NOT VOTE OR VOTE TO REJECT THE PLAN AND DO NOT ELECT TO OPT OUT OF THE RELEASE PROVISIONS CONTAINED IN ARTICLE VIII OF THE PLAN SHALL BE DEEMED TO HAVE CONSENTED TO THE RELEASE, INJUNCTION, AND EXCULPATION PROVISIONS SET FORTH IN ARTICLE VIII OF THE PLAN AND UNCONDITIONALLY, IRREVOCABLY, AND FOREVER RELEASED AND DISCHARGED THE RELEASED PARTIES FROM ANY AND ALL CAUSES OF ACTION. CREDITORS WHO DO NOT GRANT THE RELEASES CONTAINED IN ARTICLE VIII OF THE PLAN WILL NOT RECEIVE THE BENEFIT OF THE RELEASES SET FORTH IN ARTICLE VIII OF THE PLAN.

ARTICLE IX OF THIS DISCLOSURE STATEMENT PROVIDES ADDITIONAL DETAILS AND IMPORTANT INFORMATION REGARDING VOTING PROCEDURES AND REQUIREMENTS. PLEASE READ ARTICLE IX OF THIS DISCLOSURE STATEMENT CAREFULLY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.

 

THE DEBTORS STRONGLY RECOMMEND THAT YOU VOTE TO ACCEPT THE

PLAN. THE DEBTORS AND THE CONSENTING CREDITORS BELIEVE THAT THE PLAN MAXIMIZES THE VALUE OF THE DEBTORS’ ESTATES AND REPRESENTS THE BEST AVAILABLE ALTERNATIVE FOR COMPLETING THE CHAPTER 11 CASES.

 

II.

OVERVIEW OF THE DEBTORS’ OPERATIONS

 

  A.

The Debtors’ Business

The Debtors are an independent oil and gas company created in 1998 through a reverse merger involving Optima Petroleum Corp. and American Explorer, L.L.C., and are engaged in the exploration, development, acquisition and operation of oil and gas properties in Texas and Louisiana, primarily in the Cotton Valley, Gulf Coast Basin, and Austin Chalk plays. The Debtors maintain offices in Lafayette, Louisiana and The Woodlands, Texas. PetroQuest and the other Debtors, all of which are direct or indirect wholly-owned domestic subsidiaries of PetroQuest, currently employ 64 employees and utilize the services of an additional eight specialized and trained field workers and engineers through third-party service providers.

As of September 30, 2018, the Debtors reported total assets of approximately $130 million on their unaudited consolidated balance sheet, of which approximately $52 million were current assets. The remaining $78 million in reported assets related primarily to oil and gas properties, other property and equipment, and other assets. The Debtors reported consolidated net losses of approximately $1.8 million for the year ended December 31, 2017.

 

  B.

The Debtors’ History

Until 2002, the Debtors were focused exclusively in the Gulf Coast Basin with onshore properties principally in southern Louisiana and offshore properties in the shallow waters of the Gulf of Mexico shelf. During 2003, the Debtors began the implementation of their strategic goal of diversifying their reserves and production into longer life and lower risk onshore properties with the acquisition of the Carthage Field in East Texas. From 2005 through 2015, the Debtors further implemented this strategy by focusing their efforts in the Woodford Shale play in

 

6


Oklahoma, along with various other resource projects wherein the Debtors have drilled, operated and or participated in the drilling and completion of approximately 650 horizontal wells. Through these projects, the Debtors have gained valuable experience and will now focus in their two primary project areas: the Cotton Valley Formation in East Texas targeting economic natural gas and natural gas liquids and the Austin Chalk formation in Central Louisiana (see below) targeting primarily oil, striving to achieve a balanced product mix over time.

 

LOGO

The Debtors’ most recent material acquisitions and divestitures are highlighted below.

 

  1.

Woodford Shale and Mississippian Lime Sale

On June 4, 2015, the Debtors completed the sale of a majority of their interests in the Woodford Shale and Mississippian Lime for $280 million, subject to customary post-closing purchase price adjustments, effective January 1, 2015. At closing, the Debtors received $257.7 million in cash and recognized a receivable of $13.9 million, which was received in full during the third quarter of 2015.

On April 20, 2016, the Debtors completed the sale of a majority of their remaining Woodford Shale assets in the Oklahoma field for approximately $18 million, subject to customary post-closing purchase price adjustments, effective April 1, 2016.

 

  2.

East Texas Assets

In March 2016, the Debtors sold certain non-producing assets in East Texas for $7 million to a potential joint venture partner. After determining they would not pursue a joint venture with this party, the Debtors repurchased the non-producing assets for $5 million in December 2016. The Debtors subsequently entered into a new drilling joint venture in East Texas with another group of partners.

 

7


On December 15, 2017, the Debtors completed the sale of their saltwater disposal assets in East Texas for approximately $8.5 million.

 

  3.

Austin Chalk Formation

On December 20, 2017, the Debtors entered into an oil focused play in central Louisiana targeting the Austin Chalk formation through the execution of agreements to acquire interests in approximately 24,600 gross acres for a purchase price of approximately $9.3 million and the issuance of 2.0 million shares of PetroQuest common stock.

 

  4.

Gulf of Mexico Properties

On January 31, 2018, the Debtors sold their properties in the Gulf of Mexico to Northstar Offshore Ventures LLC. The Debtors received no consideration from the sale of these properties and are required to contribute approximately $3.8 million towards the future abandonment costs for the properties. As a result of the sale, the Debtors extinguished approximately $28.4 million of their discounted asset retirement obligation subsequent to December 31, 2017. In connection with the sale, the Debtors expect to receive a cash refund of approximately $12.7 million related to a depositary account that served to collateralize a portion of the Debtors’ offshore bonds related to these properties. The Debtors received approximately $8.3 million of this cash refund in October 2018.

 

  5.

The Debtors’ Current Operations

As a result of the sale of their Gulf of Mexico assets in January 2018, the Debtors’ asset base is now exclusively comprised of onshore assets in Texas and Louisiana. The Debtors have substantially reduced their operational footprint, which allows them to concentrate their efforts in fewer areas. Operating in concentrated areas helps to better control overhead by managing a greater amount of acreage with fewer employees and minimizing incremental costs of increased drilling and production. The Debtors have substantial geological and reservoir data, operating experience and partner relationships in these regions.

For the nine months ended September 30, 2018, approximately 94% of the Debtors’ estimated proved reserves were located in East Texas and 6% were located in the Gulf Coast Basin. In terms of production diversification, during the first nine months of 2018, 55% of the Debtors’ production was derived from East Texas and production was comprised of 75% natural gas, 9% oil and 16% natural gas liquids.

During the first nine months of 2018, the Debtors invested $3.3 million in their East Texas properties, where the Debtors completed two gross wells. Net production from the East Texas assets averaged 33.9 MMcfe per day during the first nine months of 2018, a 39% increase from the first nine months of 2017. As a result of producing 9.3 Bcfe in the first nine months of 2018, reserves attributable to the East Texas assets decreased 11% at September 30, 2018 from 2017.

 

8


The Debtors invested $2.7 million in the Gulf Coast during the first nine months of 2018, primarily related to Austin Chalk leasing activity. Production from this area decreased 9% from the first nine months of 2017 related to normal production declines. The estimated proved reserves in this area at September 30, 2018 decreased 56% from 2017, primarily because of the 7 Bcfe of production in the first nine months of 2018.

The following table sets forth estimated proved reserves and annual production from each of the Debtors’ core areas (in Bcfe) as of and for the nine months ended September 30, 2018 and for the years ended December 31, 2017 and 2016:

 

     As of September 30, 2018      2017      2016  
     Reserves As
of September 30,
2018
     Production
Through
September 30,
2018
     Reserves As of
December 31,
2017
     Production
During 2017
     Reserves As of
December 31,
2016
     Production
During 2016
 

Gulf Coast

     7.7        7.1        13.8        10.6        16.3        6.9  

Gulf of Mexico (1)

     —          0.4        10.5        6.9        16.6        5.9  

East Texas

     117.3        9.2        131.6        10.1        82.6        9.0  

Oklahoma Woodford (2)

     —          —          —          —          —          1.7  
     125.1        16.8        155.9        27.6        115.5        23.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

In January 2018, the Debtors sold all of their Gulf of Mexico producing assets.

(2)

In 2016 the Debtors sold the remainder of their Oklahoma assets.

 

9


  C.

The Debtors’ Corporate Structure

All of the Debtors other than PetroQuest are direct or indirect subsidiaries of PetroQuest. The following depicts the Debtors’ full corporate organization structure (the Debtors are highlighted in green):

 

LOGO

The Debtors other than PetroQuest and PQE currently have limited assets and operations. PetroQuest Oil & Gas, L.L.C. and PQ Holdings, LLC serve as nominees that hold legal title to certain oil and gas interests for third parties in which PetroQuest and its subsidiaries claim no equitable interest. TDC, Sea Harvester Energy Development, L.L.C. and Pittrans, Inc. are inactive companies with no operations or assets. Indianola Gathering, L.L.C., which is a non-Debtor, has a minority interest in a minor gathering system in Oklahoma. The aggregate assets and revenues as of and for the nine months ended September 30, 2018, attributable to all subsidiaries of PetroQuest other than PQE constituted less than 1% of the Debtors’ consolidated assets and revenues.

 

  D.

Directors and Officers

PetroQuest’s current Board is composed of Charles T. Goodson, William W. Rucks, IV, E. Wayne Nordberg, W.J. Gordon, III, Dr. Charles F. Mitchell, and J. Gerard Jolly. With the exception of Mr. Goodson, each member of the Board is an independent director.

PetroQuest’s current executive management team is composed of Charles T. Goodson—President and CEO; J. Bond Clement—Executive Vice President, CFO, and Treasurer; Art M. Mixon—Executive Vice President Operations and Production; Stephen H. Green—Senior Vice President Exploration; and Edgar A. Anderson—Vice President of the ArkLaTex Region.

The composition of the board of directors and identity of the officers of each Reorganized Debtor, as well as the nature of any compensation to be paid to any director or officer who is an Insider, will be disclosed prior to the entry of the order confirming the Plan in accordance with section 1129(a)(5) of the Bankruptcy Code.

 

10


  E.

The Debtors’ Capital Structure

 

  1.

Prepetition Secured Indebtedness

 

  (a)

Prior Prepetition Term Loan

PQE was the borrower under that certain Multidraw Term Loan Agreement, dated as of October 17, 2016 (as amended or otherwise modified from time to time, the “Prior Prepetition Term Loan Agreement”), between PetroQuest, PQE, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.

As of August 31, 2018, PQE had drawn $32.5 million of the $50 million available under the Prior Prepetition Term Loan Agreement, which was scheduled to mature on October 17, 2020. The Debtors were subject to a restrictive financial covenant under the Prior Prepetition Term Loan Agreement, consisting of maintaining a ratio of the present value, discounted at 10% per annum, of the estimated future net revenues in respect of PetroQuest’s and its subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to proved developed reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to the sum of the outstanding term loans and the then-outstanding commitments to provide term loans, of not less than 2.0 to 1.0 as measured on the last day of each calendar quarter (the “Coverage Ratio”). The Coverage Ratio limited the amount PQE was able to borrow under the Prior Prepetition Term Loan Agreement.

PQE’s obligations under the Prior Prepetition Term Loan Agreement were guaranteed by PetroQuest and TDC. The facility was secured by a first priority lien on substantially all of the assets of PetroQuest and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of PetroQuest and its subsidiaries and a pledge of the equity interests of PQE and certain of PetroQuest’s other subsidiaries.

 

  (b)

Prepetition Term Loan

On August 31, 2018, PQE entered into a $50 million Multidraw Term Loan Agreement (as amended or otherwise modified from time to time, the “Prepetition Term Loan Agreement”), substantially similar to the Prior Pretition Term Loan Agreement, with the lenders party thereto (the “Prepetition Term Loan Lenders”) and Wells Fargo Bank, N.A., as administrative agent (the “Prepetition Term Loan Agent”), guaranteed by PetroQuest and TDC and secured by a first-priority lien on substantially all of the assets of PetroQuest and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of PetroQuest and its subsidiaries, a lien on certain undeveloped acreage, and a pledge of the equity interests of PQE and certain of PetroQuest’s other subsidiaries. Pursuant to the terms of the Prepetition Term Loan Agreement, the Debtors were able to immediately draw upon the balance of the $50 million of availability on the closing date of the Prepetition Term Loan Agreement. The Debtors drew down $50 million to pay the outstanding borrowings of $32.5 million, plus accrued interest, under the Prior Prepetition Term Loan Agreement and retained the balance (less fees) for general corporate purposes.

 

11


On September 14, 2018, PetroQuest, PQE, and TDC entered into a Forbearance Agreement with the Prepetition Term Loan Agent and the Prepetition Term Loan Lenders whereby the Prepetition Term Loan Agent and the Prepetition Term Loan Lenders agreed to forbear from taking any action with respect to certain anticipated events of default under the Prepetition Term Loan Agreement as a result of the non-payment by PetroQuest of interest on the Combined Prepetition Second Lien Notes. The Forbearance Agreement was originally effective from September 14, 2018 until the earlier to occur of (i) 11:59 p.m. Eastern Time on September 28, 2018 and (ii) the occurrence of any specified forbearance default, but was subsequently extended pursuant to various amendments to the Forbearance Agreement until the earlier to occur of (i) 11:59 p.m. Eastern Time on November 6, 2018 and (ii) the occurrence of any specified forbearance default.

 

  (c)

Prepetition Second Lien Notes

On February 17, 2016, PetroQuest issued $144,674,000 in aggregate principal amount of 10% second lien senior secured notes due February 15, 2021 (the “Prepetition Second Lien Notes”). The Prepetition Second Lien Notes were issued under that certain Indenture dated as of February 17, 2016 (as amended, supplemented or otherwise modified from time to time, including by the First Supplemental Indenture dated as of September 13, 2016, collectively the “Prepetition Second Lien Indenture”), among PetroQuest, as issuer, PQE and TDC as guarantors, and Wilmington Trust, National Association, as Trustee and Collateral Trustee thereunder (in such capacity, the “Prepetition Second Lien Trustee”). Interest under the Prepetition Second Lien Indenture is payable semi-annually on February 15 and August 15, subject to a 30-day grace period. As a result of a September 2016 exchange offer and a December 2017 exchange, the Debtors reduced the outstanding amount of the Prepetition Second Lien Notes and as of the Petition Date, $9,427,000 of the Prepetition Second Lien Notes, plus any accrued and unpaid interest, remains outstanding. The Debtors did not make the interest payment due on August 15, 2018 and the 30-day grace period expired on September 14, 2018. On September 14, 2018, PetroQuest, PQE, and TDC entered into a Forbearance Agreement with certain Holders of approximately $7,343,000 in aggregate principal amount (representing approximately 77.9% of the outstanding principal amount) of the Prepetition Second Lien Notes whereby the Holders agreed to forbear from exercising their rights and remedies under the Prepetition Second Lien Indenture or related security documents with respect to certain anticipated events of default. The Forbearance Agreement was originally effective from September 14, 2018 until the earlier to occur of (i) 11:59 p.m. Eastern Time on September 28, 2018 and (ii) the date the Forbearance Agreement otherwise terminated in accordance with its terms, but was subsequently extended pursuant to various amendments to the Forbearance Agreement until the earlier to occur of (i) 11:59 p.m. Eastern Time on November 6, 2018 and (ii) the occurrence of any specified forbearance default.

The Prepetition Second Lien Notes are secured equally and ratably with the Prepetition Second Lien PIK Notes by second-priority liens on substantially all of PetroQuest’s and the subsidiary guarantors’ oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Prepetition Term Loan Agreement.

 

12


  (d)

Prepetition Second Lien PIK Notes

On September 27, 2016, PetroQuest issued $243,468,000 in aggregate principal amount of 10% second lien senior secured PIK notes due February 15, 2021 (the “Prepetition Second Lien PIK Notes,” and collectively with the Prepetition Second Lien Notes, the “Combined Prepetition Second Lien Notes”). The Prepetition Second Lien PIK Notes were issued under that certain Indenture dated as of September 27, 2016 (as amended or supplemented from time to time, the “Prepetition Second Lien PIK Indenture”), among PetroQuest, as issuer, PQE and TDC as guarantors, and Wilmington Trust, National Association, as Trustee and Collateral Trustee thereunder (in such capacity, the “Prepetition Second Lien PIK Trustee,” and collectively in its capacity as the Prepetition Second Lien Trustee, the “Indenture Trustee”).

The Debtors were permitted, at their option, for the first three interest payment dates on the Prepetition Second Lien PIK Notes ending with the February 2018 interest payment, to instead pay interest at (i) the annual rate of 1% per annum in cash plus (ii) the annual rate of 9% PIK payable by increasing the principal amount outstanding of the Prepetition Second Lien PIK Notes. The Debtors exercised this option in connection with the interest payments due on February 15, 2017, August 15, 2017, and February 15, 2018. Interest under the Prepetition Second Lien PIK Indenture is payable semi-annually on February 15 and August 15, subject to a 30-day grace period. As of the Petition Date, $275,045,768 of the Prepetition Second Lien PIK Notes, plus any accrued and unpaid interest, remains outstanding.

The Debtors did not make the interest payment due on August 15, 2018 and the 30-day grace period expired on September 14, 2018. On September 14, 2018, PetroQuest, PQE, and TDC entered into a Forbearance Agreement with certain Holders of approximately $194,559,842 in aggregate principal amount (representing approximately 70.7% of the outstanding principal amount) of the Prepetition Second Lien PIK Notes whereby the Holders agreed to forbear from exercising their rights and remedies under the Prepetition Second Lien PIK Indenture or related security documents with respect to certain anticipated events of default. The Forbearance Agreement was originally effective from September 28, 2018 until the earlier to occur of (i) 11:59 p.m. Eastern Time on September 28, 2018 and (ii) the date the Forbearance Agreement otherwise terminated in accordance with its terms, but was subsequently extended pursuant to various amendments to the Forbearance Agreement until the earlier to occur of (i) 11:59 p.m. Eastern Time on November 6, 2018 and (ii) the occurrence of any specified forbearance default.

The Prepetition Second Lien PIK Notes are secured equally and ratably with the Prepetition Second Lien Notes by second-priority liens on substantially all of PetroQuest’s and the subsidiary guarantors’ oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Prepetition Term Loan Agreement.

 

13


  2.

Equity Ownership

 

  (a)

Convertible Preferred Stock

As of September 30, 2018, PetroQuest had issued and outstanding 1,495,000 shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock (the “Preferred Stock”). The Preferred Stock accumulates dividends at an annual rate of 6.875% for each share of Preferred Stock. Dividends are cumulative from the date of first issuance.

In connection with an amendment to the Debtors’ prior bank credit facility (which was terminated and replaced by the Prior Prepetition Term Loan Agreement in October 2016 and the Prepetition Tem Loan Agreement in August 2018) prohibiting PetroQuest from declaring or paying dividends on the Preferred Stock, PetroQuest suspended the quarterly cash dividend on its Preferred Stock beginning with the dividend payment due on April 15, 2016. The Prior Prepetition Term Loan Agreement also prohibited, and the Prepetition Term Loan Agreement prohibits, PetroQuest from declaring and paying cash dividends on the Preferred Stock.

As of September 30, 2018, PetroQuest had deferred ten dividend payments and had accrued a $14.1 million payable related to the ten deferred payments and the quarterly dividend that was payable on October 15, 2018 (collectively with any accrued interest as of the Petition Date, the “Preferred Dividend Claims”). Because of the restrictions under the Prior Prepetition Term Loan Agreement, PetroQuest did not pay the dividend that was payable on July 15, 2017, which represented the sixth deferred dividend payment. As a result, the Holders of the Preferred Stock, voting as a single class, had the right prior to the Petition Date to elect two additional directors to PetroQuest’s Board of Directors (the “Board”) unless all accumulated and unpaid dividends on the Preferred Stock were paid in full. On April 12, 2018, June 18, 2018, and September 7, 2018, PetroQuest received written notices from separate Holders of the Preferred Stock exercising this right by requesting that the Board call a special meeting of the Holders of the Preferred Stock for the purposes of electing the additional directors, as set forth in Section 4(ii) of the Certificate of Designations establishing the Preferred Stock, dated September 24, 2007. The April 12, 2018 and June 18, 2018 requests were subsequently withdrawn, but the September 7, 2018 request remains outstanding.

Each share of Preferred Stock may be converted at any time, at the option of the Holder, into 0.8608 shares of PetroQuest’s common stock (which is based on a conversion price of approximately $58.08 per share of common stock, subject to further adjustment) plus cash in lieu of fractional shares, subject to PetroQuest’s right to settle all or a portion of any such conversion in cash or shares of its common stock. If PetroQuest elects to settle all or any portion of its conversion obligation in cash, the conversion value and the number of shares of PetroQuest’s common stock it will deliver upon conversion (if any) will be based upon a 20 trading day averaging period. Upon any conversion, the Holder will not receive any cash payment representing accumulated and unpaid dividends on the Preferred Stock, whether or not in arrears, except in limited circumstances.

 

  (b)

Common Stock

As of the Petition Date, the Debtors have 25,587,441 outstanding shares of common stock, par value $0.001 per share. Since 2005, the common stock of PetroQuest had been traded on the New York Stock Exchange (the “NYSE”) under the symbol “PQ.” On May 4, 2018, the NYSE Regulation Staff determined that PetroQuest’s common stock would be delisted from the NYSE. The decision was reached by the Staff under Section 802.01B of the NYSE’s Listed Company Manual because PetroQuest had fallen below the NYSE’s continued listing standard requiring listed companies to maintain an average global market capitalization over a consecutive 30 trading day period of at least $15,000,000. PetroQuest’s common stock began trading on the OTCQX market (“OTC Pink”) on May 7, 2018 under the symbol “PQUE.”

 

14


III.

KEY EVENTS LEADING TO CHAPTER 11 CASES

From 2015 to 2018, the Debtors took the following actions, among others, to increase liquidity, reduce debt levels, and extend debt maturities:

 

   

Sold all of the Debtors’ Oklahoma assets in three transactions that closed in June 2015, April 2016 and October 2016 for total consideration of $292.6 million;

 

   

Reduced capital expenditures in 2016 by 75% when compared to capital expenditures in 2015;

 

   

Completed two debt exchanges in 2016 to extend maturities on a significant portion of debt and to reduce cash interest expense until August 2018;

 

   

Reduced total debt 25% from $425 million as of December 31, 2014 to $334 million as of September 30, 2018;

 

   

Suspended the quarterly dividend on the Preferred Stock, saving $5.1 million annually;

 

   

Entered into the $50 million Prior Prepetition Term Loan Agreement, which was subsequently replaced by the Prepetition Term Loan Agreement;

 

   

Secured and executed the drilling joint venture in East Texas;

 

   

Sold the Debtors’ Gulf of Mexico assets resulting in the extinguishment of $28.2 million of discounted asset retirement obligations from the Debtors’ balance sheet and the expected refund of up to $12.4 million of cash collateral ($8.3 million of which was received in October 2018) used to secure the Debtors’ offshore bonding (subject to the Debtors’ obligation to pay approximately $3.8 million to the purchaser of these assets, which was paid in October 2018); and

 

   

Reduced full-time employees by 53% since year-end 2015.

However, because of the continued downturn in natural gas prices, the Debtors’ overall liquidity position and cash available for capital expenditures was negatively impacted. Due to the sale of the Debtors’ Gulf of Mexico properties in January 2018 and normal production declines, production decreased by 41% in the three months ended September 30, 2018 when compared to the same period in 2017 and cash flow from operations for the nine months ended September 30, 2018 was $1.9 million. As of September 30, 2018, the Debtors had approximately $25.5 million of cash on hand and approximately $334 million aggregate principal amount of outstanding indebtedness.

 

15


As discussed above, beginning with the August 15, 2018 interest payment on the Prepetition Second Lien PIK Notes, the Debtors were required to pay interest on their Prepetition Second Lien PIK Notes at 10% in cash (instead of 1% in cash and 9% in payment in kind). The cash interest payment due on August 15, 2018 on the Combined Prepetition Second Lien Notes totaled approximately $14.2 million. Available borrowings under the Prior Prepetition Term Loan were subject to reductions on a calendar quarter basis and the Debtors’ ability to utilize such available borrowings was subject to the Coverage Ratio. Accordingly, the Debtors elected not to make the August 15, 2018 interest payment on the Combined Prepetition Second Lien Notes to fund continuing operations.

Because of the limited cash available for the August 15, 2018 interest payment on the Combined Prepetition Second Lien Notes, which were subject to a 30-day grace period, the Debtors engaged with certain Holders of the Combined Prepetition Second Lien Notes (the “Combined Consenting Second Lien Noteholders”) to restructure their debt.

Pursuant to the Plan negotiated with the Consenting Creditors, the Holders of the Combined Prepetition Second Lien Notes will exchange their debt for 100% of the New Equity in New Parent, subject to (i) dilution by the awards related to New Equity issued under the Management Incentive Plan and (ii) the Put Option Premium, and $80 million of New Second Lien PIK Notes. If approved by this Court, the Debtors’ restructuring will significantly reduce the Debtors’ debt load and associated cash interest expense, and provide them with additional liquidity to fund the Debtors’ continued development of their Cotton Valley assets in East Texas as well as investment in the Austin Chalk, a recently acquired oil focused play in Central Louisiana.

 

  A.

Restructuring Negotiations

Given the uncertainty regarding future commodity prices, continued price declines, and the Debtors’ unsustainable capital structure, the Board determined to hire Seaport Global (“Seaport”) in March 2016 to explore additional strategic alternatives. At this time, the Debtors and their advisors (including Porter Hedges LLP) also began discussions with certain Combined Prepetition Second Lien Noteholders.

 

  B.

The Restructuring Support Agreement

After extensive arm’s-length negotiations, the Debtors, the Prepetition Term Loan Lenders and certain of the Combined Prepetition Second Lien Noteholders were able to agree on the terms of a comprehensive restructuring transaction. The key terms of this transaction are embodied in the Restructuring Support Agreement attached hereto as Exhibit B, which was signed on November 6, 2018 by the Debtors, the Prepetition Term Loan Lenders, and a group of Combined Prepetition Second Lien Noteholders holding approximately 85% of the face value of the Prepetition Second Lien Notes.

The Debtors entered into the Restructuring Support Agreement only after a robust review process by the members of the Board. Based upon regular updates to the Board regarding the status of negotiations between the parties in the period leading up to the commencement of the Chapter 11 Cases, and upon rigorous review and negotiation of the Restructuring Support Agreement and the Plan by the Board, the Debtors determined that the terms of the Restructuring Support Agreement and the Plan represent the best transaction available and will maximize value to all stakeholders.

 

16


Among other agreements and term sheets, the Restructuring Support Agreement contains forms of employment agreements, which the Reorganized Debtors will enter into with certain of their employees upon the Effective Date, including with Charles Goodson, the Chairman of the Board, Chief Executive Officer and President of PetroQuest, J. Bond Clement, the Executive Vice President, Chief Financial Officer and Treasurer of PetroQuest, and Arthur M. Mixon III, the Executive Vice President – Operations and Production of PetroQuest. A copy of the form of executive employment agreement to be entered into with Messrs. Goodson, Clement and Mixon is attached as Exhibit J to the Restructuring Support Agreement.

Prior to entering into the Restructuring Support Agreement, the Board determined that it was in the best interest of PetroQuest that entry into the Restructuring Support Agreement, commencement of the Chapter 11 Cases, and consummation of the transactions contemplated by the Plan should not be considered events constituting or reasonably leading to a “Change of Control” under the PetroQuest Energy, Inc. Change of Control Severance Benefit Plan effective May 21, 2013 (the “Change of Control Severance Plan”). Based on such determination by the Board and as permitted under the Change of Control Severance Plan, the Board concluded that the entry into the Restructuring Support Agreement, the Chapter 11 Cases, and the consummation of the transactions contemplated by the Plan will not be deemed a Change of Control under the Change of Control Severance Plan.

The Board, in consultation with its independent compensation advisor, also adopted the PetroQuest Energy, Inc. 2018 Annual Cash Bonus Plan (the “Cash Bonus Plan”) to reward certain of the Debtors’ key employees for their performance, based on a review of certain criteria determined by the Compensation Committee of the Board (the “Committee”). The Cash Bonus Plan consists of a total cash pool of $1,500,000 (the “Cash Pool”) to be awarded to employees in amounts determined by management, as delegated by the Committee, based on the criteria set forth in the Cash Bonus Plan. On November 5, 2018, the Debtors awarded one fourth of the Cash Pool as bonuses to certain employees of the Debtors, including $130,000, $57,500 and $57,500 to Messrs. Goodson, Clement and Mixon, respectively. The remaining portion of the Cash Pool will be awarded to the Reorganized Debtors’ employees, subject to the approval of the Board, on a quarterly basis in the first three quarters of 2019. If awarded the full amounts allocated to them under the Cash Bonus Plan, Messrs. Goodson, Clement and Mixon would receive $390,000, $172,500 and $172,500, respectively.

A copy of the Cash Bonus Plan is attached as Exhibit 10.2 to the Form 8-K filed on November 7, 2018, and is incorporated by reference herein. The foregoing description of the Cash Bonus Plan is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the Cash Bonus Plan.

The Restructuring Support Agreement also contemplates that certain restructuring transactions will be implemented in accordance with terms consistent with the Plan. The key elements of the Plan include:

 

   

Combined Prepetition Second Lien Noteholders receive the New Equity and New Second Lien PIK Notes. The Combined Prepetition Second Lien Noteholders will receive 100% of the New Equity, subject to (i) dilution by the awards related to New Equity issued under the Management Incentive Plan and (ii) the Put Option Premium, and $80 million of New Second Lien PIK Notes.

 

17


   

Restructuring takes place on an agreed schedule. The restructuring transactions will be conducted under a timeline set forth in the Restructuring Support Agreement, which requires the Debtors to File the Plan by November 6, 2018 and the Effective Date to occur no later than December 31, 2018.

 

   

Releases and Exculpation. The Plan includes mutual releases in favor of (a) the Debtors and their related persons, professionals, and entities, and (b) the Consenting Creditors and their related persons, professionals, and entities. The Plan will also provide for the exculpation of the Debtors and their related persons, professionals, and entities.

The Restructuring Support Agreement includes the following key milestones:7

 

  (a)

No later than 11:59 p.m. prevailing Central Time on November 9, 2018, the Interim Cash Collateral Order must have been entered by the Court;

 

  (b)

No later than 11:59 p.m. prevailing Central Time on November 16, 2018, the Court shall have entered an order provisionally approving the Disclosure Statement;

 

  (c)

No later than 11:59 p.m. prevailing Central Time on November 16, 2018, the Court shall have entered an order approving the payment of the fees and expenses of the Consenting Creditors in accordance with the terms of the Restructuring Support Agreement;

 

  (d)

No later than 11:59 p.m. prevailing Central Time on November 20, 2018, the Debtors shall have commenced solicitation in accordance with section 1126(b) of the Bankruptcy Code;

 

  (e)

No later than 11:59 p.m. prevailing Central Time on November 27, 2018, the Final Cash Collateral Order must have been entered by the Court;

 

  (f)

No later than 11:59 p.m. prevailing Central Time on December 21, 2018, the Confirmation Order must have been entered by the Court; and

 

  (g)

No later than 11:59 p.m. prevailing Central Time on December 31, 2018, the Effective Date shall have occurred.

 

 

7 

The Restructuring Support Agreement contains additional milestones that have already been satisfied.

 

18


It is important to note that the Debtors maintain a broad “fiduciary out” under the Restructuring Support Agreement. Specifically, Section 5(c)(ii) of the Restructuring Support Agreement provides that each Debtor may terminate its obligations thereunder if its board of directors (or board of managers, as applicable) determines that proceeding with the contemplated restructuring transactions “would be inconsistent with the exercise of its fiduciary duties.”

 

IV.

DEVELOPMENTS AND ANTICIPATED EVENTS DURING THE CHAPTER 11 CASES

Under the Restructuring Support Agreement, the Debtors agreed to commence the Chapter 11 Cases no later than November 6, 2018 (the “Petition Date”). The Debtors expect the Chapter 11 Cases to proceed quickly. Should the Debtors’ projected timelines prove accurate, the Debtors could emerge from chapter 11 by December 31, 2018. No assurances can be made, however, that the Court will enter various orders on the timetable anticipated by the Debtors.

 

  A.

First Day Pleadings

On the Petition Date, along with their voluntary petitions for relief under chapter 11 of the Bankruptcy Code, the Debtors Filed several motions (the “First Day Pleadings”) designed to facilitate the administration of the Chapter 11 Cases and minimize disruption to the Debtors’ operations, by, among other things, easing the strain on the Debtors’ relationships with employees, vendors, insurers, and taxing authorities, among others, following the commencement of the Chapter 11 Cases. On the Petition Date, the Debtors Filed the following First Day Pleadings, which the Court granted on an interim basis on November 7, 2018:

 

   

Debtors’ Emergency Motion for Joint Administration of These Chapter 11 Cases;

 

   

Debtors’ Emergency Motion to (I) Authorize the Debtors to File a Consolidated List of Their 30 Largest Unsecured Creditors and (II) Waive the Requirement that Each Debtor File a List of Creditors;

 

   

Debtors’ Emergency Motion for Interim and Final Orders Authorizing the Debtors to (I) Continue Operating Their Cash Management System, (II) Honor Certain Prepetition Obligations, (III) Maintain Existing Bank Accounts and Business Forms, and (IV) Granting Related Relief;

 

   

Debtors’ Emergency Motion for Interim and Final Orders (I) Authorizing Debtors to (A) Maintain Existing Insurance Policies and Pay All Insurance Obligations Thereunder and (B) Renew, Revise, Extend, Supplement, Change, or Enter into New Insurance Policies and (II) Directing Financial Institutions to Honor All Related Payment Requests;

 

   

Debtors’ Emergency Motion for Interim and Final Orders (I) Authorizing Use of Cash Collateral, (II) Granting Adequate Protection to the Prepetition Secured Parties, and (III) Modifying the Automatic Stay;

 

19


   

Debtors’ Emergency Motion for Entry of Interim and Final Orders (I) Authorizing the Payment of the Prepetition Claims of Certain Lien Claimants and Section 503(B)(9) Claims and (II) Confirming Administrative Expense Priority of Outstanding Orders;

 

   

Debtors’ Emergency Motion for Interim and Final Orders Authorizing (I) the Debtors to Pay Certain Prepetition Taxes and Related Obligations, and (II) Authorizing Financial Institutions to Receive, Process, Honor, and Pay All Checks Presented for Payment and to Honor all Funds Transfer Requests Related to Such Obligations;

 

   

Debtors’ Emergency Motion for Interim and Final Orders (I) Authorizing, but not Directing, the Debtors to Pay Prepetition Workforce Obligations; (II) Authorizing, but not Directing, the Debtors to Continue Certain Workforce Benefit Programs; and (III) Authorizing, but not Directing, Applicable Banks and Financial Institutions to Honor Prepetition Checks for Payment of the Prepetition Workforce Obligations;

 

   

Debtors’ Emergency Motion to (I) Approve Adequate Assurance of Payment to Utility Companies, (II) Establish Procedures to Resolve Objections by Utility Companies, and (III) Prohibit Utility Companies from Altering, Refusing, or Discontinuing Service;

 

   

Debtors’ Emergency Motion for Interim and Final Orders Authorizing (I) Payment of Joint Interest Billings, Interest Owner Payments, and GTP Costs and Adjustments and (II) Financial Institutions to Receive, Process, Honor, and Pay All Checks Presented for Payment and to Honor All Funds Transfer Requests Related to Such Obligations; and

 

   

Debtors’ Emergency Motion for Entry of Interim and Final Orders Establishing Certain Notice and Hearing Procedures for Transfers of, and Declarations of Worthlessness with Respect to Certain Equity Interests of PetroQuest Energy, Inc. Nunc Pro Tunc to the Petition Date.

 

  B.

Other Administrative Motions and Retention Applications

The Debtors intend to File several other motions that are common to chapter 11 proceedings of similar size and complexity as the Chapter 11 Cases. The Debtors will File applications (the “Retention Applications”) to retain the following professionals to assist them in the Chapter 11 Cases, including:

 

   

Porter Hedges LLP;

 

   

Seaport Global;

 

   

FTI Consulting, Inc.;

 

20


   

Ernst & Young, LLP;

 

   

Epiq Corporate Restructuring, LLC; and

 

   

LSH Partners Securities, LLC.

 

  C.

Claims Bar Date

The Debtors may File a motion to establish procedures for Filing Proofs of Claim and to set a Claims Bar Date, which is intended to streamline the claims process and eliminate the need for certain creditors to File Proofs of Claim.

 

  D.

Assumption and Rejection of Executory Contracts and Unexpired Leases

Prior to the Petition Date and in the ordinary course of business, the Debtors entered into hundreds of Executory Contracts and Unexpired Leases. The Debtors, with the assistance of their advisors, have reviewed and will continue to review the Executory Contracts and Unexpired Leases to identify contracts and leases to either assume or reject pursuant to sections 365 or 1123 of the Bankruptcy Code.

The Debtors intend to include information in the Plan Supplement regarding the assumption or rejection of their Executory Contracts and Unexpired Leases to be carried out as of the Effective Date, but may also elect to File additional discrete motions seeking to assume or reject various of the Debtors’ Executory Contracts and Unexpired Leases before such time.

 

  E.

Litigation Matters

The Debtors’ material litigation is summarized in Exhibit F annexed hereto.

 

V.

SUMMARY OF THE PLAN

This section of the Disclosure Statement summarizes the Plan, a copy of which is annexed hereto as Exhibit A. This summary is qualified in its entirety by reference to the Plan.

 

  A.

Administrative Claims, Professional Fee Claims, and Priority Claims

 

  1.

Administrative Claims

Except with respect to Administrative Claims that are Professional Fee Claims, and except to the extent that an Administrative Claim has already been paid during the Chapter 11 Cases or a Holder of an Allowed Administrative Claim and the applicable Debtor(s) agree to less favorable treatment, each Holder of an Allowed Administrative Claim shall be paid in full in Cash on the latest of: (a) on or as soon as reasonably practicable after the Effective Date if such Administrative Claim is Allowed as of the Effective Date; (b) on or as soon as reasonably practicable after the date such Administrative Claim is Allowed, if not Allowed as of the Effective Date; and (c) the date such Allowed Administrative Claim becomes due and payable, or as soon thereafter as is reasonably practicable; provided that Allowed Administrative Claims that arise in the ordinary course of the Debtors’ businesses shall be paid in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions.

 

21


Except as otherwise provided in Article II.A of the Plan and except with respect to Administrative Claims that are Professional Fee Claims, requests for payment of Administrative Claims arising between the Petition Date and the Effective Date must be Filed and served on the Reorganized Debtors pursuant to the procedures specified in the Confirmation Order and the notice of entry of the Confirmation Order no later than the Administrative Claims Bar Date. Holders of Administrative Claims that are required to, but do not, File and serve a request for payment of such Administrative Claims by such dates shall be forever barred, estopped, and enjoined from asserting such Administrative Claims against the Debtors or their property and such Administrative Claims shall be deemed discharged as of the Effective Date. Objections to such requests, if any, must be Filed and served on the Reorganized Debtors and the requesting party no later than 60 days after the Effective Date or such other date fixed by the Court. Notwithstanding the foregoing, no request for payment of an Administrative Claim need be Filed with respect to an Administrative Claim previously Allowed.

For the avoidance of doubt, Claims for fees and expenses of advisors to the Debtors and the Creditors’ Committee shall constitute Professional Fee Claims.

 

  2.

Professional Compensation

 

  (a)

Final Fee Applications

All final requests for payment of Professional Fee Claims, including the Professional Fee Claims incurred during the period from the Petition Date through the Effective Date, must be Filed and served on the Reorganized Debtors no later than 45 days after the Effective Date. All such final requests will be subject to approval by the Court after notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior orders of the Court in the Chapter 11 Cases, including the Interim Compensation Order, and once approved by the Court, will be promptly paid from the Professional Fee Escrow Account in the full Allowed amount of each such Professional Fee Claim. If the Professional Fee Escrow Account is insufficient to fund the full Allowed amounts of Professional Fee Claims, remaining unpaid Allowed Professional Fee Claims will be promptly paid by the Reorganized Debtors without any further action or order of the Court.

 

  (b)

Professional Fee Escrow Account

On the Effective Date, the Reorganized Debtors shall establish and fund the Professional Fee Escrow Account with Cash equal to the Professional Fee Reserve Amount. The Professional Fee Escrow Account shall not be subject to any Lien and shall be maintained in trust solely for the benefit of the Professionals. The funds in the Professional Fee Escrow Account shall not be considered property of the Estates or of the Reorganized Debtors. When all Allowed amounts owing to Professionals have been paid in full, any remaining amount in the Professional Fee Escrow Account shall promptly be turned over to the Reorganized Debtors without any further action or order of the Court.

 

22


  (c)

Professional Fee Reserve Amount

Professionals shall reasonably estimate their unpaid Professional Fee Claims before and as of the Effective Date, and shall deliver such estimate to the Debtors no later than five (5) Business Days before the Effective Date, provided, however, that such estimate shall not be deemed to limit the amount of the fees and expenses that are the subject of the Professional’s final request for payment of Professional Fee Claims. If a Professional does not provide an estimate, the Debtors or Reorganized Debtors may estimate the unpaid and unbilled fees and expenses of such Professional.

 

  (d)

Post-Effective Date Fees and Expenses

Except as otherwise specifically provided in the Plan, from and after the Effective Date, the Debtors or Reorganized Debtors shall, in the ordinary course of business and without any further notice or application to or action, order, or approval of the Court, pay in Cash the reasonable, actual, and documented legal, professional, or other fees and expenses related to implementation of the Plan and Consummation incurred on or after the Effective Date by the Professionals. Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331, 363, and 1103 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date shall terminate, and the Debtors or Reorganized Debtors may employ and pay any Professional for fees and expenses incurred after the Effective Date in the ordinary course of business without any further notice to or action, order, or approval of the Court.

 

  3.

Priority Tax Claims

Except to the extent that a Holder of an Allowed Priority Tax Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Tax Claim, each Holder of such Allowed Priority Tax Claim shall be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code. In the event an Allowed Priority Tax Claim is also a Secured Tax Claim, such Claim shall, to the extent it is Allowed, be treated as an Other Secured Claim if such Claim is not otherwise paid in full.

 

  4.

Statutory Fees

All fees payable pursuant to 28 U.S.C. § 1930(a) shall be paid by the Debtors or Reorganized Debtors, as applicable, for each quarter (including any fraction thereof) until the Chapter 11 Cases are converted, dismissed or closed, whichever occurs first. The Reorganized Debtors shall continue to File quarterly-post confirmation operating reports in accordance with the U.S. Trustee’s Region 7 Guidelines for Debtors-in-Possession.

 

23


  B.

Classification of Claims and Interests

 

  1.

Summary of Classification

Claims and Interests, except for Administrative Claims, Professional Fee Claims, Cure Claims, and Priority Tax Claims, are classified in the Classes set forth in Article III of the Plan. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to the extent that any portion of the Claim or Interest qualifies within the description of such other Classes. A Claim or Interest also is classified in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim is an Allowed Claim in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date. The Plan constitutes a separate chapter 11 plan of reorganization for each Debtor and the classifications set forth in Classes 1 through 11 shall be deemed to apply to each Debtor. For all purposes under the Plan, each Class will contain sub-Classes for each of the Debtors (i.e., there will be 11 Classes for each Debtor); provided that any Class that is vacant as to a particular Debtor will be treated in accordance with Article III.E of the Plan.

Class Identification

The classification of Claims and Interests against each Debtor (as applicable) pursuant to the Plan is as follows:

 

Class

  

Claim or Interest

  

Status

  

Entitled to Vote

1    Other Priority Claims    Unimpaired    No (Deemed to Accept)
2    Other Secured Claims    Unimpaired    No (Deemed to Accept)
3    Secured Tax Claims    Unimpaired    No (Deemed to Accept)
4    First Lien Claims    Unimpaired    No (Deemed to Accept)
5    Prepetition Second Lien Notes Claims    Impaired    Yes
6    Prepetition Second Lien PIK Notes Claims    Impaired    Yes
7    General Unsecured Claims    Impaired    Yes
8    Section 510(b) Claims    Impaired    No (Deemed to Reject)
9    Intercompany Claims    Unimpaired/Impaired    No (Deemed to Either Accept or Reject)
10    Intercompany Interests    Unimpaired/Impaired    No (Deemed to Either Accept or Reject)
11    PetroQuest Interests    Impaired    No (Deemed to Reject)

 

  C.

Treatment of Claims and Interests

 

  1.

Class 1: Other Priority Claims

 

  (a)

Classification: Class 1 consists of Other Priority Claims.

 

  (b)

Treatment: In full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Other Priority Claim, each Holder thereof shall receive (i) payment in full, in Cash, of the unpaid portion of its Allowed Other Priority Claim or (ii) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

24


  (c)

Voting: Class 1 is Unimpaired under the Plan. Each Holder of an Other Priority Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the Holders of Other Priority Claims will not be entitled to vote to accept or reject the Plan.

 

  2.

Class 2: Other Secured Claims

 

  (a)

Classification: Class 2 consists of Other Secured Claims.

 

  (b)

Treatment: Except to the extent that a Holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Other Secured Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Other Secured Claim, (iii) the return or abandonment of the collateral securing such Allowed Other Secured Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

  (c)

Voting: Class 2 is Unimpaired under the Plan. Each Holder of an Other Secured Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the Holders of Other Secured Claims will not be entitled to vote to accept or reject the Plan.

 

  3.

Class 3: Secured Tax Claims

 

  (a)

Classification: Class 3 consists of Secured Tax Claims.

 

  (b)

Treatment: Except to the extent that a Holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Secured Tax Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Secured Tax Claim, (iii) the return or abandonment of the collateral securing such Allowed Secured Tax Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

25


  (c)

Voting: Class 3 is Unimpaired under the Plan. Each Holder of a Secured Claim Tax will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Secured Tax Claims will not be entitled to vote to accept or reject the Plan.

 

  4.

Class 4: First Lien Claims

 

  (a)

Classification: Class 4 consists of the First Lien Claims.

 

  (b)

Allowance: The First Lien Claims shall be Allowed in the aggregate principal amount of $50,000,000, plus any accrued and unpaid interest and expenses.

 

  (c)

Treatment: On or before the Effective Date, each Holder of a First Lien Claim will receive Cash equal to the amount of its Allowed Claim from funds available pursuant to the Exit Facility.

 

  (d)

Voting: Class 4 is Unimpaired under the Plan. Each Holder of a First Lien Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of First Lien Claims will not be entitled to vote to accept or reject the Plan.

 

  5.

Class 5: Prepetition Second Lien Notes Claims

 

  (a)

Classification: Class 5 consists of all Prepetition Second Lien Notes Claims.

 

  (b)

Allowance: The Prepetition Second Lien Notes Claims shall be Allowed in the aggregate amount of $9,427,000 plus any accrued and unpaid interest thereon payable through the Petition Date.

 

  (c)

Treatment: Except to the extent that a Holder of an Allowed Prepetition Second Lien Notes Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $275,045,768 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien PIK Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New Second Lien PIK Notes.

 

26


  (d)

Voting: Class 5 is Impaired under the Plan. Each Holder of an Allowed Prepetition Second Lien Notes Claim will be entitled to vote to accept or reject the Plan.

 

  6.

Class 6: Prepetition Second Lien PIK Notes Claims

 

  (a)

Classification: Class 6 consists of all Prepetition Second Lien PIK Notes Claims.

 

  (b)

Allowance: The Prepetition Second Lien PIK Notes Claims shall be Allowed in the aggregate amount of $275,045,768 plus any accrued and unpaid interest thereon payable through the Petition Date.

 

  (c)

Treatment: Except to the extent that a Holder of an Allowed Prepetition Second Lien PIK Notes Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien PIK Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $9,427,000 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New Second Lien PIK Notes.

 

  (d)

Voting: Class 6 is Impaired under the Plan. Each Holder of an Allowed Prepetition Second Lien Notes Claim will be entitled to vote to accept or reject the Plan.

 

  7.

Class 7: General Unsecured Claims

 

  (a)

Classification: Class 7 consists of all General Unsecured Claims.

 

  (b)

Treatment: Except to the extent that a Holder of an Allowed General Unsecured Claim agrees a to less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of each Allowed General Unsecured Claim and of and in

 

27


  exchange for each Allowed General Unsecured Claim, each such Holder shall receive its Pro Rata share of the General Unsecured Claims Distribution on the Effective Date; provided, however, that to the extent that Class 7 votes to accept the Plan, the Holders of Second Lien Notes Claims shall not receive any distribution on account of their Allowed Second Lien Deficiency Claims.

 

  (c)

Voting: Class 7 is Impaired under the Plan. Each Holder of a General Unsecured Claim will be entitled to vote to accept or reject the Plan.

 

  8.

Class 8: Section 510(b) Claims

 

  (a)

Classification: Class 8 consists of all Section 510(b) Claims.

 

  (b)

Treatment: Section 510(b) Claims, if any, shall be discharged, canceled, released, and extinguished as of the Effective Date, and shall be of no further force or effect, and Holders of Section 510(b) Claims shall not receive any distribution on account of such Section 510(b) Claims.

 

  (c)

Voting: Class 8 is Impaired under the Plan. Each Holder of a Section 510(b) Claim will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Section 510(b) Claims will not be entitled to vote to accept or reject the Plan.

 

  9.

Class 9: Intercompany Claims

 

  (a)

Classification: Class 9 consists of all Intercompany Claims.

 

  (b)

Treatment: Intercompany Claims shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Claims other than in the ordinary course of business of the Reorganized Debtors, as applicable. For the avoidance of doubt, Intercompany Claims that are Reinstated as of the Effective Date, if any, shall be subordinate in all respects to the Exit Facility and the New Second Lien PIK Notes.

 

  (c)

Voting: Intercompany Claims are either Unimpaired, in which case the Holders of such Intercompany Claims will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code, or Impaired and not receiving any distribution under the Plan, in which case the Holders of such Intercompany Claims will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Intercompany Claims will not be entitled to vote to accept or reject the Plan.

 

28


  10.

Class 10: Intercompany Interests

 

  (a)

Classification: Class 10 consists of all Intercompany Interests.

 

  (b)

Treatment: Intercompany Interests shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Interests.

No distributions on account of Intercompany Interests are being made to the Holders of such Intercompany Interests. Instead, to the extent Intercompany Interests are Reinstated under the Plan, such Reinstatement is solely for the purposes of administrative convenience, for the ultimate benefit of the Holders of the New Equity, and in exchange for the Debtors’ and Reorganized Debtors’ agreement under the Plan to make certain distributions to the Holders of Allowed Claims. For the avoidance of doubt, to the extent Reinstated pursuant to the Plan, on and after the Effective Date, all Intercompany Interests shall continue to be owned by the Reorganized Debtor that corresponds to the Debtor that owned such Intercompany Interests prior to the Effective Date.

 

  (c)

Voting: Intercompany Interests are either Unimpaired, in which case the Holders of such Intercompany Interests will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code, or Impaired, in which case the Holders of such Intercompany Interests will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Intercompany Interests will not be entitled to vote to accept or reject the Plan.

 

  11.

Class 11: PetroQuest Interests

 

  (a)

Classification: Class 11 consists of all PetroQuest Interests.

 

  (b)

Treatment: On the Effective Date, or as soon thereafter as reasonably practicable, all PetroQuest Interests will be extinguished and the Holders of PetroQuest Interests shall not receive or retain any distribution, property, or other value on account of their PetroQuest Interests.

 

  (c)

Voting: Class 11 is Impaired under the Plan. Each Holder of a PetroQuest Interest will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of PetroQuest Interests will not be entitled to vote to accept or reject the Plan.

 

29


  12.

Special Provision Governing Unimpaired Claims

Nothing under the Plan shall affect the Debtors’ or the Reorganized Debtors’ rights in respect of any Unimpaired Claims, including all rights in respect of legal and equitable defenses to or setoffs or recoupment against any such Unimpaired Claims.

 

  13.

Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code

The Debtors reserve the right to seek Confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to any rejecting Class of Claims or Interests, and the Filing of the Plan shall constitute a motion for such relief.

 

  14.

Elimination of Vacant Classes

Any Class of Claims that does not contain an Allowed Claim or a Claim temporarily Allowed by the Court as of the date of the Confirmation Hearing shall be deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for purposes of determining acceptance or rejection of the Plan by such Class pursuant to section 1129(a)(8) of the Bankruptcy Code.

 

  15.

Voting Classes; Deemed Acceptance by Non-Voting Classes

If a Class contains Claims eligible to vote and no Holder of Claims eligible to vote in such Class votes to accept or reject the Plan, the Plan shall be deemed accepted by such Class.

 

  16.

Subordinated Claims

Except as may be the result of the settlement described in Article VIII.A of the Plan, the allowance, classification, and treatment of all Claims and Interests and the respective distributions and treatments under the Plan take into account and conform to the relative priority and rights of the Claims and Interests in each Class in connection with any contractual, legal, and equitable subordination rights relating thereto, whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise. Pursuant to section 510 of the Bankruptcy Code, the Debtors or Reorganized Debtors reserve the right to re-classify any Claim or Interest in accordance with any contractual, legal, or equitable subordination relating thereto.

 

30


Subordination of Preferred Dividend Claims

The Plan proposes to subordinate the Preferred Dividend Claims pursuant to section 510(b) of the Bankruptcy Code, which provides that:

For the purpose of distribution under this title, a claim arising from rescission of a purchase or sale of a security of the debtor or of an affiliate of the debtor, for damages arising from the purchase or sale of such a security, or for reimbursement or contribution allowed under section 502 on account of such a claim, shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security, except that if such security is common stock, such claim has the same priority as common stock.

11 U.S.C. § 510(b).

Accordingly, the Preferred Dividend Claims have been placed in Class 8 (Section 510(b)) Claims) and shall be subordinated to General Unsecured Claims pursuant to section 510(b) of the Bankruptcy Code.

 

  D.

Means for Implementation of the Plan

 

  1.

Restructuring Transactions

On the Effective Date, or as soon as reasonably practicable thereafter, the Reorganized Debtors, with the consent of the Requisite Creditors, shall undertake the Restructuring Transactions, including: (1) the execution and delivery of any appropriate agreements or other documents of merger, consolidation, restructuring, conversion, disposition, transfer, dissolution, or liquidation containing terms that are consistent with the terms of the Plan, and that satisfy the requirements of applicable law and any other terms to which the applicable Entities may agree; (2) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Plan and having other terms for which the applicable Entities agree; (3) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, or dissolution pursuant to applicable state law; (4) all transactions necessary to provide for the purchase of some or substantially all of the assets of or Interests in any of the Debtors, which transactions shall be structured in the most tax efficient manner, including in whole or in part as a taxable transaction for United States federal income tax purposes, as determined by the Debtors and the Requisite Creditors; (5) the execution and delivery of the Exit Facility Documents; (6) the execution and delivery of Definitive Documentation not otherwise included in the foregoing, if any; and (7) all other actions that the Debtors, the Reorganized Debtors, or the Requisite Creditors determine to be necessary or appropriate, including making filings or recordings that may be required by applicable law.

 

  2.

Sources of Consideration for Plan Distributions

The Reorganized Debtors shall fund distributions under the Plan as follows:

 

  (a)

Issuance and Distribution of New Equity

The New Equity, including options, or other equity awards, if any, reserved under the Management Incentive Plan, shall be authorized on the Effective Date without the need for any further corporate action and without any further action by the Debtors, the Reorganized Debtors, or Holders of Claims or Interests.

 

31


All of the shares of New Equity issued pursuant to the Plan shall be duly authorized, validly issued, fully paid, and non-assessable. Each distribution and issuance of the New Equity under the Plan shall be governed by the terms and conditions set forth in the Plan applicable to such distribution or issuance and by the terms and conditions of the instruments evidencing or relating to such distribution or issuance, which terms and conditions shall bind each Entity receiving such distribution or issuance.

 

  (b)

New Second Lien PIK Notes

On the Effective Date, New Parent will issue the New Second Lien PIK Notes in accordance with the terms of the New Second Lien PIK Notes Documents. The Confirmation Order shall constitute approval of the New Second Lien PIK Notes (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees paid by the Reorganized Debtors in connection therewith, including the payment of all fees and expenses provided for therein), and authorization for the Reorganized Debtors to enter into and perform under the New Second Lien PIK Notes Documents and such other documents as may be required or appropriate.

The New Second Lien PIK Notes Documents shall constitute legal, valid, binding, and authorized obligations of the Reorganized Debtors, enforceable in accordance with their terms. The financial accommodations pursuant to the New Second Lien PIK Notes are being issued, and shall be deemed to have been issued, in good faith, for legitimate business purposes, are reasonable, shall not be subject to avoidance, recharacterization, or subordination (including equitable subordination) for any purposes whatsoever, and shall not constitute preferential transfers, fraudulent transfers, obligations, or conveyances, or other voidable transfers or obligations under the Bankruptcy Code or any other applicable non-bankruptcy law. On the Effective Date, all of the Liens and security interests to be granted in accordance with the New Second Lien PIK Notes Documents (a) shall be legal, binding, and enforceable Liens on, and security interests in, the collateral granted thereunder in accordance with the terms of the New Second Lien PIK Notes Documents, (b) shall be deemed automatically perfected on the Effective Date, subject only to such Liens and security interests as may be permitted under the New Second Lien PIK Notes Documents, and (c) shall not be subject to avoidance, recharacterization, or subordination (including equitable subordination) for any purposes whatsoever and shall not constitute preferential transfers, fraudulent transfers, obligations, or conveyances, or other voidable transfers or obligations under the Bankruptcy Code or any applicable non-bankruptcy law. The Reorganized Debtors and the Persons and Entities granted such Liens and security interests are authorized to make all filings and recordings and to obtain all governmental approvals and consents necessary to establish and perfect such Liens and security interests under the provisions of the applicable state, provincial, federal, or other law (whether domestic or foreign) that would be applicable in the absence of the Plan and the Confirmation Order (it being understood that perfection shall occur automatically by virtue of the entry of the Confirmation Order, and any such filings, recordings, approvals, and consents shall not be required), and will thereafter cooperate to make all other filings and recordings that otherwise would be necessary under applicable law to give notice of such Liens and security interests to third parties.

 

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  (c)

Exit Facility

On the Effective Date, the Combined Consenting Second Lien Noteholders shall provide the Exit Facility in accordance with the terms of the Exit Facility Documents, which terms and conditions shall be acceptable to the Debtors and the Requisite Creditors. The Reorganized Debtors shall use the proceeds of the Exit Facility to pay the outstanding amount of the First Lien Claims and for any other purpose permitted by the Exit Facility Documents. The Exit Facility shall include the following material terms:

 

  1)

The Combined Prepetition Second Lien Noteholders will be offered the opportunity to become a lender under the Exit Facility on a Pro Rata basis, based on each Holder’s respective holdings of Second Lien Notes Claims, through a syndication process.

 

  2)

The Commitment Parties will enter into the Exit Facility Commitment Letter pursuant to which the Commitment Parties shall agree to backstop any portion of the principal amount of the Exit Facility for which the other Combined Prepetition Second Lien Noteholders have not exercised their ability to become a lender under the Exit Facility in accordance with the terms of the Plan and the applicable syndication procedures.

 

  3)

In consideration for their commitments under the Exit Facility Commitment Letter, the Commitment Parties shall receive the Put Option Premium.

 

  4)

Terms of the Exit Facility to include:

 

  i.

Borrower: New Parent

 

  ii.

Guarantors: Each subsidiary of New Parent

 

  iii.

Principal Amount: $50 million

 

  iv.

Term: 5 years

 

  v.

Interest Rate: LIBOR + 750 bps (subject to a 1.00% floor)

 

  vi.

Security: Secured by a first lien security interest in the equity of each subsidiary of New Parent on the same collateral that secures the Prepetition Term Loan Agreement

 

  3.

Distributions to Holders of General Unsecured Claims

The GUC Administrator shall make distributions to Holders of Allowed General Unsecured Claims to be funded from Cash from the General Unsecured Claims Distribution in accordance with the GUC Administrator Agreement.

 

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  4.

Corporate Existence

Except as otherwise provided in the Plan, the Plan Supplement, or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, each Debtor shall continue to exist on and after the Effective Date as a separate corporation, limited liability company, partnership, or other form of entity, as the case may be, with all the powers of a corporation, limited liability company, partnership, or other form of entity, as the case may be, pursuant to the New Organizational Documents and the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and bylaws (or other analogous formation, constituent, or governance documents) in effect before the Effective Date, except to the extent such certificate of incorporation or bylaws (or other analogous formation, constituent, or governance documents) is amended by the Plan or otherwise, and to the extent any such document is amended, such document is deemed to be amended pursuant to the Plan and requires no further action or approval (other than any requisite filings required under applicable state or federal law).

 

  5.

Vesting of Assets in the Reorganized Debtors

Except as otherwise provided in the Plan, the Plan Supplement, or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, on the Effective Date, all property in each Estate, including all Causes of Action, and any property acquired by any of the Debtors shall vest in each applicable Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances. On and after the Effective Date, except as otherwise provided in the Plan, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property, and compromise or settle any Claims, Interests, or Causes of Action without supervision or approval by the Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules.

To the extent that any Holder of a Secured Claim that has been satisfied or discharged in full pursuant to the Plan, or any agent for such Holder, has filed or recorded publicly any Liens and/or security interests to secure such Holder’s Secured Claim, as soon as practicable on or after the Effective Date, such Holder (or the agent for such Holder) shall take any and all steps requested by the Debtors, the Reorganized Debtors or any administrative agent or indenture trustee under the Exit Facility Documents or the New Second Lien PIK Notes Documents that are necessary to cancel and/or extinguish such Liens and/or security interests.

After the Effective Date, the Reorganized Debtors may present Court order(s) or assignment(s) suitable for filing in the records of every county or governmental agency where the property vested in accordance with the foregoing paragraph is or was located, which provide that such property is conveyed to and vested in the Reorganized Debtors. The Court order(s) or assignment(s) may designate all Liens, Claims, encumbrances, or other interests which appear of record and/or from which the property is being transferred, assigned and/or vested free and clear of. The Plan shall be conclusively deemed to be adequate notice that such Lien, Claim, encumbrance, or other interest is being extinguished and no notice, other than by this Plan, shall be given prior to the presentation of such Court order(s) or assignment(s). Any Person having a Lien, Claim, encumbrance, or other interest against any of the property vested in accordance with the foregoing paragraph shall be conclusively deemed to have consented to the transfer, assignment, and vesting of such property to or in the Reorganized Debtors free and clear of all Liens, Claims, charges, or other encumbrances by failing to object to confirmation of this Plan, except as otherwise provided in this Plan.

 

34


  6.

Cancellation of Existing Securities

Except for the purpose of evidencing a right to distribution under the Plan and except as otherwise provided in the Plan, on the Effective Date: (i) the obligations of the Debtors under the Prepetition Agreements, and each certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of, or ownership interest in, the Debtors or giving rise to any Claim or Interest shall be cancelled or extinguished and the Debtors and the Reorganized Debtors shall not have any continuing obligations thereunder; and (ii) the obligations of the Debtors pursuant, relating, or pertaining to any agreements, indentures, certificates of designation, bylaws, or certificate or articles of incorporation or similar documents governing the shares, certificates, notes, bonds, purchase rights, options, warrants, or other instruments or documents evidencing or creating any indebtedness or obligation of the Debtors shall be released and discharged.

On and after the Effective Date, all duties and responsibilities of the Prepetition Term Loan Agent under the Prepetition Term Loan Agreement, and the Indenture Trustee under the Prepetition Second Lien Indenture and the Prepetition Second Lien PIK Indenture, shall be fully discharged unless otherwise specifically set forth in or provided for under the Plan, the Plan Supplement, or the Confirmation Order Notwithstanding the foregoing, each of the Indentures shall continue in effect solely for the purposes of, as applicable, (a) allowing Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims to receive distributions under the Plan and (b) allowing and preserving the rights of the Indenture Trustees to (i) make distributions in satisfaction of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, (ii) maintain and exercise their respective Charging Liens under the terms of the Indentures or any related or ancillary document, instrument, agreement, or principle of law against Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, as applicable, and distributions thereto, (iii) seek compensation and reimbursement for any reasonable and documented fees and expenses incurred in making such distributions, (iv) maintain and enforce any right to indemnification, expense reimbursement, contribution, or subrogation or any other claim or entitlement that the Indenture Trustees may have under the applicable Indentures, (v) exercise their rights and obligations relating to the interests of their Holders pursuant to the applicable Indentures, and (vi) appear in these Chapter 11 Cases. For the avoidance of doubt, all indemnification obligations and expense reimbursement obligations of the Debtors arising under the Indentures in favor of the Indenture Trustees, and each of their respective directors, officers, employees, agents, affiliates, controlling persons, and legal and financial advisors shall survive, remain in full force and effect, and be enforceable against the Debtors or their Estates on and after the Effective Date and shall be enforceable through the exercise of the applicable Charging Lien against the Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, as applicable, and distributions thereto.

 

35


If the record Holder of any Prepetition Second Lien Notes, Prepetition Second Lien PIK Notes, or PetroQuest Interests is DTC or its nominee or another securities depository or custodian thereof, and such Note or Interest is represented by a global security held by or on behalf of DTC or such other securities depository or custodian, then each beneficial owner of such Note or Interest shall be deemed to have surrendered its Note or Interest upon surrender of such global security by DTC or such other securities depository or custodian thereof.

 

  7.

Corporate Action

Upon the Effective Date, all actions (whether to occur before, on, or after the Effective Date) contemplated by the Plan shall be deemed authorized and approved by the Court in all respects without any further corporate or equityholder action, including, as applicable: (1) issuance of the New Second Lien PIK Notes; (2) execution and delivery of the New Second Lien PIK Notes Documents; (3) the adoption and/or filing of the New Organizational Documents and the Registration Rights Agreement; (4) the authorization, issuance, and distribution of the New Equity; (5) appointment of the directors and officers for New Parent and the other Reorganized Debtors; (6) the Management Incentive Plan on the terms and conditions set forth in the MIP Term Sheet; (7) implementation of the Restructuring Transactions; and (8) all other actions contemplated by the Plan. Upon the Effective Date, all matters provided for in the Plan involving the corporate structure of New Parent and the other Reorganized Debtors, and any corporate action required by the Debtors, New Parent, or the other Reorganized Debtors in connection with the Plan (including any items listed in the first sentence of this paragraph) shall be deemed to have occurred and shall be in effect, without any requirement of further action by the security holders, directors, or officers of the Debtors, New Parent or the other Reorganized Debtors, as applicable. On or (as applicable) before the Effective Date, the appropriate officers of the Debtors, New Parent, or the other Reorganized Debtors shall be authorized and directed to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated by the Plan (or necessary or desirable to effectuate the transactions contemplated by the Plan) in the name of and on behalf of New Parent and the other Reorganized Debtors, including the Exit Facility Documents, the New Second Lien PIK Notes Documents, the New Organizational Documents, and any and all other agreements, documents, securities, and instruments relating to the foregoing, to the extent not previously authorized by the Court. The authorizations and approvals contemplated by Article IV.G of the Plan shall be effective notwithstanding any requirements under non-bankruptcy law or contract, including for any vote of shareholders or equityholders.

 

  8.

New Organizational Documents

To the extent required under the Plan or applicable non-bankruptcy law, New Parent and the other Reorganized Debtors will, on or as soon as practicable after the Effective Date, file their respective New Organizational Documents with the applicable Secretaries of State and/or other applicable authorities in their respective states, provinces, or countries of incorporation in accordance with the corporate laws of the respective states, provinces, or countries of incorporation. Pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, the New Organizational Documents of the Reorganized Debtors will prohibit the issuance of non-voting equity securities and will comply with all other applicable provisions of section 1123(a)(6) of the Bankruptcy Code regarding the distribution of power among, and

 

36


dividends to be paid to, different classes of voting securities. From and after the Effective Date, New Parent and the other Reorganized Debtors, as applicable, may amend and restate their respective New Organizational Documents and other constituent documents, as permitted by the laws of their respective states, provinces, or countries of incorporation and their respective New Organizational Documents.

On the Effective Date, the New Organizational Documents, substantially in the forms set forth in the Plan Supplement, shall be deemed to be valid, binding, and enforceable in accordance with their terms and provisions.

 

  9.

Directors and Officers of the Reorganized Debtors

As of the Effective Date, the term of the current members of the board of directors, members or managers of each of the Debtors shall expire automatically, and the New Boards and the officers of each of the Reorganized Debtors shall be appointed in accordance with the Plan, the New Organizational Documents, and other constituent documents of each Reorganized Debtor. The initial New Parent Board shall consist of five (5) members, consisting of Charles T. Goodson as the President and Chief Executive Officer of New Parent and four (4) additional Persons selected by the Requisite Creditors.

Pursuant to section 1129(a)(5) of the Bankruptcy Code, the Debtors will, to the extent known, disclose in advance of the Confirmation Hearing the identity and affiliations of any Person proposed to serve on the initial New Boards, as well as those Persons that will serve as an officer of New Parent or any of the Reorganized Debtors. To the extent any such director, member, manager or officer is an Insider, the nature of any compensation to be paid to such director, member, manager or officer will also be disclosed. Each such director, member, manager and officer shall serve from and after the Effective Date pursuant to the terms of the New Organizational Documents and other constituent documents of New Parent and each of the other Reorganized Debtors.

 

  10.

Effectuating Documents; Further Transactions

On and after the Effective Date, New Parent and each of the other Reorganized Debtors, the Reorganized Debtors’ officers, and the members of the New Boards are authorized to and may issue, execute, deliver, file, or record such contracts, Securities, instruments, releases, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement, and further evidence the terms and conditions of the Plan and the Securities issued pursuant to the Plan, including the New Equity and the New Second Lien PIK Notes, in the name of and on behalf of New Parent or the other Reorganized Debtors, without the need for any approvals, authorization, or consents except those expressly required pursuant to the Plan.

 

  11.

Exemption from Certain Taxes and Fees

Pursuant to, and to the fullest extent permitted by, section 1146(a) of the Bankruptcy Code, any issuance, transfer, or exchange of a Security (including, without limitation, of the New Equity and the New Second Lien PIK Notes) or transfer of property, in each case, pursuant to, in contemplation of, or in connection with, the Plan shall not be subject to any document recording

 

37


tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, sale or use tax, mortgage recording tax, or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forgo the collection of any such tax or governmental assessment and accept for filing and recordation any instruments of transfer or other relevant documents without the payment of any such tax, recordation fee, or governmental assessment.

 

  12.

Preservation of Causes of Action

In accordance with section 1123(b) of the Bankruptcy Code, but subject in all respects to Article VIII of the Plan, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Petition Date, including any actions specifically enumerated in the Plan Supplement, and such rights to commence, prosecute, or settle such Causes of Action shall be preserved notwithstanding the occurrence of the Effective Date. The Reorganized Debtors may pursue such Causes of Action, as appropriate, in accordance with the best interests of the Reorganized Debtors. A schedule of the Causes of Action known by the Debtors to be retained by the Reorganized Debtors will be included as part of the Plan Supplement. No Entity may rely on the absence of a specific reference in the Plan, the Plan Supplement, or the Disclosure Statement to any Causes of Action against it as any indication that the Debtors or the Reorganized Debtors will not pursue any and all available Causes of Action against it. The Debtors or the Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except as otherwise expressly provided in the Plan. Unless any Causes of Action against an Entity are expressly waived, relinquished, exculpated, released, compromised, or settled in the Plan or a Court order, including, without limitation, pursuant to Article VIII of the Plan, the Debtors or Reorganized Debtors, as applicable, expressly reserve all Causes of Action for later adjudication, and, therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable, or otherwise), or laches, shall apply to such Causes of Action upon, after, or as a consequence of the Confirmation or Consummation. For the avoidance of doubt, in no instance will any Cause of Action preserved pursuant to Article IV.L of the Plan include any claim or Cause of Action with respect to, or against, a Released Party.

In accordance with section 1123(b)(3) of the Bankruptcy Code, except as otherwise provided herein, any Causes of Action that a Debtor may hold against any Entity shall vest in the applicable Reorganized Debtor. The applicable Reorganized Debtors, through their authorized agents or representatives, shall retain and may exclusively enforce any and all such Causes of Action. The Reorganized Debtors shall have the exclusive right, authority, and discretion to determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, withdraw, or litigate to judgment any such Causes of Action, and to decline to do any of the foregoing without the consent or approval of any third party or further notice to or action, order, or approval of the Court.

 

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  13.

Director and Officer Liability Insurance

Notwithstanding anything in the Plan to the contrary, effective as of the Effective Date, the Reorganized Debtors shall be deemed to have assumed all D&O Liability Insurance Policies pursuant to section 365(a) of the Bankruptcy Code. Entry of the Confirmation Order will constitute the Court’s approval of the Reorganized Debtors’ assumption of such D&O Liability Insurance Policies to the extent they are Executory Contracts. Notwithstanding anything to the contrary contained in the Plan, Confirmation of the Plan shall not discharge, impair, or otherwise modify any indemnity obligations assumed by the foregoing assumption of the D&O Liability Insurance Policies, and each such indemnity obligation will be deemed and treated as an Executory Contract that has been assumed by the Reorganized Debtors under the Plan as to which no Proof of Claim need be Filed, and shall survive the Effective Date.

 

  14.

Management Incentive Plan

The Management Incentive Plan will be a comprehensive equity-based award plan as part of the go-forward compensation for the Reorganized Debtors’ management in accordance with the MIP Term Sheet. The Confirmation Order shall authorize and require the New Parent Board to adopt and enter into the Management Incentive Plan, on the terms and conditions set forth in the MIP Term Sheet.

 

  15.

Employee and Retiree Benefits

Except as otherwise provided in the Plan or the Plan Supplement, all written employment, severance, retirement, and other similar employee-related agreements or arrangements in place as of the Effective Date with the Debtors, including any key employee incentive plans and/or key employee retention plans that may be approved by the Court in the Chapter 11 Cases and any items approved as part of the Confirmation Order, retirement income plans and welfare benefit plans, or discretionary bonus plans or variable incentive plans regarding payment of a percentage of annual salary based on performance goals and financial targets for certain employees, shall be assumed by the Reorganized Debtors and shall remain in place after the Effective Date, as may be amended by agreement between the beneficiaries of such agreements, plans, or arrangements, on the one hand, and the Debtors, with the consent of the Requisite Creditors, on the other hand, or, after the Effective Date, by agreement with the Reorganized Debtors, and the Reorganized Debtors will continue to honor such agreements, arrangements, programs, and plans; provided that the foregoing shall not apply to any equity-based compensation, agreement, or arrangement existing as of the Petition Date. Nothing in the Plan shall limit, diminish, or otherwise alter the Reorganized Debtors’ defenses, claims, Causes of Action, or other rights with respect to any such contracts, agreements, policies, programs, and plans.

 

  16.

Payment of Fees and Expenses of the Consenting Creditors

On the Effective Date, to the extent not otherwise paid pursuant to an order of this Court, the Reorganized Debtors shall establish and fund the Consenting Creditors Fee Escrow Account with Cash equal to the Consenting Creditors Fee Reserve Amount. The Consenting Creditors Fee Escrow Account shall be maintained in trust solely for the benefit of the applicable Consenting Creditors Professionals. The funds in the Consenting Creditors Fee Escrow Account shall not be considered property of the Estates or of the Reorganized Debtors and shall not be subject to any Liens.

 

39


After the Effective Date, the Consenting Creditors Fees will be subject to a review by the Reorganized Debtors for a period of seven (7) Business Days following submission of each invoice (including reasonable documentation of such fees and expenses), which may be redacted to preserve privilege and/or confidentiality. To the extent the Reorganized Debtors deliver to the applicable Consenting Creditor a written notice of objection within the seven (7) Business Day review period, and the applicable Consenting Creditor and the Reorganized Debtors are unable to resolve such objection on a consensual basis within seven (7) Business Days after such objection has been submitted, the Reorganized Debtors may File with the Court a motion or other pleading setting forth the specific objections to the disputed invoice, and the Court shall adjudicate the matter. The Reorganized Debtors will promptly pay any undisputed Consenting Creditors Fees on the later of the Effective Date or one (1) Business Day following the expiration of the seven (7) Business Day review period. When all such amounts owing to Consenting Creditors have been paid in full, any remaining amount in the Consenting Creditors Fee Escrow Account shall promptly be turned over to the Reorganized Debtors without any further action or order of the Court.

Consenting Creditors Professionals shall reasonably estimate their unpaid Consenting Creditors Fees before and as of the Effective Date, and shall deliver such estimate to the Debtors no later than five (5) Business Days before the Effective Date. If any of the Consenting Creditors Professionals does not provide an estimate, the Debtors or Reorganized Debtors may estimate the unpaid and unbilled fees and expenses of such Consenting Creditors Professional.

 

  17.

Preservation of the Charging Lien of the Indenture Trustee

Each Indenture Trustee shall be entitled to assert its Charging Lien arising under and in accordance with the applicable Indenture and any ancillary document, instrument, or agreement to obtain payment of its respective fees and expenses and the fees and expenses of its professionals. Reasonable fees and expenses incurred by the Indenture Trustee after the Effective Date in its capacity as Disbursing Agent and for matters related to distributions to the Combined Prepetition Second Lien Noteholders shall be paid by the Reorganized Debtors and any dispute between the Reorganized Debtors and the Indenture Trustee regarding the reasonableness of such fees and expenses may be submitted to the Court for resolution.

 

  18.

Preservation of Royalty and Working Interests

Notwithstanding any other provision in the Plan, on and after the Effective Date all Royalty and Working Interests shall be fully preserved and remain in full force and effect in accordance with the terms of the relevant granting instruments or other governing documents applicable to such Royalty and Working Interests, which granting instruments and governing documents shall remain in full force and effect, and no Royalty and Working Interests or any liabilities and obligations arising therefrom, including payment obligations, whether arising before or after the Petition Date, shall be compromised or discharged by the Plan.

 

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  19.

GUC Administrator

The GUC Administrator shall have the power to administer the General Unsecured Claims Distribution and make or authorize distributions to Holders of General Unsecured Claims. Without limiting the generality of the foregoing, the GUC Administrator shall: (a) hold and administer the Cash that comprises the General Unsecured Claims Distribution; (b) have authority to pay from the General Unsecured Claims Distribution all out of pocket expenses incurred in connection with the discharge of its duties under the Plan; (c) have the power and authority to retain such attorneys, advisors, other professionals and employees as may be appropriate to perform the duties required of the GUC Administrator in the Plan and in the GUC Administrator Agreement; (d) make distributions to Holders of General Unsecured Claims as provided in the Plan and in the GUC Administrator Agreement; and (e) provide periodic reports and updates to the Reorganized Debtors regarding the status of the administration of the General Unsecured Claims as may be reasonably required. The Reorganized Debtors shall cooperate in a commercially reasonable manner and in good faith with the GUC Administrator to assure that the GUC Administrator has reasonable access to the Reorganized Debtors’ books and records in possession of the Reorganized Debtors in connection with its duty to object to and resolve General Unsecured Claims.

Prior to the Effective Date, an amount of Cash from the General Unsecured Claims Distribution determined by the Debtors and the Creditors’ Committee in consultation with the Requisite Creditors sufficient to perform the functions of the GUC Administrator in connection with its responsibilities, including fees for its counsel, shall be placed into a segregated account. Any excess amount remaining in the account in connection with the closing of the Chapter 11 Cases will be treated as distributable Cash to Holders of General Unsecured Claims.

 

  E.

Treatment of Executory Contracts and Unexpired Leases

 

  1.

Assumption and Rejection of Executory Contracts and Unexpired Leases

On the Effective Date, except as otherwise provided herein, all Executory Contracts or Unexpired Leases will be deemed assumed and assigned to the Reorganized Debtors or their designated assignee in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, regardless of whether such Executory Contract or Unexpired Lease is set forth on the Schedule of Assumed Executory Contracts and Unexpired Leases, other than: (1) those that are identified on the Schedule of Rejected Executory Contracts and Unexpired Leases; (2) those that have been previously rejected by a Final Order; (3) those that are the subject of a motion to reject Executory Contracts or Unexpired Leases that is pending on the Effective Date; or (4) those that are subject to a motion to reject an Executory Contract or Unexpired Lease pursuant to which the requested effective date of such rejection is after the Effective Date.

Entry of the Confirmation Order shall constitute the Court’s order approving the assumptions, assumptions and assignments, or rejections, as applicable, of Executory Contracts or Unexpired Leases as set forth in the Plan or in the Schedule of Rejected Executory Contracts and Unexpired Leases and the Schedule of Assumed Executory Contracts and Unexpired Leases, pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Unless otherwise indicated, assumptions, assumptions and assignments, or rejections of Executory Contracts and Unexpired Leases pursuant to the Plan are effective as of the Effective Date. Each Executory Contract or Unexpired Lease assumed pursuant to the Plan but not assigned to a third party before the

 

41


Effective Date shall re-vest in and be fully enforceable by the applicable Reorganized Debtor in accordance with its terms, except as such terms may have been modified by the provisions of the Plan or any order of the Court. Any motions to assume Executory Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by the Court on or after the Effective Date. Notwithstanding anything to the contrary in the Plan, the Debtors, with the consent of the Requisite Creditors reserve the right to alter, amend, modify, or supplement the Schedule of Rejected Executory Contracts and Unexpired Leases at any time prior to the Effective Date on no less than three (3) days’ notice to the applicable non-Debtor counterparties.

 

  2.

Claims Based on Rejection of Executory Contracts or Unexpired Leases

Counterparties to Executory Contracts or Unexpired Leases listed on the Schedule of Rejected Executory Contracts and Unexpired Leases shall be promptly served with a notice of rejection of Executory Contracts and Unexpired Leases. Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases, if any, must be Filed with the Court within the earliest to occur of (1) thirty (30) days after the date of entry of an order of the Court (including the Confirmation Order) approving such rejection or (2) thirty (30) days after notice of any rejection that occurs after the Effective Date. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease that are not Filed within such time will be automatically Disallowed, forever barred from assertion, and shall not be enforceable against, as applicable, the Debtors, the Reorganized Debtors, the Estates, or property of the foregoing parties, without the need for any objection by the Debtors or the Reorganized Debtors or further notice to, or action, order, or approval of the Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules or any Proof of Claim to the contrary. Claims arising from the rejection of the Executory Contracts or Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III.B.7 of the Plan.

 

  3.

Cure of Defaults for Assumed Executory Contracts and Unexpired Leases

At least fourteen (14) days before the Confirmation Hearing, the Debtors shall distribute, or cause to be distributed, Cure Notices of proposed assumption or assumption and assignment and proposed amounts of Cure Claims to the applicable counterparties and the Requisite Creditors. Any objection by a counterparty to an Executory Contract or Unexpired Lease to the proposed assumption or assumption and assignment or related Cure Claim must be Filed, served and actually received by the Debtors and the Requisite Creditors at least seven (7) days before the Confirmation Hearing. In the event that any Executory Contract or Unexpired Lease is removed from the Schedule of Rejected Executory Contracts and Unexpired Leases after such time as the Cure Notices referred to above have been distributed, a separate Cure Notice of proposed assumption or assumption and assignment and the proposed amount of the Cure Claim with respect to such Executory Contract or Unexpired Lease will be sent promptly to the counterparty thereof and a hearing will be set to consider whether such Executory Contract or Unexpired Lease can be assumed or assumed and assigned.

 

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Any counterparty to an Executory Contract or Unexpired Lease that fails to object timely to the proposed assumption or assumption and assignment or the proposed Cure Claim will be deemed to have assented to such assumption or assumption and assignment and the Cure Claim. Payment in Cash, on the Effective Date or as soon as reasonably practicable thereafter, to such counterparty of the amount set forth on the applicable Cure Notice shall, as a matter of law, satisfy any and all monetary defaults under the applicable Executory Contract or Unexpired Lease. In the event of a dispute regarding (1) the amount of any payments to cure such a default, (2) the ability of the Reorganized Debtors or any assignee, to provide “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) under the Executory Contract or Unexpired Lease to be assumed, or (3) any other matter pertaining to assumption or assumption and assignment, such dispute shall be resolved by a Final Order of the Court.

In any case, if the Court determines that the Allowed Cure Claim with respect to any Executory Contract or Unexpired Lease is greater than the amount set forth in the applicable Cure Notice, the Debtors or the Reorganized Debtors, as applicable, with the consent of the Requisite Creditors will have the right to add such Executory Contract or Unexpired Lease to the Schedule of Rejected Executory Contracts and Unexpired Leases, in which case such Executory Contract or Unexpired Lease will be deemed rejected as of the Effective Date. After such Executory Contract or Unexpired Lease is added to the Schedule of Rejected Executory Contracts and Unexpired Leases, the applicable counterparty shall be served with a notice of rejection of its Executory Contract or Unexpired Lease.

Assumption of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time before the date that the Debtors assume such Executory Contract or Unexpired Lease. Any Proofs of Claim Filed with respect to an Executory Contract or Unexpired Lease that has been assumed shall be deemed Disallowed and expunged, without further notice to or action, order, or approval of the Court.

 

  4.

Insurance Policies

Without limiting Article IV.M, all of the Debtors’ insurance policies and any agreements, documents, or instruments relating thereto, are treated as and deemed to be Executory Contracts under the Plan. On the Effective Date, the Debtors shall be deemed to have assumed all insurance policies and any agreements, documents, and instruments related thereto.

 

  5.

Modifications, Amendments, Supplements, Restatements, or Other Agreements

Unless otherwise provided in the Plan, each Executory Contract or Unexpired Lease that is assumed or assumed and assigned shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such Executory Contract or Unexpired Lease, and Executory Contracts and Unexpired Leases related thereto, if any, including easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests, unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

 

43


Modifications, amendments, supplements, and restatements to prepetition Executory Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases, shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

 

  6.

Reservation of Rights

Neither the exclusion nor inclusion of any Executory Contract or Unexpired Lease on the Schedule of Rejected Executory Contracts and Unexpired Leases, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that any Reorganized Debtor has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors, or, after the Effective Date, the Reorganized Debtors, in each case with the consent of the Requisite Creditors, shall have thirty (30) days following entry of a Final Order resolving such dispute to alter the treatment of such contract or lease.

 

  7.

Nonoccurrence of Effective Date

In the event that the Effective Date does not occur, the Court shall retain jurisdiction with respect to any request to extend the deadline for assuming or rejecting Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code.

 

  8.

Contracts and Leases Entered into After the Petition Date

Contracts and leases entered into after the Petition Date by any Debtor will be performed by the applicable Debtor or Reorganized Debtor liable thereunder in the ordinary course of its business. Accordingly, such contracts and leases that have not been rejected as of the date of Confirmation will survive and remain unaffected by entry of the Confirmation Order.

 

  F.

Provisions Governing Distributions

 

  1.

Timing and Calculation of Amounts to Be Distributed

Unless otherwise provided in the Plan, on the Effective Date or as soon as reasonably practicable thereafter (or, if a Claim is not an Allowed Claim on the Effective Date, on the date that such Claim becomes Allowed or as soon as reasonably practicable thereafter), each Holder of an Allowed Claim (or such Holder’s affiliate), including any portion of a Claim that is an Allowed Claim notwithstanding that other portions of such Claim are a Disputed Claim, shall receive the full amount of the distributions that the Plan provides for Allowed Claims in each applicable Class. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. If and to the extent that there are Disputed Claims, distributions on account of any such Disputed Claims shall be made pursuant

 

44


to the provisions set forth in Article VII of the Plan. Except as otherwise provided in the Plan, Holders of Claims shall not be entitled to interest, dividends, or accruals on the distributions provided for in the Plan, regardless of whether such distributions are delivered on or at any time after the Effective Date.

 

  2.

Delivery of Distributions and Undeliverable or Unclaimed Distributions

 

  (a)

Delivery of Distributions

 

  1)

Distribution Record Date

As of the close of business on the Distribution Record Date, (i) the various transfer registers for each of the Classes of Claims and Interests maintained by the Debtors, or their respective agents, and (ii) the transfer books and records of the respective Notes as maintained by the Indenture Trustee, its respective agents, or DTC, shall be deemed closed, and there shall be no further changes in the record Holders of any of the Claims and Interests. The Debtors, the Reorganized Debtors, the Disbursing Agent, the GUC Administrator, and the Indenture Trustee, as applicable, shall have no obligation to recognize any transfer of the Claims or Interests occurring on or after the Distribution Record Date. For the avoidance of doubt, the Distribution Record Date shall not apply to any distributions made through DTC and shall be made through the facilities of the DTC in accordance with the customary practices of DTC for a mandatory distribution.

 

  2)

Delivery of Distributions in General

Except as otherwise provided herein, distributions to Holders of Allowed Claims shall be made to the Holders of record as of the Distribution Record Date by the Reorganized Debtors or the Disbursing Agent for all Claims other than General Unsecured Claims, and by the GUC Administrator for General Unsecured Claims, as follows: (1) to the signatory at the address set forth on the last Proof of Claim Filed by such Holder or other representative identified therein (or at the last known addresses of such Holder if the Debtors have been notified in writing of a change of address); (2) at the address set forth in any written notice of address changes delivered to the Reorganized Debtors after the Effective Date; (3) at the address reflected in the Schedules if no Proof of Claim has been Filed and the Reorganized Debtors have not received a written notice of a change of address; or (4) to any counsel that has appeared in the Chapter 11 Cases on the Holder’s behalf. Subject to Article VI of the Plan, distributions under the Plan on account of Allowed Claims shall not be subject to levy, garnishment, attachment, or like legal process, so that each Holder of an Allowed Claim shall have and receive the benefit of the distributions in the manner set forth in the Plan. The Debtors, the Reorganized Debtors, and the Indenture Trustee shall not incur any liability whatsoever on account of any distributions under the Plan except for gross negligence or willful misconduct.

 

  3)

Delivery of Distributions to Prepetition Term Loan Lenders

Any and all distributions to Holders of First Lien Claims as of the Distribution Record Date shall be governed by the Prepetition Term Loan Agreement. The Prepetition Term Loan Agent shall cooperate with the Debtors and the Reorganized Debtors (including the Disbursing Agent) to enable the Debtors or the Reorganized Debtors (through the Disbursing Agent) to

 

45


make such distributions, including providing, within three (3) Business Days following the Distribution Record Date, the Debtors or the Reorganized Debtors (including the Disbursing Agent) with a list of all Holders of First Lien Claims as of the Distribution Record Date, including the address at which each such Holder is authorized to receive its distribution under the Plan and the amount of First Lien Claims held by each such Holder.

 

  4)

Delivery of Distributions to Combined Prepetition Second Lien Noteholders

Any and all distributions to the Holders of the Second Lien Notes Claims as of the Distribution Record Date shall be governed by the Prepetition Second Lien Indenture or the Prepetition Second Lien PIK Indenture, as applicable. Each Indenture Trustee shall cooperate with the Debtors and Reorganized Debtors to enable the Debtors or Reorganized Debtors (through the Indenture Trustee) to make such distributions, including providing, within three (3) Business Days following the Distribution Record Date, the Debtors or Reorganized Debtors with a list of all Holders of Second Lien Notes Claims as of the Distribution Record Date and the amount of the Second Lien Notes Claims held by each such Holder. Distributions to the Holders of the Second Lien Notes Claims shall be deemed to have been made when reflected in the Reorganized Debtors’ stock register according to the information provided by the Indenture Trustee.

All distributions on account of Allowed Second Lien Notes Claims (a) shall be governed by the Prepetition Second Lien Indenture or the Prepetition Second Lien PIK Indenture, as applicable, and (b) will be made to (or in coordination with) the Prepetition Second Lien Trustee and the Prepetition Second Lien PIK Trustee, respectively, which will serve as the Reorganized Debtors’ Disbursing Agent for purposes of making distributions under the Plan to Holders of the Second Lien Notes Claims. The Prepetition Second Lien Trustee and the Prepetition Second Lien PIK Trustee may transfer or direct the transfer of such distributions directly through the facilities of DTC (with the accompanying surrender of the Second Lien Notes Claims) and will be entitled to recognize and deal for all purposes under the Plan with DTC, on or as soon as practicable after the Effective Date, consistent with the customary practices of DTC. To the extent that any distributions are not eligible for distribution through DTC, the Prepetition Second Lien Trustee or the Prepetition Second Lien PIK Trustee, respectively, or the applicable paying agent, as applicable, shall have no duties or responsibilities relating to any form of distribution that is not DTC eligible; provided that all such distributions shall be subject in all respects to the right of the Prepetition Second Lien Trustee or the Prepetition Second Lien PIK Trustee to assert its applicable Charging Liens arising under and in accordance with the applicable Indenture and any ancillary document, instrument, or agreement, against such distributions with respect to any unpaid fees and expenses (including professionals’ fees) or other amounts payable to the Prepetition Second Lien Trustee or the Prepetition Second Lien PIK Trustee, or any applicable paying agent, as applicable, under the applicable Indenture and any related or ancillary document, instrument, agreement or principle of law as applicable. All distributions made to Holders of Allowed Second Lien Notes Claims are expected to be eligible to be distributed through the facilities of DTC.

 

46


  (b)

Minimum Distributions

No fractional shares of New Equity or fractions of New Second Lien PIK Notes shall be distributed, and no Cash shall be distributed in lieu of such fractional shares of New Equity or fractions of New Second Lien PIK Notes. When any distribution pursuant to the Plan on account of an Allowed Claim would otherwise result in a fractional share of New Equity or a fraction of New Second Lien PIK Notes, the actual issuance shall reflect a rounding as follows: (a) fractions of one-half or greater shall be rounded to the next higher whole number; and (b) fractions of less than one-half shall be rounded to the next lower whole number with no further payment therefor. The total number of authorized shares of New Equity and New Second Lien PIK Notes to be distributed pursuant to the Plan shall be adjusted as necessary to account for the foregoing rounding.

Holders of Allowed Claims entitled to distributions of $50.00 or less shall not receive distributions, and each Claim to which this limitation applies shall be discharged pursuant to Article VIII of the Plan and its Holder shall be forever barred pursuant to Article VIII of the Plan from asserting that Claim against the Reorganized Debtors or their property.

 

  (c)

Undeliverable Distributions and Unclaimed Property

In the event that any distribution to any Holder is returned as undeliverable, no distribution to such Holder shall be made unless and until the Debtors or the Reorganized Debtors (including the Disbursing Agent), as applicable, or the GUC Administrator solely with respect to General Unsecured Claims, shall have determined the then-current address of such Holder, at which time such distribution shall be made to such Holder without interest; provided that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date. After such date, all unclaimed property or interests in property shall be property of the Reorganized Debtors or distributed to Holders of General Unsecured Claims if part of the General Unsecured Claims Distribution without need for a further order by the Court (notwithstanding any applicable federal, provincial, or state escheat, abandoned, or unclaimed property laws to the contrary), and the Claim of any Holder to such property or Interest in property shall be discharged and forever barred.

 

  3.

Securities Registration Exemption

Notwithstanding any provision of the Registration Rights Agreement, all shares of New Equity and New Second Lien PIK Notes issued under the Plan will be issued to the fullest extent permitted by section 1145 of the Bankruptcy Code without registration under the Securities Act and any other applicable securities laws. These Securities may be resold without registration under the Securities Act or other federal securities laws pursuant to the exemption provided by section 4(a)(1) of the Securities Act, subject to certain exceptions if the Holder is an “underwriter” with respect to such Securities, as such term is defined in section 1145(b) of the Bankruptcy Code. In addition, Securities that are exempt pursuant to section 1145 of the Bankruptcy Code generally may be resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states. The New Equity underlying the Management Incentive Plan will be issued pursuant to an available exemption from registration under the Securities Act and other applicable law. On the Effective Date, PetroQuest shall have deregistered under Section 12 of the Exchange Act and New Parent will be subject to the reporting requirements under Section 15(d) of the Exchange Act.

 

47


Should the Reorganized Debtors elect, on or after the Effective Date, to reflect all or any portion of the ownership of the New Equity or New Second Lien PIK Notes to be held through the facilities of DTC, none of the Debtors, the Reorganized Debtors, nor any other Person shall be required to provide any further evidence other than the Plan and Confirmation Order with respect to the treatment of the New Equity or New Second Lien PIK Notes under applicable securities laws, and the Plan or Confirmation Order shall be deemed to be legal and binding obligations of the Reorganized Debtors in all respects.

The DTC shall be required to accept and conclusively rely upon the Plan and Confirmation Order in lieu of a legal opinion regarding whether the New Equity or New Second Lien PIK Notes are exempt from registration and/or eligible for DTC book-entry delivery, settlement, and depositary services.

Notwithstanding anything to the contrary in the Plan, no Entity (including, for the avoidance of doubt, DTC) may require a legal opinion regarding the validity of any transaction contemplated by the Plan, including, for the avoidance of doubt, whether the New Equity and New Second Lien PIK Notes are exempt from registration and/or eligible for DTC book-entry delivery, settlement, and depositary services.

 

  4.

Compliance with Tax Requirements

In connection with the Plan, to the extent applicable, the Debtors or the Reorganized Debtors, as applicable, shall comply with all tax withholding and reporting requirements imposed on them by any Governmental Unit, and all distributions pursuant to the Plan shall be subject to such withholding and reporting requirements. Notwithstanding any provision in the Plan to the contrary, the Debtors or the Reorganized Debtors, as applicable, shall be authorized to take all actions necessary or appropriate to comply with such withholding and reporting requirements, including liquidating a portion of the distribution to be made under the Plan to generate sufficient funds to pay applicable withholding taxes, withholding distributions pending receipt of information necessary to facilitate such distributions, or establishing any other mechanisms they believe are reasonable and appropriate. The Debtors or the Reorganized Debtors, as applicable, reserve the right to allocate all distributions made under the Plan in compliance with applicable wage garnishments, alimony, child support, and other spousal awards, liens, and encumbrances.

 

  5.

Allocations

Each Holder of an Allowed Claim shall have the option to apply such Holder’s Pro Rata share of consideration distributed under the Plan (cash or value) to satisfy outstanding principal of or accrued interest on such Holder’s Allowed Claim, as such allocation is determined by such Holder in its sole discretion.

 

48


  6.

No Postpetition Interest on Claims

Unless otherwise specifically provided for in an order of the Court, the Plan, or the Confirmation Order, or required by applicable bankruptcy law, postpetition interest shall not accrue or be paid on any Claims or Interests and no Holder of a Claim or Interest shall be entitled to interest accruing on or after the Petition Date on any such Claim.

 

  7.

Setoffs and Recoupment

The Debtors or the Reorganized Debtors, as applicable, may, but shall not be required to, set off against, or recoup from, any Claim against a Debtor of any nature whatsoever that the applicable Debtor may have against the claimant, but neither the failure to do so nor the allowance of any Claim against a Debtor hereunder shall constitute a waiver or release by the applicable Debtor of any such Claim it may have against the Holder of such Allowed Claim.

 

  8.

Claims Paid or Payable by Third Parties

 

  (a)

Claims Paid by Third Parties

The Debtors or the Reorganized Debtors, as applicable, with respect to Claims other than General Unsecured Claims, and the GUC Administrator with respect to General Unsecured Claims, shall reduce in full an Allowed Claim, and such Claim shall be Disallowed without a Claim objection having to be Filed and without any further notice to or action, order, or approval of the Court, to the extent that the Holder of such Claim receives payment in full on account of such Claim from a party that is not a Debtor or Reorganized Debtor. Subject to the last sentence of this paragraph, to the extent a Holder of a Claim receives a distribution on account of such Claim and thereafter receives payment from a party that is not a Debtor, a Reorganized Debtor, or the GUC Administrator on account of such Claim, such Holder shall, within fourteen (14) days of receipt thereof, repay or return the distribution to the Reorganized Debtors or the GUC Administrator, as applicable, to the extent the Holder’s total recovery on account of such Claim from the third party and under the Plan exceeds the amount of such Claim as of the Petition Date. The failure of such Holder to timely repay or return such distribution shall result in the Holder owing the Reorganized Debtors or the GUC Administrator, as applicable, annualized interest at the Federal Judgment Rate on such amount owed for each Business Day after the fourteen (14) day grace period specified above until the amount is repaid.

 

  (b)

Claims Payable by Insurers

Holders of Claims that are covered by the Debtors’ insurance policies shall seek payment of such Claims from applicable insurance policies, provided that the Debtors, the Reorganized Debtors, and the GUC Administrator, as applicable, shall have no obligation to pay any amounts in respect of prepetition deductibles or self-insured retention amounts. No distributions under the Plan shall be made on account of an Allowed Claim that is payable pursuant to one of the Debtors’ insurance policies until the Holder of such Allowed Claim has exhausted all remedies with respect to such insurance policy. To the extent that one or more of the Debtors’ insurers agrees to satisfy in full or in part a Claim (if and to the extent adjudicated by a court of competent jurisdiction), then immediately upon such insurers’ agreement, the applicable portion of such Claim may be expunged without an objection having to be Filed and without any further notice to or action, order, or approval of the Court.

 

49


  (c)

Applicability of Insurance Policies

Except as otherwise provided in the Plan, distributions to Holders of Allowed Claims shall be in accordance with the provisions of any applicable insurance policy. Nothing contained in the Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity may hold against any other Entity, including insurers under any policies of insurance, nor shall anything contained herein constitute or be deemed a waiver by such insurers of any defenses, including coverage defenses, held by such insurers.

 

  G.

Procedures for Resolving Contingent, Unliquidated, and Disputed Claims

 

  1.

Allowance of Claims

On or after the Effective Date, the Reorganized Debtors and the GUC Administrator (solely with respect to General Unsecured Claims) shall have any and all rights and defenses the Debtors had with respect to any Claim immediately prior to the Effective Date. Except as expressly provided in the Plan or in any order entered in the Chapter 11 Cases before the Effective Date (including the Confirmation Order), no Claim shall become an Allowed Claim unless and until such Claim is deemed Allowed under the Plan or the Bankruptcy Code, or the Court has entered a Final Order, including the Confirmation Order (when it becomes a Final Order), in the Chapter 11 Cases allowing such Claim.

 

  2.

Claims and Interests Administration Responsibilities

 

  (a)

Reorganized Debtors

Except as otherwise specifically provided in the Plan and notwithstanding any requirements that may be imposed pursuant to Bankruptcy Rule 9019, after the Effective Date, the Reorganized Debtors, by order of the Court, shall have the sole authority: (1) to File, withdraw, or litigate to judgment objections to Claims (other than General Unsecured Claims); (2) to settle or compromise any Disputed Claim (other than General Unsecured Claims) without any further notice to or action, order, or approval by the Court; and (3) to administer and adjust the Claims Register (except with respect to General Unsecured Claims) to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Court.

 

  (b)

GUC Administrator

Except as otherwise specifically provided in the Plan and notwithstanding any requirements that may be imposed pursuant to Bankruptcy Rule 9019, after the Effective Date, the GUC Administrator, by order of the Court, shall have the sole authority: (1) to File, withdraw, or litigate to judgment objections to General Unsecured Claims; (2) to settle or compromise any Disputed Claim that is a General Unsecured Claim without any further notice to or action, order, or approval by the Court; and (3) to administer and adjust the Claims Register (solely with respect to General Unsecured Claims) to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Court.

 

50


  3.

Estimation of Claims

Before or after the Effective Date, the Debtors or the Reorganized Debtors, as applicable, or the GUC Administrator (solely with respect to General Unsecured Claims), may (but are not required to) at any time request that the Court estimate any Disputed Claim pursuant to section 502(c) of the Bankruptcy Code, regardless of whether any party previously has objected to such Claim, and the Court shall retain jurisdiction to estimate any such Claim, including during the litigation of any objection to any Claim or during any appeal relating to such objection. In the event that the Court estimates any Disputed Claim, that estimated amount shall constitute a maximum limitation on such Claim for all purposes under the Plan (including for purposes of distributions), and the Debtors, the Reorganized Debtors, or the GUC Administrator, as applicable, may elect to pursue any supplemental proceedings to object to any ultimate distribution on such Claim. Notwithstanding section 502(j) of the Bankruptcy Code, in no event shall any Holder of a Claim that has been estimated pursuant to section 502(c) of the Bankruptcy Code or otherwise be entitled to seek reconsideration of such estimation unless such Holder has Filed a motion requesting the right to seek such reconsideration on or before twenty-one (21) days after the date on which such Claim is estimated. All of the aforementioned Claims and objection, estimation, and resolution procedures are cumulative and not exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn, or resolved by any mechanism approved by the Court.

 

  4.

Adjustment to Claims Without Objection

Any Claim that has been paid or satisfied, or any Claim that has been amended or superseded, may be adjusted or expunged on the Claims Register without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Court.

 

  5.

Disputed Claims Reserve

On or prior to the Effective Date, the Debtors or the Reorganized Debtors, as applicable, or the GUC Administrator (solely with respect to General Unsecured Claims), shall be authorized, in consultation with the Requisite Creditors and the Creditors’ Committee, to establish one or more Disputed Claims Reserves, which Disputed Claims Reserve(s) shall be administered by the Reorganized Debtors or the GUC Administrator, as applicable.

 

  (a)

Reorganized Debtors

The Reorganized Debtors or the Disbursing Agent may, in their sole discretion, hold Cash in a Disputed Claims Reserve in trust for the benefit of the Holders of Claims (other than General Unsecured Claims) ultimately determined to be Allowed after the Effective Date. The Reorganized Debtors shall distribute such amounts (net of any expenses, including any taxes relating thereto), as provided herein, as such Disputed Claims are resolved by a Final Order or agreed to by settlement, and such amounts will be distributable on account of such Disputed Claims as such amounts would have been distributable had such Disputed Claims been Allowed Claims as of the Effective Date.

 

51


  (b)

GUC Administrator

The GUC Administrator may, in its sole discretion, hold Cash in a Disputed Claims Reserve from the General Unsecured Claims Distribution in trust solely for the benefit of the Holders of General Unsecured Claims ultimately determined to be Allowed after the Effective Date. The GUC Administrator shall distribute such amounts (net of any expenses, including any taxes relating thereto), as provided herein, as such Disputed Claims are resolved by a Final Order or agreed to by settlement, and such amounts will be distributable on account of such Disputed Claims as such amounts would have been distributable had such Disputed Claims been Allowed Claims as of the Effective Date.

 

  6.

Time to File Objections to Claims

Subject to Article VII.B. of the Plan, any objections to Claims, which, prior to the Effective Date, may be Filed by any party, shall be Filed on or before the Claims Objection Deadline.

 

  7.

Disallowance of Claims

Any Claims held by Entities from which property is recoverable under section 542, 543, 550, or 553 of the Bankruptcy Code or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of the Bankruptcy Code, shall be deemed Disallowed pursuant to section 502(d) of the Bankruptcy Code, and Holders of such Claims may not receive any distributions on account of such Claims until such time as such Causes of Action against that Entity have been settled or a Court order with respect thereto has been entered and all sums due, if any, to the Debtors by that Entity have been turned over or paid to the Debtors, the Reorganized Debtors, or the GUC Administrator, as applicable.

Except as provided herein (including with respect to any counterparties to rejected Executory Contracts or Unexpired Leases who are required to File Proofs of Claim after the rejection of their contracts or leases), any and all Proofs of Claim or requests for payment of Administrative Claims, as applicable, Filed after the applicable Claims Bar Date, Administrative Claims Bar Date, Governmental Bar Date, and applicable deadline for Filing Proofs of Claim based on the Debtors’ rejection of Executory Contracts or Unexpired Leases, as applicable, shall be deemed Disallowed and expunged as of the Effective Date without any further notice to or action, order, or approval of the Court, and Holders of such Claims may not receive any distributions on account of such Claims, unless on or before the Confirmation Hearing such late Filed Claim has been deemed timely Filed by a Final Order.

 

  8.

Amendments to Claims

After the Claims Bar Date, except as provided in the Plan or the Confirmation Order, a Claim may not be Filed or amended without the prior authorization of the Court and any such new or amended Claim Filed shall be deemed Disallowed in full and expunged without any further action, order, or approval of the Court.

 

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  9.

No Distributions Pending Allowance

No payment or distribution provided under the Plan shall be made to the extent that any Claim is a Disputed Claim, including if an objection to a Claim or portion thereof is Filed as set forth in Article VII of the Plan, unless and until such Disputed Claim becomes an Allowed Claim; provided that any portion of a Claim that is an Allowed Claim shall receive the payment or distribution provided under the Plan thereon notwithstanding that any other portion of such Claim is a Disputed Claim.

 

  10.

Distributions After Allowance

To the extent that a Disputed Claim ultimately becomes an Allowed Claim, distributions (if any) shall be made to the Holder of such Allowed Claim in accordance with the provisions of the Plan. As soon as reasonably practicable after the date that the order or judgment of the Court allowing any Disputed Claim becomes a Final Order, the distribution (if any) to which such Holder is entitled under the Plan as of the Effective Date, without any interest, dividends, or accruals shall be paid to the Holder of such Allowed Claim on account of such Allowed Claim unless required under applicable bankruptcy law or as otherwise provided in herein.

 

  11.

Single Satisfaction of Claims

Holders of Allowed Claims may assert such Claims against each Debtor obligated with respect to such Claim, and such Claims shall be entitled to share in the recovery provided for the applicable Class of Claims against each obligated Debtor based upon the full Allowed amount of the Claim. Notwithstanding the foregoing, in no case shall the aggregate value of all property received or retained under the Plan on account of any Allowed Claim exceed 100% of such Allowed Claim plus applicable interest. For the avoidance of doubt, this shall not affect the obligation of each and every Debtor to pay U.S. Trustee Fees until such time as such Debtor’s Chapter 11 Case is closed, dismissed, or converted.

 

  H.

Settlement, Release, Injunction, and Related Provisions

 

  1.

Compromise and Settlement of Claims, Interests, and Controversies

 

  (a)

Compromise and Settlement

As discussed in detail in the Disclosure Statement and as otherwise provided herein, pursuant to sections 363 and 1123 of the Bankruptcy Code and Bankruptcy Rule 9019 and in consideration for the distributions and other benefits provided pursuant to the Plan, which distributions and other benefits shall be irrevocable and not subject to challenge upon the Effective Date, the provisions of the Plan, and the distributions and other benefits provided hereunder, shall constitute a good-faith compromise and settlement of all issues in respect of the Chapter 11 Cases (collectively, the “Settled Issues”), including, without limitation:

1. the valuation of the Reorganized Debtors’ enterprise, including the value of any unencumbered assets;

 

53


2. any dispute regarding the application of the equities of the case exception under section 552(b) of the Bankruptcy Code or surcharge under section 506(c) of the Bankruptcy Code in respect of the First Lien Claims and the Second Lien Notes Claims;

3. the amount of the First Lien Claims and the Second Lien Notes Claims and such Holders’ Allowed Claims, and the validity and enforceability of the Liens securing such Claims;

4. the amount of adequate protection claims held by the Prepetition Term Loan Lenders and the Combined Prepetition Second Lien Noteholders under the Cash Collateral Order;

5. any challenges to Cash transfers;

6. any challenges to transfers made by the Debtors to any related Entities;

7. the releases, exculpations, and injunctions provided in the Plan; and

8. any claims for payment of administrative expenses as a substantial contribution under section 503 of the Bankruptcy Code.

The Plan shall be deemed a motion to approve the good-faith compromise and settlement of all such Claims, Interests, and controversies pursuant to Bankruptcy Rule 9019, and the entry of the Confirmation Order shall constitute the Court’s approval of the compromise and settlement of all such Claims, Interests, and controversies, as well as a finding by the Court that all such compromises and settlements are in the best interests of the Debtors, their Estates, and Holders of Claims and Interests and is fair, equitable, and reasonable. In accordance with the provisions of the Plan, pursuant to Bankruptcy Rule 9019, without any further notice to or action, order, or approval of the Court, after the Effective Date, the Reorganized Debtors may compromise and settle Claims against, and Interests in, the Debtors and their Estates and Causes of Action against other Entities.

 

  9.

Discharge of Claims and Termination of Interests

Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically provided in the Plan and the Plan Supplement, or in any contract, instrument, or other agreement or document created pursuant to the Plan and the Plan Supplement, the distributions, rights, and treatment that are provided in the Plan shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims (including any Intercompany Claims resolved or compromised after the Effective Date by the Reorganized Debtors), Interests, and Causes of Action of any nature whatsoever, including any interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown, against, liabilities of, liens on, obligations of, rights against, and interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims and Interests, including demands, liabilities, and Causes of Action that arose before the Effective Date, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in section 502(g), 502(h), or 502(i) of the Bankruptcy Code, in each case whether or not: (a) a Proof of Claim based upon such debt or right is Filed or deemed Filed pursuant to section 501 of the

 

54


Bankruptcy Code; (b) a Claim or Interest based upon such debt, right, or Interest is Allowed pursuant to section 502 of the Bankruptcy Code; or (c) the Holder of such a Claim or Interest has accepted the Plan. Any default or “event of default” by the Debtors or Affiliates with respect to any Claim or Interest that existed immediately before or on account of the Filing of the Chapter 11 Cases shall be deemed cured (and no longer continuing) as of the Effective Date. The Confirmation Order shall be a judicial determination of the discharge of all Claims and Interests subject to the Effective Date occurring.

 

  10.

Term of Injunctions or Stays

Unless otherwise provided herein or in a Final Order, all injunctions or stays arising under or entered during the Chapter 11 Cases under section 362 of the Bankruptcy Code or otherwise and in existence on the Confirmation Date, shall remain in full force and effect until the later of the Effective Date and the date set forth in the order providing for such injunction or stay.

 

  11.

Release of Liens

Except as otherwise specifically provided in the Plan, the New Second Lien PIK Notes Documents (including in connection with any express written amendment of any mortgage, deed of trust, Lien, pledge, or other security interest under the New Second Lien PIK Notes Documents), or in any other contract, instrument, agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the applicable distributions or other treatment made pursuant to the Plan, all mortgages, deeds of trust, Liens, pledges, or other security interests against any property of the Estates shall be fully released and discharged, and all of the right, title, and interest of any Holder of such mortgages, deeds of trust, Liens, pledges, or other security interests shall revert to the Reorganized Debtors and their successors and assigns, in each case, without any further approval or order of the Court and without any action or Filing being required to be made by the Debtors or the Reorganized Debtors. In addition, at the Debtors’ or Reorganized Debtors’ sole expense, the Prepetition Term Loan Agent and the Indenture Trustee shall execute and deliver all documents reasonably requested by the Reorganized Debtors, or the administrative agent or indenture trustee for the Exit Facility or New Second Lien PIK Notes to evidence the release of such mortgages, deeds of trust, Liens, pledges, and other security interests and shall authorize the Reorganized Debtors to file UCC-3 termination statements and other release documentation (to the extent applicable) with respect thereto.

 

  12.

Releases by the Debtors

Pursuant to section 1123(b) of the Bankruptcy Code, for good and valuable consideration, on and after the Effective Date, each Released Party is deemed released and discharged by the Debtors, their Estates, and the Reorganized Debtors from any and all Claims, Causes of Action, obligations, suits, judgments, damages, demands, losses, or liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), including any derivative claims, asserted on behalf of the Debtors, that the Debtors, their Estates, or the Reorganized

 

55


Debtors would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the Holder of any Claim or Interest or other Entity, based on or relating to, or in any manner arising from, in whole or in part, the Debtors (including the management, ownership or operation thereof), the Debtors’ in- or out-of-court restructuring efforts, the Debtors’ intercompany transactions (including dividends paid), transactions pursuant and/or related to the Prepetition Term Loan Agreement, the Prepetition Second Lien Indenture, the Prepetition Second Lien PIK Indenture, the Notes, the Cash Collateral Order (and any payments or transfers in connection therewith), any Avoidance Actions, the purchase, sale, or rescission of the purchase or sale of any Security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in this Plan, the business or contractual arrangements between any Debtor and any Released Party, the formulation, preparation, dissemination, negotiation, or Filing of the Restructuring Support Agreement, the Restructuring Support Agreement, the restructuring of any Claim or Interest before or during the Chapter 11 Cases, or any Restructuring Transaction, contract, instrument, document, release, or other agreement or document (including any legal opinion regarding any such transaction, contract, instrument, document, release, or other agreement or the reliance by any Released Party on the Plan or the Confirmation Order in lieu of such legal opinion) created or entered into in connection with the Restructuring Support Agreement, the Restructuring Support Agreement, the Disclosure Statement, the Plan, the related agreements, instruments, and other documents (including the Definitive Documentation), the Chapter 11 Cases, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the solicitation of votes with respect to this Plan, the administration and implementation of the Plan, including the issuance or distribution of Securities or other property pursuant to the Plan, the Definitive Documentation, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date related or relating to the foregoing. Notwithstanding anything to the contrary in the foregoing, (i) the releases set forth herein do not release any post-Effective Date obligations of any party or Entity under the Plan, including under any of the Restructuring Transactions, and (ii) nothing in this provision shall, nor shall it be deemed to, release any Released Party from any Claims or Causes of Action that are found, pursuant to a Final Order, to be the result of such Released Party’s gross negligence, actual fraud, or willful misconduct.

Entry of the Confirmation Order shall constitute the Court’s approval, pursuant to Bankruptcy Rule 9019, of the releases by the Debtors set forth in Article VIII.E of the Plan, which includes by reference each of the related provisions and definitions contained herein, and, further, shall constitute the Court’s finding that such releases are: (1) in exchange for the good and valuable consideration provided by the Released Parties; (2) a good faith settlement and compromise of the claims released by such releases; (3) in the best interests of the Debtors and their Estates; (4) fair, equitable and reasonable; (5) given and made after due notice and opportunity for hearing; (6) an essential component of the Plan and the Restructuring Transactions; and (7) a bar to any of the Debtors or their Estates asserting any claim or cause of action released pursuant to such releases.

 

56


  13.

Releases by Holders of Claims and Interests

As of the Effective Date, to the fullest extent of the law, each Releasing Party is deemed to have released and discharged each Released Party from any and all Claims, Causes of Action, obligations, suits, judgments, damages, demands, losses, or liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), including any derivative claims, asserted on behalf of the Debtors, that the Debtors, their Estates, or the Reorganized Debtors would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the Holder of any Claim or Interest or other Entity, based on or relating to, or in any manner arising from, in whole or in part, the Debtors (including the management, ownership or operation thereof), the Debtors’ in- or out-of-court restructuring efforts, the Debtors’ intercompany transactions (including dividends paid), transactions pursuant and/or related to the Prepetition Term Loan Agreement, the Prepetition Second Lien Indenture, the Prepetition Second Lien PIK Indenture, the Notes, the Cash Collateral Order (and any payments or transfers in connection therewith), any Avoidance Actions, the purchase, sale, or rescission of the purchase or sale of any Security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in this Plan, the business or contractual arrangements between any Debtor and any Releasing Party, the formulation, preparation, dissemination, negotiation, or Filing of the Restructuring Support Agreement, the Restructuring Support Agreement, the restructuring of any Claim or Interest before or during the Chapter 11 Cases, or any Restructuring Transaction, contract, instrument, document, release, or other agreement or document (including any legal opinion regarding any such transaction, contract, instrument, document, release, or other agreement or the reliance by any Releasing Party on the Plan or the Confirmation Order in lieu of such legal opinion) created or entered into in connection with the Restructuring Support Agreement, the Restructuring Support Agreement, the Disclosure Statement, the Plan, the related agreements, instruments, and other documents (including the Definitive Documentation), the Chapter 11 Cases, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the solicitation of votes with respect to this Plan, the administration and implementation of the Plan, including the issuance or distribution of Securities or other property pursuant to the Plan, the Definitive Documentation, or upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date related or relating to the foregoing. Notwithstanding anything to the contrary in the foregoing, (i) the releases set forth herein do not release any post-Effective Date obligations of any party or Entity under the Plan, including under any of the Restructuring Transactions, and (ii) nothing in this provision shall, nor shall it be deemed to, release any Released Party from any Claims or Causes of Action that are found, pursuant to a Final Order, to be the result of such Released Party’s gross negligence, actual fraud, or willful misconduct.

Entry of the Confirmation Order shall constitute the Court’s approval, pursuant to Bankruptcy Rule 9019, of the releases by Holders of Claims and Interests set forth in Article VIII.F of the Plan, which includes by reference each of the related provisions and definitions contained herein, and, further, shall constitute the Court’s finding that such

 

57


releases are: (1) in exchange for the good and valuable consideration provided by the Released Parties; (2) a good faith settlement and compromise of the claims released by such releases; (3) in the best interests of the Debtors and their Estates; (4) fair, equitable and reasonable; (5) given and made after due notice and opportunity for hearing; (6) an essential component of the Plan and the Restructuring Transactions; and (7) a bar to any of the Releasing Parties asserting any claim or cause of action released pursuant to such releases.

 

  14.

Exculpation

Except as otherwise specifically provided in the Plan, no Exculpated Party shall have or incur liability for, and each Exculpated Party is hereby released and exculpated from, any Claim, Cause of Action, obligation, suit, judgment, damage, demand, loss, or liability for any claim related to any act or omission in connection with, relating to, or arising out of, the Chapter 11 Cases, the formulation, preparation, dissemination, negotiation, Filing, or termination of the Restructuring Support Agreement and related prepetition transactions, the Restructuring Support Agreement, the Disclosure Statement, the Plan, the related agreements, instruments, and other documents (including the Definitive Documentation), the solicitation of votes with respect to this Plan, or any Restructuring Transaction, contract, instrument, release or other agreement or document (including providing any legal opinion requested by any Entity regarding any transaction, contract, instrument, document, or other agreement contemplated by the Plan or the reliance by any Exculpated Party on the Plan or the Confirmation Order in lieu of such legal opinion) created or entered into in connection with the Debtors’ in or out-of-court restructuring efforts, the Disclosure Statement, the Plan, the Restructuring Support Agreement, the related agreements, instruments, and other documents (including the Definitive Documentation), the Filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance of Securities pursuant to the Plan, or the distribution of property under the Plan, the related agreements, instruments, and other documents (including the Definitive Documentation), or any other related agreement, except for claims related to any act or omission that is determined in a Final Order to have constituted actual fraud, willful misconduct, or gross negligence, but in all respects such Entities shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities pursuant to the Plan. The Exculpated Parties (to the extent applicable) have, and upon completion of the Plan shall be deemed to have, participated in good faith and in compliance with the applicable laws with regard to the solicitation of, and distribution of, consideration pursuant to the Plan and, therefore, are not, and on account of such distributions shall not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or such distributions made pursuant to the Plan.

 

58


  15.

Injunction

Except as otherwise expressly provided in the Plan or for obligations issued or required to be paid pursuant to the Plan or Confirmation Order, all Entities who have held, hold, or may hold Claims or Interests that have been released pursuant to Article VIII.E or Article VIII.F of the Plan, discharged pursuant to Article VIII.B of the Plan, or are subject to exculpation pursuant to Article VIII.G of the Plan, are permanently enjoined, from and after the Effective Date, from taking any of the following actions against, as applicable, the Debtors, the Reorganized Debtors, the Released Parties, or the Exculpated Parties: (a) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests; (b) enforcing, attaching, collecting, or recovering by any manner or means any judgment, award, decree, or order against such Entities on account of or in connection with or with respect to any such Claims or Interests; (c) creating, perfecting, or enforcing any Lien or encumbrance of any kind against such Entities or the property or the estates of such Entities on account of or in connection with or with respect to any such Claims or Interests; (d) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from such Entities or against the property of such Entities on account of or in connection with or with respect to any such Claims or Interests; and (e) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Plan. Notwithstanding anything to the contrary in the foregoing, the injunction does not enjoin any party under the Plan or under any document, instrument, or agreement (including those attached to the Disclosure Statement or set forth in the Plan Supplement, to the extent finalized) executed to implement the Plan from bringing an action to enforce the terms of the Plan or such document, instrument, or agreement (including those attached to the Disclosure Statement or set forth in the Plan Supplement, to the extent finalized) executed to implement the Plan.

 

  16.

Protection Against Discriminatory Treatment

Consistent with section 525 of the Bankruptcy Code and the Supremacy Clause of the U.S. Constitution, all Entities, including Governmental Units, shall not discriminate against the Reorganized Debtors or deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, or discriminate with respect to such a grant against, the Reorganized Debtors, or another Entity with whom the Reorganized Debtors have been associated, solely because each Debtor has been a debtor under chapter 11 of the Bankruptcy Code, has been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter 11 Cases but before the Debtors are granted or denied a discharge), or has not paid a debt that is dischargeable in the Chapter 11 Cases.

 

  17.

Recoupment

In no event shall any Holder of an Allowed Claim be entitled to recoup against any Claim, right, or Cause of Action of the Debtors or the Reorganized Debtors, as applicable, unless such Holder actually has performed such recoupment and provided notice thereof in writing to the Debtors on or before the Confirmation Date, notwithstanding any indication in any Proof of Claim or otherwise that such Holder asserts, has, or intends to preserve any right of recoupment.

 

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  18.

Subordination Rights

Any distributions under the Plan shall be received and retained free from any obligations to hold or transfer the same to any other Holder and shall not be subject to levy, garnishment, attachment, or other legal process by any Holder by reason of claimed contractual subordination rights. Any such subordination rights shall be waived, and the Confirmation Order shall constitute an injunction enjoining any Entity from enforcing or attempting to enforce any contractual, legal, or equitable subordination rights to property distributed under the Plan, in each case other than as provided in the Plan.

 

  19.

Reimbursement or Contribution

If the Court disallows a Claim for reimbursement or contribution of an Entity pursuant to section 502(e)(1)(B) of the Bankruptcy Code, then to the extent that such Claim is contingent as of the time of disallowance, such Claim shall be forever disallowed and expunged notwithstanding section 502(j) of the Bankruptcy Code, unless prior to the Confirmation Date: (1) such Claim has been adjudicated as non-contingent; or (2) the relevant Holder of a Claim has Filed a non-contingent Proof of Claim on account of such Claim and a Final Order has been entered prior to the Confirmation Date determining such Claim as no longer contingent.

 

  I.

Conditions Precedent to Confirmation and Consummation of the Plan

 

  1.

Conditions Precedent to the Confirmation Date

It shall be a condition to Confirmation of the Plan that the following conditions shall have been satisfied (or waived pursuant to the provisions of Article IX.C of the Plan):

 

   

The Court shall have approved in all material respects the compromise and settlement of all the Settled Issues, which approval shall be expressly included in the Confirmation Order;

 

   

The Restructuring Support Agreement shall not have been breached in any material respect and shall remain in full force and effect;

 

   

The Plan, including any exhibits, schedules, amendments, modifications, or supplements thereto, shall have been Filed subject to the terms of the Plan;

 

   

The Plan Supplement, including any exhibits, schedules, amendments, modifications, or supplements thereto, shall have been Filed subject to the terms of the Plan; and

 

   

The Confirmation Order shall have been entered by the Court.

 

  2.

Conditions Precedent to the Effective Date

It shall be a condition to Consummation of the Plan that the following conditions shall have been satisfied (or waived pursuant to the provisions of Article IX.C of the Plan):

 

   

Entry of the Confirmation Order in a form and substance acceptable to the Requisite Creditors, and such order shall have become a Final Order that has not been stayed, modified, or vacated on appeal;

 

60


   

All of the Consenting Creditors Fees shall have been paid or escrowed, as applicable, by the Debtors in accordance with the terms of the Plan;

 

   

All fees ordered to be paid pursuant to the Cash Collateral Order, including the Consenting Creditors’ reasonable and documented professional fees, shall have been paid or will be paid prior to or contemporaneously with the Effective Date in accordance with the terms of the Plan and the Cash Collateral Order;

 

   

The Plan, including any exhibits, schedules, amendments, modifications, or supplements thereto, and inclusive of any amendments, modifications, or supplements made after the Confirmation Date but prior to the Effective Date, shall be in form and substance acceptable in all respects to the Debtors and the Requisite Creditors;

 

   

The Plan Supplement, including any exhibits, schedules, amendments, modifications, or supplements thereto, and inclusive of any amendments, modifications, or supplements made after the Confirmation Date but prior to the Effective Date, shall be in form and substance acceptable in all respects to the Debtors and the Requisite Creditors;

 

   

The New Second Lien PIK Notes Documents shall have been executed and delivered by all of the Entities that are parties thereto, and all conditions precedent (other than any conditions related to the occurrence of the Effective Date) to the consummation of the New Second Lien PIK Notes shall have been waived or satisfied in accordance with the terms of the Plan, and the issuance of the New Second Lien PIK Notes shall be deemed to occur concurrently with the occurrence of the Effective Date;

 

   

The Exit Facility Documents shall have been executed and delivered by all of the Entities that are parties thereto, and all conditions precedent (other than any conditions related to the occurrence of the Effective Date) to the consummation of the Exit Facility shall have been waived or satisfied in accordance with the terms thereof, and the closing of the Exit Facility shall be deemed to occur concurrently with the occurrence of the Effective Date;

 

   

All other Definitive Documentation shall be acceptable in all respects to the Requisite Creditors and executed in accordance with the terms of the Plan.

 

   

All conditions precedent to the issuance of the New Equity, other than any conditions related to the occurrence of the Effective Date, shall have occurred;

 

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The New Organizational Documents shall be in form and substance acceptable in all respects to the Debtors and the Requisite Creditors and shall have been duly filed with the applicable authorities in the relevant jurisdictions;

 

   

All governmental and third-party approvals and consents, including Court approval, necessary in connection with the transactions provided for in the Plan shall have been obtained, are not subject to unfulfilled conditions, and are in full force and effect, and all applicable waiting periods have expired without any action having been taken by any competent authority that would restrain or prevent such transactions;

 

   

All documents and agreements necessary to implement the Plan, including any revised employment agreements, shall have (a) been tendered for delivery and (b) been effected or executed by all Entities party thereto, and all conditions precedent to the effectiveness of such documents and agreements (other than any conditions related to the occurrence of the Effective Date) shall have been satisfied or waived pursuant to the terms of such documents or agreements (including, without limitation, the Exit Facility Documents); and

 

   

All Allowed Professional Fee Claims approved by the Court shall have been paid in full and the Professional Fee Escrow Account shall have been funded in the Professional Fee Reserve Amount.

 

  3.

Waiver of Conditions

The conditions precedent to Confirmation of the Plan and to the Effective Date of the Plan set forth in Article IX of the Plan may be waived only by consent of the Debtors and the Requisite Creditors without notice, leave, or order of the Court or any formal action other than proceedings to confirm or consummate the Plan.

 

  4.

Substantial Consummation

“Substantial Consummation” of the Plan, as defined in section 1101(2) of the Bankruptcy Code, shall be deemed to occur on the Effective Date.

 

  5.

Effect of Non-Occurrence of Conditions to the Confirmation Date or the Effective Date

If the Confirmation Date and/or the Effective Date do(es) not occur, the Plan shall be null and void in all respects and nothing contained in the Plan, the Disclosure Statement, or the Restructuring Support Agreement shall: (1) constitute a waiver or release of any Claims by or Claims against or Interests in the Debtors; (2) prejudice in any manner the rights of the Debtors, any Holders of a Claim or Interest or any other Entity; (3) constitute an admission, acknowledgment, offer, or undertaking by the Debtors, any Holders of Claims or Interests, or any other Entity in any respect; or (4) be used by the Debtors or any Entity as evidence (or in any other way) in any litigation, including with regard to the strengths or weaknesses of any of the parties’ positions, arguments or claims.

 

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  A.

Modification, Revocation, or Withdrawal of the Plan

 

  1.

Modification and Amendments

Subject to the limitations contained herein and the terms of the Restructuring Support Agreement, the Debtors reserve the right to modify the Plan and seek Confirmation consistent with the Bankruptcy Code and, as appropriate, not resolicit votes on such modified Plan. Subject to certain restrictions and requirements set forth in section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019, those restrictions on modifications set forth in the Plan, and the terms of the Restructuring Support Agreement, the Debtors expressly reserve their right to alter, amend, or modify materially the Plan, one or more times, after Confirmation, and, to the extent necessary, may initiate proceedings in the Court to so alter, amend, or modify the Plan, or remedy any defect or omission, or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, in such matters as may be necessary to carry out the purposes and intent of the Plan.

 

  2.

Effect of Confirmation on Modifications

Entry of the Confirmation Order shall mean that all modifications or amendments to the Plan occurring after the solicitation thereof are approved pursuant to section 1127(a) of the Bankruptcy Code and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.

 

  3.

Revocation or Withdrawal of the Plan

The Debtors, with the consent of the Requisite Creditors, reserve the right to revoke or withdraw the Plan with respect to any or all Debtors prior to the Confirmation Date and to File subsequent plans of reorganization. If the Debtors, with the consent of the Requisite Creditors, revoke or withdraw the Plan, or if Confirmation and Consummation does not occur, then: (1) the Plan shall be null and void in all respects; (2) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims or Interests), assumption or rejection of Executory Contracts or Unexpired Leases effected by the Plan, and any document or agreement executed pursuant to the Plan, shall be deemed null and void; and (3) nothing contained in the Plan shall: (i) constitute a waiver or release of any Claims or Interests; (ii) prejudice in any manner the rights of the Debtors or any other Entity, including the Holders of Claims; (iii) constitute an admission, acknowledgement, offer, or undertaking of any sort by the Debtors or any other Entity; or (iv) be used by the Debtors or any Entity as evidence (or in any other way) in any litigation, including with regard to the strengths or weaknesses of any of the parties’ positions, arguments or claims.

 

  B.

Retention of Jurisdiction

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Court shall retain jurisdiction over the Chapter 11 Cases and all matters, arising out of, or related to, the Chapter 11 Cases and the Plan to the fullest extent allowed by applicable law, including jurisdiction to:

1. Allow, Disallow, determine, liquidate, classify, estimate, or establish the priority, Secured or Unsecured status, or amount of any Claim against a Debtor, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections relating to any of the foregoing;

 

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2. decide and resolve all matters related to the granting and denying, in whole or in part, any applications for allowance of compensation or reimbursement of expenses to Professionals;

3. resolve any matters related to: (a) the assumption, assignment, or rejection of any Executory Contract or Unexpired Lease and to hear, determine, and, if necessary, liquidate, any Claims arising therefrom, including Claims related to the rejection of an Executory Contract or Unexpired Lease, any Cure Claims, or any other matter related to such Executory Contract or Unexpired Lease; (b) the Debtors or the Reorganized Debtors, as applicable, amending, modifying, or supplementing, pursuant to Article V of the Plan, the Schedule of Assumed Executory Contracts and Unexpired Leases or the Schedule of Rejected Executory Contracts and Unexpired Leases; and (c) any dispute regarding whether a contract or lease is or was an Executory Contract or Unexpired Lease;

4. ensure that distributions to Holders of Allowed Claims are accomplished pursuant to the provisions of the Plan;

5. adjudicate, decide, or resolve any motions, adversary proceedings, contested, or litigated matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date;

6. adjudicate, decide, or resolve any and all matters related to Causes of Action by or against a Debtor;

7. adjudicate, decide, or resolve any and all matters related to sections 1141, 1145, and 1146 of the Bankruptcy Code;

8. enter and implement such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan and the Restructuring Support Agreement, and all contracts, instruments, releases, indentures, and other agreements or documents created in connection with the Plan or the Restructuring Support Agreement;

9. enter and enforce any order for the sale of property pursuant to section 363 or 1123 of the Bankruptcy Code;

10. resolve any cases, controversies, suits, disputes, or Causes of Action that may arise in connection with the Consummation, interpretation, or enforcement of the Plan or any Entity’s obligations incurred in connection with the Plan or the Restructuring Support Agreement;

11. issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any Entity with Consummation or enforcement of the Plan;

 

64


12. resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the settlements, compromises, discharges, releases, injunctions, exculpations, and other provisions contained in Article VIII of the Plan and enter such orders as may be necessary or appropriate to implement such releases, injunctions, and other provisions;

13. resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the repayment or return of distributions and the recovery of additional amounts owed by the Holder of a Claim or Interest for amounts not timely repaid pursuant to Article VI.H.1 of the Plan;

14. enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

15. determine any other matters that may arise in connection with or relate to the Restructuring Support Agreement, the Plan, the Disclosure Statement, the Confirmation Order, or the Plan Supplement;

16. adjudicate any and all disputes arising from or relating to distributions under the Plan or any transactions contemplated therein, including any Restructuring Transactions;

17. consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any Court order, including the Confirmation Order;

18. determine requests for the payment of Claims entitled to priority pursuant to section 507 of the Bankruptcy Code;

19. hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;

20. hear and determine all disputes involving the existence, nature, or scope of the release provisions set forth in the Plan, including any dispute relating to any liability arising out of the termination of employment or the termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date;

21. enforce all orders previously entered by the Court;

22. hear any other matter not inconsistent with the Bankruptcy Code;

23. enter an order concluding or closing the Chapter 11 Cases; and

24. enforce the injunction, release, and exculpation provisions set forth in Article VIII of the Plan.

 

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  C.

Miscellaneous Provisions

 

  1.

Immediate Binding Effect

Subject to Article IX.A of the Plan and notwithstanding Bankruptcy Rule 3020(e), 6004(h), or 7062 or otherwise, upon the occurrence of the Effective Date, the terms of the Plan, the final versions of the documents contained in the Plan Supplement, and the Confirmation Order shall be immediately effective and enforceable and deemed binding upon the Debtors or the Reorganized Debtors, as applicable, and any and all Holders of Claims or Interests (regardless of whether the Holders of such Claims or Interests are deemed to have accepted or rejected the Plan), all Entities that are parties to or are subject to the settlements, compromises, releases, and injunctions provided for in the Plan, each Entity acquiring property under the Plan or the Confirmation Order, and any and all non-Debtor parties to Executory Contracts and Unexpired Leases. All Claims and debts shall be as fixed, adjusted, or compromised, as applicable, pursuant to the Plan regardless of whether any Holder of a Claim or debt has voted on the Plan.

 

  2.

Additional Documents

On or before the Effective Date, with the consent of the Requisite Creditors and in accordance with the terms and conditions set forth in the Restructuring Support Agreement, the Debtors may File with the Court such agreements and other documents, in form and substance acceptable to the Requisite Creditors, as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The Debtors, with the consent of the Requisite Creditors, and all Holders of Claims or Interests receiving distributions pursuant to the Plan and all other parties in interest shall, from time to time, prepare, execute, and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the Plan.

 

  3.

Dissolution of the Creditors’ Committee

On the Effective Date, the Creditors’ Committee shall dissolve automatically, and the respective members thereof shall be released and discharged from all rights and duties arising from, or related to, the Chapter 11 Cases; provided that such dissolution shall not affect the standing of Professionals for the Creditors’ Committee to submit and prosecute requests for payment of Professional Fee Claims and any appeals thereof. The Reorganized Debtors shall no longer be responsible for paying any fees or expenses incurred by the Creditors’ Committee after the Effective Date other than Allowed Professional Fee Claims, whenever incurred including, without limitation, those incurred after the Effective Date in connection with the consummation and implementation of the Plan.

 

  4.

Reservation of Rights

Prior to the Effective Date, neither the Plan, any statement or provision contained in the Plan, nor any action taken or not taken by any Debtor with respect to the Plan, the Disclosure Statement, the Confirmation Order, or the Plan Supplement shall be or shall be deemed to be an admission or waiver of any rights of any Debtor with respect to the Holders of Claims or Interests.

 

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Prior to the Effective Date, neither the Plan, any statement or provision contained in the Plan, nor any action taken or not taken by any Holder of any Claim with respect to the Plan, the Disclosure Statement, the Confirmation Order, or the Plan Supplement shall be or shall be deemed to be an admission or waiver of any rights of any claimant with respect to any Claims or Interests.

 

  5.

Successors and Assigns

The rights, benefits, and obligations of any Entity named or referred to in the Plan or the Confirmation Order shall be binding on, and shall inure to the benefit of any heir, executor, administrator, successor or assign, affiliate, officer, director, manager, agent, representative, attorney, beneficiaries, or guardian, if any, of each Entity.

 

  6.

Service of Documents

Any pleading, notice, or other document required by the Plan to be served on or delivered to the Debtors or Reorganized Debtors shall be served on:

 

Reorganized Debtors   

PetroQuest Energy, Inc.

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508

Attn: Charles T. Goodson

Attorneys to the Debtors   

Porter Hedges LLP

1000 Main Street

Houston, Texas 77002

Attn: John F. Higgins

E. James Cowen

United States Trustee   

Office of the United States Trustee

for the Southern District of Texas

515 Rusk Street, Suite 3516

Houston, Texas 77002

Attn: Hector Duran

Counsel to the Prepetition Term Loan Agent   

Kelley Drye & Warren LLP

101 Park Avenue

New York, New York 10178

Attn: Pamela Bruzzese-Szczygiel

 

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Counsel to the Consenting Creditors   

Akin Gump Strauss Hauer & Feld LLP

One Bryant Park

New York, New York 10036

Attn: Michael S. Stamer

 

Akin Gump Strauss Hauer & Feld LLP

1700 Pacific Avenue, Suite 4100

Dallas, Texas 75201

Attn: Sarah Link Schultz

Counsel to the Indenture Trustee   

Reed Smith LLP

1201 Market Street, Suite 1500,

Wilmington, Delaware 19801

Attn: Kurt F. Gwynne

 

  7.

Term of Injunctions or Stays

Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or stays in effect in the Chapter 11 Cases pursuant to section 105 or 362 of the Bankruptcy Code or any order of the Court, and extant on the Confirmation Date (excluding any injunctions or stays contained in the Plan or the Confirmation Order) shall remain in full force and effect until the Effective Date. All injunctions or stays contained in the Plan or the Confirmation Order shall remain in full force and effect in accordance with their terms.

 

  8.

Entire Agreement

Except as otherwise indicated, the Plan, the Confirmation Order, the Plan Supplement, the Restructuring Support Agreement, the Exit Facility Documents, the Registration Rights Agreement, and the New Second Lien PIK Notes Documents supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and integrated into the Plan.

 

  9.

Exhibits

All exhibits and documents included in the Plan Supplement are incorporated into and are a part of the Plan as if set forth in full in the Plan. After the exhibits and documents are Filed, copies of such exhibits and documents shall be available upon written request to the Debtors’ counsel at the address above or by downloading such exhibits and documents from the Debtors’ restructuring website at http://dm.epiq11.com/PetroQuest or the Court’s website at www.txs.uscourts.gov. To the extent any exhibit or document is inconsistent with the terms of the Plan, unless otherwise ordered by the Court, the non-exhibit or non-document portion of the Plan shall control.

 

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  10.

Nonseverability of Plan Provisions

If, prior to Confirmation, any term or provision of the Plan is held by the Court to be invalid, void, or unenforceable, the Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such terms or provision shall then be applicable as altered or interpreted, provided that any such alteration or interpretation shall be acceptable to the Debtors and the Requisite Creditors. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is: (1) valid and enforceable pursuant to its terms; (2) integral to the Plan and may not be deleted or modified without the Debtors’ and the Requisite Creditors’ consent; and (3) nonseverable and mutually dependent.

 

  11.

Votes Solicited in Good Faith

Upon entry of the Confirmation Order, the Debtors will be deemed to have solicited votes on the Plan in good faith and in compliance with the Bankruptcy Code, and pursuant to section 1125(e) of the Bankruptcy Code, the Debtors and each of their respective Affiliates, agents, representatives, members, principals, shareholders, officers, directors, employees, advisors, and attorneys will be deemed to have participated in good faith and in compliance with the Bankruptcy Code in the offer, issuance, sale, and purchase of Securities offered and sold under the Plan and any previous plan, and, therefore, none of such parties or individuals or the Reorganized Debtors will have any liability for the violation of any applicable law, rule, or regulation governing the solicitation of votes on the Plan or the offer, issuance, sale, or purchase of the Securities offered and sold under the Plan and any previous plan.

 

  12.

Closing of Chapter 11 Cases

The Reorganized Debtors shall, promptly after the full administration of the Chapter 11 Cases, File with the Court all documents required by Bankruptcy Rule 3022 and any applicable order of the Court to close the Chapter 11 Cases.

 

  13.

Waiver or Estoppel

Each Holder of a Claim shall be deemed to have waived any right to assert any argument, including the right to argue that its Claim should be Allowed in a certain amount, in a certain priority, Secured or not subordinated by virtue of an agreement made with the Debtors or their counsel, or any other Entity, if such agreement or the Debtors or Reorganized Debtors’ right to enter into settlements was not disclosed in the Plan, the Disclosure Statement, or papers Filed with the Court or the Notice and Claims Agent prior to the Confirmation Date.

 

  D.

United States Reservation of Rights

The United States reserves its rights with respect to the following:

 

   

The United States asserts that the assignment of any interests in federal leases or rights-of-way on the Outer Continental Shelf (“OCS”) is subject to the approval, or disapproval, of the Bureau of Ocean Energy Management (“BOEM”) or the Bureau of Safety and Environmental Enforcement (“BSEE”), as applicable. Several of the assignment approval requests submitted to BOEM or to BSEE by the Debtors to assign their interests in federal OCS leases or rights-of-way to Northstar Offshore Ventures LLC are still pending BOEM or BSEE approval.

 

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Irrespective of any assignment that may have been, or may be, approved by BOEM or by BSEE, the United States asserts that all current and prior lessees and holders of rights-of-way are jointly and severally liable to perform decommissioning obligations that have accrued to them under the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq., and its implementing regulations found in, among other places, 30 C.F.R. Part 250, Subpart Q.

 

   

The United States asserts that any decommissioning obligations that have accrued to the Debtors as a result of their current or prior interests in federal OCS leases under The Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq., and its implementing regulations found in, among other places, 30 C.F.R. Part 250, Subpart Q, are non-dischargeable performance obligations that cannot be abandoned or rejected pursuant to the Supreme Court’s directive in Midlantic National Bank vs. New Jersey Department of Environmental Protection, 474 U.S. 494 (1986) and applicable caselaw.

 

   

To the extent that the assets vesting in the Reorganized Debtors include record title interests or operating rights interests in federal OCS leases or grants of federal rights-of-way, the United States asserts that such interests in federal OCS leases or rights-of-way cannot vest in the Reorganized Debtors free and clear of the Debtors’ non-dischargeable decommissioning obligations and/or other regulatory obligations. The United States asserts that current and former lessees and holders of rights-of-way, including the Debtors, are jointly and severally responsible for meeting decommissioning obligations for facilities on leases as the obligations accrue and until each obligation is met. See 30 C.F.R. §§ 250.1701 and 250.1702.

 

   

The United States (including all of its agencies) asserts that any rights that it may have, as a unified creditor, of recoupment or setoff must be preserved even if not asserted prior to the Confirmation Date. The preservation of the United States’ recoupment and/or setoff rights post-confirmation is particularly important because various debtors have sought refunds from the Office of Natural Resources Revenue (“ONRR”) after the confirmation on account of pre-confirmation payments made for pre-confirmation royalty obligations and/or have sought to correct production and royalty reporting made to ONRR for pre-confirmation periods.

 

VI.

TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES LAWS

The issuance and the distribution under the Plan of New Equity and the New Second Lien PIK Notes will be exempt from registration under the Securities Act and any other applicable securities laws to the fullest extent permitted by section 1145 of the Bankruptcy Code. The Plan provides for the distribution of New Equity and the New Second Lien PIK Notes to the Holders of Second Lien Notes Claims, and additional New Equity in connection with the Management Incentive Plan. The New Equity and New Second Lien PIK Notes may be resold without registration under the Securities Act or federal securities laws pursuant to the exemption

 

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provided by Section 4(a)(1) of the Securities Act, unless the Holder is an “underwriter” with respect to such securities, as that term is defined in section 1145(b) of the Bankruptcy Code. In addition, such section 1145 exempt securities generally may be resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states.

Section 1145 of the Bankruptcy Code generally exempts from registration under the Securities Act the offer or sale under a chapter 11 plan of a security of the debtor, of an Affiliate participating in a joint plan with the debtor, or of a successor to the debtor under a plan, if such securities are offered or sold in exchange for a claim against, or an interest in, the debtor or such Affiliate, or principally in such exchange and partly for cash or property. Section 1145(b)(1) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who, except with respect to ordinary trading transactions of an entity that is not an issuer, (a) purchases a claim with a view to distribution of any security to be received in exchange for the claim, (b) offers to sell securities issued under a plan for the holders of such securities, or (c) offers to buy securities issued under a plan for persons receiving such securities, if the offer to buy is made with a view to distribution, or (d) is an issuer, as used in Section 2(a)(11) of the Securities Act, with respect to such securities, which includes control persons of the issuer.

The definition of an “issuer” for purposes of whether a Person is an underwriter under section 1145(b)(1)(D) of the Bankruptcy Code, by reference to Section 2(a)(11) of the Securities Act, includes as “statutory underwriters” all “affiliates,” which are all Persons who, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with, an issuer of securities. The reference to “issuer,” as used in the definition of “underwriter” contained in Section 2(a)(11) of the Securities Act, is intended to cover “Controlling Persons” of the issuer of the securities. “Control,” as defined in Rule 405 of the Securities Act, 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. Accordingly, an officer or director of a reorganized debtor or its successor under a plan of reorganization may be deemed to be a “Controlling Person” of the debtor or successor, particularly if the management position or directorship is coupled with ownership of a significant percentage of the reorganized debtor’s or its successor’s voting securities. In addition, the legislative history of section 1145 of the Bankruptcy Code suggests that a creditor who owns 10% or more of a class of securities of a reorganized debtor may be presumed to be a “Controlling Person” and, therefore, an underwriter.

Under certain circumstances, Holders of New Equity and/or New Second Lien PIK Notes who are deeemed to be “underwriters” may be entitled to resell their New Equity or New Second Lien PIK Notes pursuant to the limited safe harbor resale provisions of Rule 144 of the Securities Act. Generally, Rule 144 of the Securities Act would permit the public sale of securities received by such Person if the required holding period has been met and, under certain circumstances, current information regarding the issuer is publicly available and volume limitations, manner of sale requirements and certain other conditions are met. Whether any particular Person would be deemed to be an “underwriter” (including whether the Person is a “Controlling Person”) with respect to the New Equity or New Second Lien PIK Notes would depend upon various facts and circumstances applicable to that Person. Accordingly, the Debtors express no view as to whether any Person would be deemed an “underwriter” with respect to the New Equity and/or New Second Lien PIK Notes or that such securities vis-à-vis such Person are “control” securities and, in turn, whether any Person may freely resell New Equity and/or New Second Lien PIK Notes.

 

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In any case, recipients of New Equity and New Second Lien PIK Notes issued under the Plan are advised to consult with their own legal advisors as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability.

 

VII.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

 

  A.

Introduction

The following discussion summarizes certain U.S. federal income tax consequences of the Plan to the Debtors and to the Holders of Allowed Second Lien Notes Claims.

This discussion is provided for informational purposes only and is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), the U.S. Treasury regulations promulgated thereunder, judicial authority and current administrative rulings and practice, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. Events subsequent to the date of this Disclosure Statement, such as the enactment of additional tax legislation, court decisions or administrative changes, could affect the U.S. federal income tax consequences of the Plan and the transactions contemplated thereunder. No representations are being made regarding the particular tax consequences of the Plan to the Debtors or any Holder of an Allowed Second Lien Notes Claim. The Debtors will not seek a ruling from the Internal Revenue Service (the “IRS”) and have not obtained an opinion of counsel regarding any tax consequences of the Plan to the Debtors or any Holder of an Allowed Second Lien Notes Claim. No assurances can be given that the IRS would not assert, or that a court would not sustain, a different position from any discussed herein. This discussion only addresses U.S. federal income tax consequences and does not address any other U.S. federal tax consequences (such as estate and gift tax consequences), or the tax consequences arising under the laws of any foreign, state, local or other jurisdiction or any income tax treaty.

This discussion does not apply to Holders of Claims that are otherwise subject to special treatment under the Tax Code, such as: financial institutions; banks; broker-dealers; insurance companies; tax-exempt organizations; retirement plans or other tax-deferred accounts; mutual funds; real estate investment trusts; traders in securities that elect mark-to-market treatment; persons subject to the alternative minimum tax; certain former U.S. citizens or long-term residents; persons who hold Claims as part of a hedge, straddle, constructive sale, conversion or other integrated transaction; persons that have a functional currency other than the U.S. dollar; governments or governmental organizations; partnerships or other pass-through entities or holders of interests therein; persons who received their Claims upon exercise of employee stock options or otherwise as compensation; and Holders not entitled to vote on the Plan. The following discussion assumes that Holders of General Unsecured Claims hold their Claims as “capital assets” (as defined in section 1221 of the Tax Code).

 

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If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the Allowed Second Lien Notes Claims, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Allowed Second Lien Notes Claims and the partners in such partnerships should consult their own tax advisors regarding the U.S. federal income tax consequences of participating in the Plan and the ownership of the New Equity and New Second Lien PIK Notes.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of a Second Lien Notes Claim, that is, for U.S. federal income tax purposes:

 

   

an individual who is a U.S. citizen or U.S. resident alien;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, that was 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 taxation regardless of its source; or

 

   

a trust (i) the administration of which is subject to the primary supervision of a U.S. court and that has one or more United States persons that have the authority to control all substantial decisions of the trust or (ii) that has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person.

A “Non-U.S. Holder” is a beneficial owner of a Second Lien Notes Claim that is an individual, corporation, estate or trust that is not a U.S. Holder.

THE FOLLOWING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE PLAN.

 

  B.

Certain U.S. Federal Income Tax Consequences of the Plan to the Debtors

 

  1.

Cancellation of Debt and Reduction of Tax Attributes

It is anticipated that the Plan will result in cancellation of a significant portion of the Debtors’ outstanding indebtedness. Absent an exception, the Debtors would generally recognize cancellation of indebtedness income (“CODI”) upon satisfaction of their outstanding indebtedness for total consideration less than the amount of such indebtedness. The amount of CODI, in general, is the excess of (i) the adjusted issue price of the indebtedness satisfied, over (ii) the sum of (A) the amount of cash paid, (B) the issue price of any new indebtedness of the debtor issued, and (C) the fair market value of any other consideration (including stock of the debtor or another entity) given in satisfaction of such indebtedness at the time of the exchange.

 

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However, with respect to CODI generated upon implementation of the Plan, the Debtors anticipate that they will not be required to include any amount of such CODI in gross income, because the discharge of debt will occur pursuant to a proceeding under chapter 11 of the Bankruptcy Code. The Debtors expect that they will be required to reduce their tax attributes by the amount of CODI that is excluded from gross income, in accordance with the methodology set forth in the U.S. Treasury regulations addressing such reduction for consolidated groups. Generally, tax attributes are reduced in the following order: (a) net operating losses (“NOLs”) and NOL carryovers; (b) certain tax credit carryovers; (c) net capital losses and capital loss carryovers; (d) tax basis in assets (but not below the amount of liabilities to which the debtor remains subject); (e) passive activity loss and credit carryovers; and (f) foreign tax credit carryovers. However, the Debtors may elect to first reduce the basis of their depreciable assets, in which case the limitation on reduction in tax basis in assets described above in (d) will not apply. The reduction in tax attributes occurs only after the taxable income (or loss) for the taxable year of the debt discharge has been determined.

The amount of CODI, if any, and, accordingly, the amount of tax attributes required to be reduced, will depend on the fair market value (or, in the case of debt instruments, the adjusted issue price) of various forms of consideration to be received by the Holders of Claims under the Plan. The Debtors expect that their NOLs and other tax attributes will be substantially reduced but not eliminated as a result of the Debtors’ excluded CODI. However, the exact amount of excluded CODI, and the resulting tax attribute reduction amount, will depend in part on the fair market value of the New Equity and the issue price of the New Second Lien PIK Notes, which cannot be known with certainty as of the date hereof, and the manner in which the Restructuring Transactions are implemented.

 

  2.

Limitation of NOL Carryforwards and Other Tax Attributes

 

  (a)

General Section 382 Annual Limitation

If a “loss corporation” (generally, a corporation with NOLs and/or built-in losses) undergoes an “ownership change” under section 382 of the Tax Code (an “Ownership Change”) the amount of its pre-ownership change NOLs and/or built-in losses (collectively, “Pre-Change Losses”) that may be utilized to offset future taxable income generally is subject to an annual limitation (the “Annual Limitation”).

The Debtors anticipate that the issuance of the New Equity under the Plan will result in an Ownership Change. In general, the amount of the Annual Limitation to which a corporation that undergoes an Ownership Change would be subject is equal to the product of (a) the fair market value of the stock of the corporation immediately before the Ownership Change (with certain adjustments) multiplied by (b) the “long-term tax-exempt rate” (which is the highest of the adjusted federal long-term rates in effect for any month in the three calendar-month period ending with the calendar month in which the Ownership Change occurs).

If a corporation (or affiliated group) has a net unrealized built-in gain at the time of an Ownership Change (taking into account most assets and items of built-in income and deductions), then the Annual Limitation may be increased to the extent that the Debtors recognize certain built-in gains in their assets during the five-year period following the

 

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Ownership Change, or are treated as recognizing built-in gains pursuant to the safe harbors provided in IRS Notice 2003-65. If a corporation (or affiliated group) has a net unrealized built-in loss at the time of an Ownership Change (taking into account most assets and items of built-in income and deductions), then generally built-in losses (including amortization or depreciation deductions attributable to such built-in losses) recognized during the following five years (up to the amount of the original net unrealized buil-in loss) will be treated as Pre-Change Losses and similarly will be subject to the Annual Limitation. In general, a corporation’s (or affiliated group’s) net unrealized built-in gain or net unrealized built-in loss will be deemed to be zero unless it is greater than the lesser of (a) $10,000,000 or (b) 15% of the fair market value of its assets (with certain adjustments) before the Ownership Change.

Any NOLs generated in any post-Effective Date taxable year (including any portion of the taxable year of the Ownership Change following the Effective Date) should not be subject to this limitation. If an additional Ownership Change occurs after the Effective Date, the Reorganized Debtors’ use of their Pre-Change Losses may be adversely affected.

Section 383 of the Tax Code applies a similar limitation to capital loss carryforwards and tax credits. Any unused limitation may be carried forward, thereby increasing the Annual Limitation in the subsequent taxable year.

Notwithstanding the rules described above, if, post-Ownership Change, a debtor corporation and its subsidiaries do not continue the debtor corporation’s historic business or use a significant portion of its historic business assets in a new business for two years after the Ownership Change (the “Business Continuity Requirement”), the Annual Limitation resulting from the Ownership Change is zero.

As discussed below, special rules may apply in the case of a corporation that experiences an Ownership Change as the result of a bankruptcy proceeding.

 

  (b)

Special Bankruptcy Exceptions

An exception to the foregoing Annual Limitation rules generally applies when shareholders or so-called “qualified creditors” of a debtor corporation in chapter 11 receive, in respect of their claims, at least 50% of the vote and value of the stock of the reorganized debtor (or a controlling corporation if also in chapter 11) pursuant to a confirmed chapter 11 plan (the “382(l)(5) Exception”). Under the 382(l)(5) Exception, a debtor’s Pre-Change Losses are not limited on an annual basis, but instead, NOL carryforwards will be reduced by the amount of any interest deductions claimed during the three taxable years preceding the taxable year that includes the effective date of the plan of reorganization, and during the part of the taxable year prior to and including the effective date of the plan of reorganization, in respect of all debt converted into stock in the reorganization. If the 382(l)(5) Exception applies, the Business Continuity Requirement does not apply, although a different business continuation requirement may apply under the Treasury Regulations. If the 382(l)(5) Exception applies and the Debtors undergo another Ownership Change within two years after the Effective Date, then the Debtors’ Pre-Change Losses effectively would be eliminated in their entirety.

 

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When the 382(l)(5) Exception is not applicable to a corporation in bankruptcy (either because the debtor does not qualify for it or the debtor otherwise elects not to utilize the 382(l)(5) Exception), a second special rule will generally apply (the “382(l)(6) Exception”). Under the 382(l)(6) Exception, the Annual Limitation will be calculated by reference to the lesser of the value of the debtor corporation’s new stock (with certain adjustments) immediately after the Ownership Change or the value of such debtor corporation’s assets (determined without regard to liabilities) immediately before the Ownership Change. This differs from the ordinary rule that requires the fair market value of a debtor corporation that undergoes an Ownership Change to be determined before the events giving rise to the Ownership Change. The 382(l)(6) Exception also differs from the 382(l)(5) Exception because under the 382(l)(6) Exception, the debtor corporation is not required to reduce its NOL carryforwards by the amount of interest deductions claims within the prior three-year period, and the debtor may undergo an Ownership Change within two years without automatically triggering the elimination of its Pre-Change Losses. If the 382(l)(6) Exception applies, the Business Continuity Requirement discussed above also applies.

The Debtors have not determined whether they will be eligible for the 382(l)(5) Exception or whether to affimatively elect out of the 382(l)(5) Exception if available.

 

  C.

Certain U.S. Federal Income Tax Consequences to Certain U.S. Holders of Claims

 

  1.

U.S. Federal Income Tax Consequences to U.S. Holders of Allowed Second Lien Notes Claims

The following discussion summarizes certain U.S. federal income tax consequences of the implementation of the Plan to Holders of Claims who are U.S. Holders. U.S. Holders of Claims are urged to consult their tax advisors regarding the tax consequences of the Restructuring Transactions.

Whether and to what extent the U.S. Holder of a Second Lien Notes Claim recognizes gain or loss as a result of the exchange of its Claim for the New Equity and New Second Lien PIK Notes depends, in part, on whether the exchange qualifies as a tax-free reorganization pursuant to Section 368(a)(1)(E) of the Tax Code (a “Tax-Free Exchange”) or if, instead, the consideration under the Plan is treated as having been received in a fully taxable disposition. Whether the receipt of consideration under the Plan qualifies for reorganization treatment will depend on, among other things, whether the Second Lien Notes Claims and New Second Lien PIK Notes being exchanged constitute “securities.”

Neither the Tax Code nor the Treasury Regulations promulgated thereunder define the term “security.” Whether a debt instrument constitutes a security for U.S. federal income tax purposes is determined based on all the relevant facts and circumstances, but most authorities have held that the length of the term of a debt instrument is an important factor in determining whether such instrument is a security for U.S. federal income tax purposes. These authorities have indicated that a term of less than five years is evidence that the instrument is not a security, whereas a term of ten years or more is evidence that it is a security. There are numerous other factors that could be taken into account in determining whether a debt instrument is a security,

 

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including the security for payment, the creditworthiness of the obligor, whether payments of interest are fixed, variable, or contingent, and whether such payments are made on a current basis or accrued. The Debtors have not yet made any determinations regarding the treatment of the Second Lien Notes Claims or New Second Lien PIK Notes as a security under U.S. federal income tax law.

Pursuant to the Plan, each U.S. Holder of an Allowed Second Lien Notes Claim will recognize gain or loss equal to the excess of (i) the fair market value of the New Equity and the issue price of the New Second Lien PIK Notes received over (ii) such U.S. Holder’s adjusted tax basis in its Allowed Second Lien Notes Claim surrendered therefor pursuant to the Plan. Whether such gain or loss is recognized will depend in part on whether the Second Lien Notes Claims or New Second Lien PIK Notes are securities.

 

  (a)

U.S. Federal Income Tax Consequences to U.S. Holders of a Tax-Free Exchange

If the Second Lien Notes Claims and New Second Lien PIK Notes are treated as securities for U.S. federal income tax purposes, the exchange of Second Lien Notes Claims for New Equity and New Second Lien PIK Notes would be treated as a recapitalization, and therefore a Tax-Free Exchange. If the exchange of Second Lien Notes Claims for New Equity and New Second Lien PIK Notes qualifies as a Tax-Free Exchange, a U.S. Holder should not recognize gain or loss with respect to the exchange (subject to “Accrued Interest,” as discussed in Section VII.C.2 of this Disclosure Statement). Such U.S. Holder’s total combined tax basis in its New Equity and New Second Lien PIK Notes received should equal the U.S. Holder’s tax basis in the Second Lien Notes Claim surrendered therefor increased by gain, if any, recognized by such U.S. Holder in the exchange. A U.S. Holder’s holding period for its interest in the New Equity and New Second Lien PIK Notes should include the holding period for the Second Lien Notes Claim surrendered therefor (except to the extent any New Equity or New Second Lien PIK Notes is allocable to accrued but unpaid interest, in which case its holding period in the New Equity or New Second Lien PIK Notes would begin on the day following the Effective Date).

If a U.S. Holder’s Second Lien Notes Claims are treated as securities but the New Second Lien Notes are not treated as securities for U.S. federal income tax purposes, a U.S. Holder who realizes gain on the exchange would recognize (subject to “Accrued Interest,” as discussed in Section VII.C.2 of this Disclosure Statement) the lesser of (a) the amount of gain realized on such exchange and (b) the fair market value of the New Second Lien PIK Notes received. A U.S. Holder of such Second Lien Notes Claims who realizes a loss on the exchange will not be permitted to recognize such loss, except to the extent of any loss attributable to accrued but untaxed interest. A U.S. Holder’s tax basis in its New Equity should be equal to such U.S. Holder’s tax basis in the Second Lien Notes Claims surrendered therefor, plus the amount of gain recognized on the exchange, if any, less the fair market value of New Second Lien PIK Notes received. A U.S. Holder’s holding period for its New Equity should include the holding period for the surrendered Second Lien Notes Claims. A U.S. Holder’s tax basis in any New Second Lien PIK Notes received should equal the fair market value of such New Second Lien PIK Notes as of the date such New Second Lien PIK Notes are distributed to the Holder. A U.S. Holder’s holding period for the New Second Lien PIK Notes received should begin on the day following the Effective Date.

 

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  (b)

U.S. Federal Income Tax Consequences to U.S. Holders in a Taxable Exchange

If the Second Lien Notes Claims and New Second Lien PIK Notes are not treated as securities for U.S. federal income tax purposes and the exchange is not a Tax-Free Exchange, a U.S. Holder of an Allowed Second Lien Notes Claim will be treated as exchanging such Claim for New Equity and the issue price of the New Second Lien PIK Notes in a taxable exchange. Accordingly, each U.S. Holder of such Second Lien Notes Claim should recognize gain or loss equal to the difference between the fair market value of New Equity and New Second Lien PIK Notes received in exchange for the Claim and such U.S. Holder’s adjusted basis, if any, in such Claim. Whether such gain or loss is capital or ordinary in character will be determined by a number of factors, including the tax status of the U.S. Holder, the nature of the Claim in such U.S. Holder’s hands, whether the Claim was purchased at a discount, and whether and to what extent the U.S. Holder previously has claimed a bad debt deduction with respect to its Claim. See Sections VII.C.2 and VII.C.3 of this Disclosure Statement, entitled “Accrued Interest” and “Market Discount.” A U.S. Holder’s tax basis in any New Equity and New Second Lien PIK Notes received should equal the fair market value of such New Equity and New Second Lien PIK Notes as of the date such New Equity and New Second Lien PIK Notes are distributed to the Holder. A U.S. Holder’s holding period for the New Equity and New Second Lien PIK Notes received should begin on the day following the Effective Date.

 

  2.

Accrued Interest (and OID)

To the extent that any amount received by a U.S. Holder of an Allowed Second Lien Notes Claim is attributable to accrued but unpaid interest (including accrued original issue discount (“OID”)) on the debt instruments constituting the surrendered Claim, the receipt of such amount should be taxable to the U.S. Holder as ordinary interest income (to the extent not already taken into income by the U.S. Holder). Conversely, a U.S. Holder of a Claim may be able to recognize a deductible loss (or, possibly, a write off against a reserve for worthless debts) to the extent that any accrued interest (including accrued OID) was previously included in the U.S. Holder’s gross income but was not paid in full by the Debtors. Such loss may be ordinary, but the tax law is unclear on this point. The tax basis of any non-cash consideration treated as received in satisfaction of accrued but untaxed interest (or OID) should equal the amount of such accrued but untaxed interest (or OID). The holding period for such non-cash consideration should begin on the day following the receipt of such property.

The extent to which the consideration received by a U.S. Holder of a surrendered Allowed Second Lien Notes Claim will be attributable to accrued interest on the debts constituting the surrendered Allowed Second Lien Notes Claim is unclear. Certain legislative history and case law indicates that an allocation of consideration as between principal and interest provided in a chapter 11 plan of reorganization is binding for U.S. federal income tax purposes, while certain Treasury Regulations treat payments as allocated first to any accrued but untaxed interest. The Plan provides that amounts paid to Holders of Claims will be allocated at the option of the Holder between unpaid principal and unpaid interest. The IRS could take the position that the consideration received by the Holder should be allocated in some way other than as provided in the Plan. Holders of Allowed Claims should consult their own tax advisors regarding the proper allocation of the consideration received by them under the Plan.

 

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U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE ALLOCATION OF CONSIDERATION RECEIVED IN SATISFACTION OF THEIR CLAIMS AND THE FEDERAL INCOME TAX TREATMENT OF ACCRUED BUT UNPAID INTEREST.

 

  3.

Market Discount

In general, a debt instrument is considered to have been acquired with “market discount” if it is acquired other than on original issue and if its holder’s adjusted tax basis in the debt instrument is less than (a) the sum of all remaining payments to be made on the debt instrument, excluding “qualified stated interest” or (b) in the case of a debt instrument issued with original issue discount, its adjusted issue price, by at least a de minimis amount. Any gain recognized by a U.S. Holder on the taxable disposition of a Claim that had been acquired with market discount should be treated as ordinary income to the extent of the market discount that accrued thereon while the Claim was considered to be held by the U.S. Holder (unless the U.S. Holder elected to include market discount in income as it accrued).

To the extent that the Allowed Second Lien Notes Claims that were acquired with market discount are exchanged in a transaction that qualifies as a Tax-Free Exchange, the U.S. Holder may be required to recognize any market discount that accrued on the Allowed Second Lien Notes Claims (i.e., up to the time of the exchange) to the extent of any deemed gain. However, the tax law is unclear on this point.

U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF THE MARKET DISCOUNT RULES TO THEIR CLAIMS.

 

  4.

U.S. Federal Income Tax Consequences to U.S. Holders of Ownership and Disposition of New Equity

 

  (a)

Distributions with Respect to New Equity

The gross amount of any distribution of cash or property made to a U.S. Holder with respect to New Equity generally will be includible in gross income by a U.S. Holder as dividend income to the extent such distribution is paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, the distribution (i) will be treated as a non-taxable return of the U.S. Holder’s adjusted basis in the New Equity and (ii) thereafter as capital gain. Dividends received by non-corporate U.S. Holders may qualify for reduced rates of taxation. Subject to applicable limitations, a distribution which is treated as a dividend for U.S. federal income tax purposes may qualify for the dividends-received deduction if such amount is distributed to a corporate U.S. Holder and certain other requirements are satisfied.

 

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  (b)

Sale, Exchange, or Other Taxable Disposition of New Equity

For U.S. federal income tax purposes, a U.S. Holder generally will recognize gain or loss on the sale, exchange, or other taxable disposition of any of its New Equity in an amount equal to the difference, if any, between the amount realized for the New Equity and the U.S. Holder’s adjusted tax basis in the New Equity. Subject to the rules discussed above under Section VII.C.3, entitled “Market Discount,” any such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the Holder has a holding period in the New Equity of more than one year as of the date of disposition. Non-corporate U.S. Holders may be eligible for reduced rates of taxation on long-term capital gains.

 

  5.

U.S. Federal Income Tax Consequences to U.S. Holders of Ownership and Disposition of the New Second Lien PIK Notes

 

  (a)

Acquisition Premium/Bond Premium

Subject to certain rules relating to CPDIs (as defined below), if a U.S. Holder’s initial tax basis in any New Second Lien PIK Notes is less than or equal to the stated redemption price at maturity of such debt instrument, but greater than the adjusted issue price of such instrument, the U.S. Holder should be treated as acquiring such debt instrument with an “acquisition premium.” Unless an election is made, the U.S. Holder generally should reduce the amount of OID otherwise includable in gross income for an accrual period by an amount equal to the amount of OID otherwise includible in gross income multiplied by a fraction, the numerator of which is the excess of the U.S. Holder’s initial tax basis in its interest in such debt instrument over such debt instrument’s adjusted issue price, and the denominator of which is the excess of the sum of all amounts payable on such debt instrument (other than amounts that are qualified stated interest) over its adjusted issue price.

Subject to certain rules relating to CPDIs, if a U.S. Holder’s initial tax basis in any new New Second Lien PIK Notes exceeds the stated redemption price at maturity of such debt instrument, such U.S. Holder should be treated as acquiring such debt instrument with “bond premium.” Such U.S. Holder generally may elect to amortize the bond premium over the term of such debt instrument on a constant yield method as an offset to interest when includible in income under such U.S. Holder’s regular accounting method. If a U.S. Holder does not elect to amortize the premium, the premium may decrease the gain or increase the loss such U.S. Holder would otherwise recognize on disposition of such debt instrument.

 

  (b)

Issue Price, Original Issue Discount, and Interest with Respect to the New Second Lien PIK Notes

The consideration received by Holders of Allowed Second Lien Notes Claims, which will include a combination of New Equity and New Second Lien PIK Notes, would likely be treated as an investment unit issued in exchange for the Allowed Second Lien Notes Claims to the extent any New Second Lien PIK Notes are received on account of such Claims. In such case, the issue price of the New Second Lien PIK Notes will depend, in part, on the issue price of the investment unit, and the respective fair market values of the elements of consideration that compose the investment unit. The issue price of an investment unit is generally determined in the same manner as the issue price of a debt instrument. As a result, the issue price of the investment unit will depend on whether the investment unit is considered for U.S. federal income tax purposes (and after applying rules similar to those applied to debt instruments), to be traded on an established securities market. In general, a debt instrument will be treated as traded on an established securities market if, at any time during the 31-day period ending 15 days after the

 

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issue date, (a) a “sales price” for an executed purchase of the debt instrument appears on a medium that is made available to issuers of debt instruments, persons that regularly purchase or sell debt instruments, or persons that broker purchases or sales of debt instruments; (b) a “firm” price quote for the debt instrument is available from at least one broker, dealer or pricing service for property, and the quoted price is substantially the same as the price for which the person receiving the quoted price could purchase or sell the property, or (c) there are one or more “indicative” quotes available from at least one broker, dealer or pricing service for property. Whether the instrument unit should be considered “publicly traded” may not be known until after the Effective Date.

If the instrument unit is considered to be traded on an established market, the issue price of the investment unit would be the fair market value of the investment unit on the date the New Second Lien PIK Notes are issued. The law is somewhat unclear on whether an investment unit is treated as publicly traded if some, but not all, elements of such investment unit are publicly traded. If the investment unit is not publicly traded on an established market, but the Second Lien Notes Claims are publicly traded on an established market, the issue price of the investment unit may then be determined by reference to the fair market value of the Second Lien Notes Claims on the date the investment unit is issue. If neither the investment unit nor the Second Lien Notes Claims are publicly traded on an established market, then the issue price of the New Second Lien PIK Notes would generally be determined under section 1273(b)(4) or 1274 of the Tax Code, as applicable. Assuming either the investment unit or the Second Lien Notes Claims are publicly traded, the issue price of an investment unit is allocated among the elements of consideration making up the investment unit based on their relative fair market values, with such allocation determining the issue price of the New Second Lien PIK Notes.

An issuer’s allocation of the issue price of an investment unit is binding on all Holders of the investment unit unless a Holder explicitly discloses a different allocation on a timely filed income tax return for the taxable year that includes the acquisition date of the investment unit.

The Allowed Second Lien Notes Claims and the investment unit comprising the consideration received in exchange therefor, may be traded on an established securities market for the purposes described above even if no trade actually occurs and there are merely firm or indicative quotes with respect to such Allowed Second Lien Notes Claims or investment unit.

As discussed above, a debt instrument, such as the New Second Lien PIK Notes is treated as issued with OID for U.S. federal income tax purposes if its issue price is less than its stated redemption price at maturity by more than a de minimis amount. A debt instrument’s stated redemption price at maturity includes all principal and interest payable over the term of the debt instrument other than “qualified stated interest.” Stated interest payable at a fixed rate is “qualified stated interest” if it is unconditionally payable in cash at least annually.

A U.S. Holder (whether a cash or accrual method taxpayer) generally should be required to include OID in gross income (as ordinary income) as the OID accrues (on a constant yield to maturity basis), in advance of the U.S. Holder’s receipt of cash payments attributable to this OID. In general, the amount of OID includible in the gross income of a U.S. Holder should be equal to a ratable amount of OID with respect to the New Second Lien PIK Notes for each day in an accrual period during the taxable year or portion of the taxable year in which a U.S. Holder

 

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held the New Second Lien PIK Notes. An accrual period may be of any length and the accrual periods may vary in length over the term of the New Second Lien PIK Notes, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day of an accrual period or on the first day of an accrual period. The amount of OID allocable to any accrual period is an amount equal to the excess, if any, of (i) the product of the adjusted issue price of the New Second Lien PIK Notes at the beginning of such accrual period and its yield to maturity, determined on the basis of a compounding assumption that reflects the length of the accrual period over (ii) the sum of the stated interest payments on the New Second Lien PIK Notes allocable to the accrual period.

If interest other than qualified stated interest is paid in cash on the New Second Lien PIK Notes, a U.S. Holder should not be required to adjust its OID inclusions. Instead, each payment made in cash under the New Second Lien PIK Notes should be treated first as a payment of any accrued OID that has not been allocated to prior payments and second as a payment of principal. A U.S. Holder generally should not be required to include separately in income cash payments received on the New Second Lien PIK Notes to the extent such payments constitute payments of previously accrued OID. The OID rules are complex and U.S. Holders are urged to consult their own tax advisors regarding the application of the OID rules to the New Second Lien PIK Notes. Moreover, the above discussion of the CPDI rules, below.

 

  (c)

Contingent Payment Debt Instrument

In addition to the general discussion of the OID rules set forth above, as well as the rules regarding the sale, redemption, or repurchase of consideration received in exchange for the Allowed Second Lien Notes claims, it is possible that the New Second Lien PIK Notes will constitute “contingent payment debt instruments” (“CPDI”) subject to the “noncontingent bond method” for accruing OID. In the event the New Second Lien PIK Notes constitute CPDIs, the following rules would apply.

Assuming the CPDI rules apply, under the noncontingent bond method, each U.S. Holder should be required to take into account interest based on the “comparable yield” of any debt instrument determined to be a CPDI, which generally is the rate at which the Debtors could issue a fixed rate debt instrument with terms and conditions similar to the applicable debt. U.S. Holders should accrue interest based on the comparable yield on a constant yield to maturity basis. U.S. Holders should not be required to separately include in income any additional amount for the interest payments actually received, except to the extent of positive or negative adjustments, as discussed below.

If during any taxable year, the actual payments with respect to any CPDIs exceed the projected payments for that taxable year, the U.S. Holders should incur a “net positive adjustment” under the contingent debt regulations equal to the amount of such excess. U.S. Holders should treat a net positive adjustment as additional interest income in that taxable year.

If, during any taxable year, the actual payments with respect to any CPDIs are less than the amount of projected payment for that taxable year, U.S. Holders may incur a “net negative adjustment” under the contingent debt regulations equal to the amount of such deficit. This net negative adjustment should (a) reduce a U.S. Holder’s interest income on the New Second Lien

 

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PIK Notes for that taxable year, and (b) to the extent of any excess after application of (a), give rise to an ordinary loss to the extent of such U.S. Holder’s interest income on the CPDIs during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments. Any net negative adjustment in excess of the amounts described in (a) and (b) should be carried forward as a negative adjustment to offset future interest income with respect to the New Second Lien PIK Notes or to reduce the amount realized on a sale, exchange or repurchase of the CPDIs. As a result of the rules described above, recipients of CPDIs may be required to include amounts in income prior to receipt of cash attributable to such income. A U.S. Holder should use the comparable yield and projected payment schedule the Debtors prepare in determining their interest accruals, unless it timely discloses and justifies on its federal income tax returns the use of a different comparable yield and projected payment schedule.

To the extent the New Second Lien PIK Notes constitute CPDIs, the Debtors have not yet determined the “comparable yield” or determined a schedule of projected payments.

To the extent a U.S. Holder disposes of a CPDI, the U.S. Holder should recognize gain or loss upon the sale, exchange or maturity of such debt in an amount equal to the difference, if any, between the consideration received in exchange therefor and its adjusted basis therein. In general, a U.S. Holder’s adjusted basis should be its initial basis (determined pursuant to the rules discussed above), increased by the amount of interest it previously accrued with respect to such CPDI (in accordance with the comparable yield and the projected payment schedule thereof), decreased by any interest payments that have been made, and increased or decreased by the amount of any positive or negative adjustment, respectively, that it is required to make. Any recognized gain should be ordinary interest income, and any recognized loss should be ordinary loss to the extent of interest a U.S. Holder included as income in the current or previous taxable years in respect of such CPDI, and thereafter, capital loss.

If a U.S .Holder’s adjusted basis in the CPDI it receives is different than the issue price of the CPDI (e.g., the U.S. Holder receives the CPDI in a transaction that is treated as a Tax-Free Exchange as discussed above), such U.S. Holder must allocate any difference between the adjusted issue price and its basis to daily portions of interest or projected payments over the remaining term of the CPDI. If the U.S. Holder’s basis is higher than the adjusted issue price of the CPDI, the amount of the difference allocated to a daily portion of interest or to a projected payment should be treated as a negative adjustment on the date the daily portion accrues or the payment is made. On the date of the adjustment, a U.S. Holder’s adjusted basis in the CPDI should be reduced by the amount the U.S. Holder treats as a negative adjustment. If a U.S. Holder’s basis is less than the adjusted issue price of the CPDI, the amount of the difference allocated to a daily portion of interest or to a projected payment should be treated as a positive adjustment on the date the daily portion accrued or the payment is made. On the date of the adjustment, a U.S. Holder’s adjusted basis in the debt instrument should be increased by the amount it treats as a positive adjustment.

The rules related to CPDIs are highly complex, and U.S. Holders are encouraged to consult their own tax advisors.

 

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  (d)

Gain Recognition

Unless a non-recognition provision applies, and subject to the CPDI and market discount rules discussed above, Holders will generally recognized capital gain or loss upon the sale, redemption or other taxable disposition of the New Second Lien PIK Notes received pursuant to the Plan. Such capital gain will be long-term capital gain if, at the time of the sale, exchange, retirement, or other taxable disposition, the Holder held the New Second Lien PIK Notes for more than one year. Long-term capital gains of an individual taxpayer generally are taxed at preferential rates. The deductibility of capital losses is subject to certain limitations.

 

  6.

Medicare Tax

Certain U.S. Holders that are individuals, estates, or trusts are required to pay an additional 3.8% tax on, among other things, interest, dividends and gains from the sale or other disposition of capital assets. U.S. Holders that are individuals, estates, or trusts should consult their tax advisors regarding the effect, if any, of this tax provision on the consummation of the Plan to such U.S. Holders and the ownership and disposition of any consideration to be received under the Plan.

 

  D.

Certain U.S. Federal Income Tax Consequences to Certain Non-U.S. Holders of Claims

The following discussion includes only certain U.S. federal income tax consequences of the Restructuring Transactions to Non-U.S. Holders. The rules governing the U.S. federal income tax consequences to Non-U.S. Holders are complex. Each Non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, state, and local and the non-U.S. tax consequences of the consummation of the Plan to such Non-U.S. Holders and the ownership and disposition of the New Equity and New Second Lien PIK Notes, as applicable.

 

  1.

Gain Recognition

Whether a Non-U.S. Holder realizes gain or loss on the exchange and the amount of such gain or loss is determined in the same manner as set forth above in connection with U.S. Holders. Subject to the rules discussed below under Sections VII.D.6. and VII.E., entitled “FATCA” and “Information Reporting and Back-Up Withholding,” any gain realized by a Non-U.S. Holder on the exchange of its Claim generally will not be subject to U.S. federal income taxation unless (i) the Non-U.S. Holder is a non-resident alien individual who was present in the United States for 183 days or more during the taxable year in which the Restructuring Transactions occur and certain other conditions are met, or (ii) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States (and if an income tax treaty applies, such gain is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States).

If the first exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (or lower applicable income tax treaty rate) on any gain realized, which may be offset by certain U.S. source capital losses. If the second exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax in the manner described in Section VII.D.3., entitled “Income or Gain Effectively Connected with a U.S. Trade or Business.”

 

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  2.

Accrued Interest

Subject to the rules discussed below under Sections VII.D.6. and VII.E., entitled “FATCA” and “Information Reporting and Backup Withholding,” payments attributable to U.S. source accrued but unpaid interest (including OID) to a Non-U.S. Holder generally will not be subject to U.S. federal income tax and will be exempt from withholding under the “portfolio interest” exemption if the Non-U.S. Holder properly certifies to its foreign status (generally, by providing the withholding agent IRS Form W-8BEN or W-8BEN-E prior to payment), and:

 

  (i)

the Non-U.S. Holder does not own, actually or constructively, 10% or more of the total combined voting power of all classes of the Debtor’s stock entitled to vote;

 

  (ii)

the Non-U.S. Holder is not a “controlled foreign corporation” that is a “related person” with respect to the Debtor;

 

  (iii)

the Non-U.S. Holder is not a bank whose receipt of interest on the notes is in connection with an extension of credit made pursuant to a loan agreement entered into in the ordinary course of the Non-U.S. Holder’s trade or business; and

 

  (iv)

such interest is not effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business.

A Non-U.S. Holder that does not qualify for exemption from withholding tax with respect to accrued but unpaid interest that is not effectively connected income generally will be subject to withholding of U.S. federal income tax at a 30% rate (or lower applicable income tax treaty rate) on payments that are attributable to accrued but unpaid interest (including accrued OID). For purposes of providing a properly executed IRS Form W-8BEN or W-BEN-E, special procedures are provided under applicable U.S. Treasury regulations for payments through qualified foreign intermediaries or certain financial institutions that hold customers’ securities in the ordinary course of their trade or business.

If any accrued but unpaid interest is effectively connected income, the Non-U.S. Holder generally will be subject to U.S. federal income tax in the manner described in Section VII.D.3., entitled “Income or Gain Effectively Connected with a U.S. Trade or Business.”

 

  3.

Income or Gain Effectively Connected with a U.S. Trade or Business

If any interest or gain realized by a Non-U.S. Holder on the exchange of its Claims is effectively connected with such Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, the Holder maintains a permanent establishment in the United States to which such interest or gain is attributable), then the interest income or gain will be subject to U.S. federal income tax at regular graduated income tax rates generally in the same manner as if you were a U.S. Holder. Effectively connected income will not be subject to U.S. federal withholding tax if you satisfy certain certification requirements by providing to the applicable withholding agent a properly executed IRS Form W-8ECI (or successor form), In addition, if such a Non-U.S. Holder is a corporation, it may be subject to a branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments.

 

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  4.

U.S. Federal Income Tax Consequences to Non-U.S. Holders of Ownership and Disposition of the New Second Lien PIK Notes

 

  (a)

Treatment of Interest, Including OID and PIK Interest

Subject to the discussions below on backup withholding and FATCA, payments of interest (which, for these purposes includes OID) on New Second Lien PIK Notes to any Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax, provided that:

 

  (i)

the Non-U.S. Holder does not actually or constructively (under certain attribution rules) own 10% or more of the total combined voting power of all classes of New Parent’s stock entitled to vote;

 

  (ii)

the Non-U.S. Holder is not a “controlled foreign corporation” related to New Parent (within the meaning of Tax Code Section 864(d)(4)) and is not a bank that received such New Second Lien PIK Notes on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business (within the meaning of Tax Code Section 881(c)(3)(A)); and

 

  (iii)

such interest payments are not “effectively connected” with the conduct by the Non-U.S. Holder of a trade or business within the United States; and the Non-U.S. Holder appropriately certifies (as further described below) that it is not a “United States person” (within the meaning of Tax Code Section 7701(a)(30)).

The certification requirement referred to above generally will be satisfied if the Non-U.S. Holder provides New Parent or its paying agent with a statement on IRS Form W-8BEN or IRS Form W-8BEN-E (or suitable substitute or successor form), as applicable, signed under penalties of perjury, identifying the Non-U.S. Holder and stating, among other things, that the Non-U.S. Holder is not a United States person (within the meaning of Tax Code Section 7701(a)(30)). If the Non-U.S. Holder holds the New Second Lien PIK Notes through a financial institution or other agent acting on behalf of the Non-U.S. Holder, the Non-U.S. Holder will be required to provide appropriate documentation to that agent, and that agent will then be required to provide appropriate documentation to New Parent or its paying agent (either directly or through other intermediaries). Non-U.S. Holders should consult their own tax advisors regarding these certification requirements.

If any of the foregoing requirements is not satisfied, payments of accrued interest made to a Non-U.S. Holder generally will be subject to a 30% U.S. federal withholding tax unless such Non-U.S. Holder provides the applicable withholding agent with a properly executed (i) IRS Form W-8BEN or W-8BEN-E, as applicable, claiming an exemption from or reduction of the withholding tax under the benefit of a tax treaty between the United States and the Non-U.S. Holder’s country of residence, or (ii) IRS Form W-8ECI stating that interest paid on New Second Lien PIK Notes is not subject to withholding tax because it is effectively connected to the conduct of a trade or business by the Non-U.S. Holder within the United States (in which case, such interest will be taxed below as “effectively connected income”).

 

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  (b)

Sale, Exchange or Other Disposition of the New Second Lien PIK Notes

Subject to the discussion below on backup withholding and FATCA, any gain realized by a Non-U.S. Holder on the sale, exchange or other taxable disposition (including retirements and redemptions) of New Second Lien PIK Notes generally will not be subject to U.S. federal income or withholding tax, unless: (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States; or (ii) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are satisfied. If the second exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (or at a reduced rate under an applicable income tax treaty) on the amount by which capital gains allocable to the United States sources (including gains from such sale, exchange or other taxable disposition of the New Second Lien PIK Notes) exceed capital losses allocable to United States sources.

 

  (c)

Effectively Connected Income

If interest or gain from the disposition of the New Second Lien PIK Notes is effectively connected with a Non-U.S. Holder’s conduct of a U.S. trade or business (and if an applicable treaty provides that such activity constitutes a “permanent establishment,”) the Non-U.S. Holder generally will be subject to U.S. federal income tax on the interest and gain on a net basis in the same manner as if it was a U.S. Holder. The 30% withholding tax on interest described above will not apply (assuming the Non-U.S. Holder provides the IRS Form W-8ECI), nor on payments of OID and PIK interest. In addition, a corporate Non-U.S. Holder may be subject to the branch profits tax on its effectively connected earnings and profits for the taxable year, subject to certain adjustments, at a rate of 30% (or at a reduced rate under an applicable income tax treaty or Treasury Regulations).

 

  5.

U.S. Federal Income Tax Consequences to Non-U.S. Holders of Ownership and Disposition of Shares of New Equity

 

  (a)

Dividends on New Equity

Any distributions made with respect to New Equity will constitute dividends for U.S. federal income tax purposes to the extent of New Parent’s current or accumulated earnings and profits as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the Non-U.S. Holder’s tax basis in our common stock and thereafter as capital gain from the sale or exchange of such New Equity. Subject to the rules discussed above under Section VII.D.3., entitled “Income or Gain Effectively Connected with a U.S. Trade or Business,” and below under Sections VII.D.5. and VII.D.6., entitled “FIRPTA” and “FATCA,” any distribution made to a Non-U.S. Holder on the New Equity generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the distribution unless an applicable income tax treaty provides for a lower rate. To receive the benefit of a reduced treaty rate, a Non-U.S. Holder must provide the applicable withholding agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) certifying qualification for the reduced rate.

 

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Dividends paid to a Non-U.S. Holder that are effectively connected with a trade or business conducted by the Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, are treated as attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States) generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined in the Tax Code). Such effectively connected dividends will not be subject to U.S. withholding tax if the non-U.S. Holder satisfies certain certification requirements by providing the applicable withholding agent a properly executed IRS Form W-8ECI certifying eligibility for exemption. If the non-U.S. Holder is a non-U.S. corporation, it may also be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty).

 

  (b)

Sale, Redemption, or Repurchase of New Equity

Subject to the rules discussed below under Sections VII.D.6. and VII.E., entitled “FATCA” and “Information Reporting and Backup Withholding,” a Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to any gain realized on the sale or other taxable disposition of any of its New Equity, including any gain resulting from a non-dividend distribution in excess of the Holder’s tax basis in their New Equity, unless (i) the Non-U.S. Holder is a non-resident alien individual who was present in the United States for 183 days or more during the taxable year in which the disposition occurs and certain other conditions are met, (ii) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States (and if an income tax treaty applies, such gain is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), or (iii) New Parent is or has been during a specified testing period a USRPHC (as defined below).

If the first exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (or lower applicable income tax treaty rate) on any gain realized, which may be offset by certain U.S. source capital losses. If the second exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax with respect to such gain in the same manner as a U.S. Holder, and a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes may also be subject to a branch profits tax with respect to earnings and profits effectively connected with a U.S. trade or business that are attributable to such gains at a rate of 30% (or at a reduced rate or exemption from tax under an applicable income tax treaty). If the third exception applies, the Non-U.S. Holder will be subject to U.S. federal income tax and U.S. federal withholding tax as discussed in Section VII.D.5, entitled “FIRPTA.”

 

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  6.

FIRPTA

Under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), gain or loss of a foreign person on a disposition of a United States real property interest (“USRPI”) is deemed to be effectively connected with a trade or business carried on in the United States and subject to U.S. federal income tax. A USRPI includes any interest (other than solely as a creditor) in a domestic corporation if the domestic corporation is a United States real property holding corporation (“USRPHC”). Common stock that is regularly traded on an established securities market is, however, excepted from treatment as a USRPI if any class of stock of the corporation is regularly traded on an established securities market and the holder of such stock does not, at any time during an applicable measuring period, own more than 5% of that class of stock (the “5% Public Shareholder Exception”). In addition, if a non-regularly traded interest is convertible into common stock that is regularly traded on an established securities market, such non-regularly traded interest is excepted from treatment as a USRPI if on the date on which a holder acquired such interest it does not have a fair market value greater than 5% of the regularly traded class of stock into which it is convertible (the “5% Convertible Exception” and together with the 5% Public Shareholder Exception, the “5% Exception”).

If the common stock of the corporation were not considered to be regularly traded on an established securities market during the calendar year in which the relevant disposition by a Non-U.S. Holder occurs, the Non-U.S. Holder (regardless of the percentage of common stock owned or the fair market value of the non-regularly traded interest convertible into common stock) would be subject to U.S. federal income tax on a taxable disposition of the common stock or the non-regularly traded interest convertible into common stock, and a 15% withholding tax would apply to the gross proceeds from such disposition.

The Debtors expect that New Parent will be a USRPHC. Accordingly, the New Equity will be treated as USRPIs, unless a Non-U.S. Holder qualifies for the 5% Exception. Following the Effective Date, New Parent may take steps to create a market for the New Equity, but no assurances can be given that New Parent will take such steps or, that if they do, New Parent’s actions will permit certain Non-U.S. Holders to rely on the 5% Exception with respect to their New Equity.

NON-U.S. HOLDERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS TO DETERMINE WHETHER THE NEW EQUITY IS SUBJECT TO FIRPTA.

 

  7.

FATCA

The Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% withholding tax on “withholdable payments,” in each case if paid to a “foreign financial institution” or a “non-financial entity” (each as defined in the Tax Code) (including in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners), (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Tax Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case, generally on an IRS Form W-8BEN-E), or (iii) the foreign financial institution or non-financial foreign entity

 

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otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these rules may be subject to different rules. Under certain circumstances, a Holder might be eligible for refunds or credits of such taxes.

For this purpose, “withholdable payments” are generally U.S. source payments of (i) fixed or determinable, annual or periodical income (including interest on debt instruments and dividends on shares of New Equity) and (ii) gross proceeds from the sale or other disposition of any property of a type which can produce U.S. source interest or dividends (if such sale or other disposition occurs after December 31, 2018). Each Non-U.S. Holder should consult its own tax advisor regarding the possible impact of these rules on such Non-U.S. Holder’s U.S. federal income tax consequences under the Plan.

 

  E.

Information Reporting and Backup Withholding

The Debtors will withhold all amounts required by law to be withheld from payments of interest and dividends. The Debtors will comply with all applicable reporting requirements of the Tax Code. In general, information reporting requirements may apply to distributions or payments made to a Holder of a Claim under the Plan. In addition, backup withholding of taxes will generally apply to payments in respect of an Allowed Claim under the Plan unless, in the case of a U.S. Holder, such U.S. Holder provides a properly executed IRS Form W-9 and, in the case of Non-U.S. Holder, such Non-U.S. Holder provides a properly executed applicable IRS Form W-8 (or otherwise establishes such Non-U.S. Holder’s eligibility for an exemption).

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a Holder’s U.S. federal income tax liability, and a Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS.

In addition, from an information reporting perspective, the U.S. Treasury regulations generally require disclosure by a taxpayer on its U.S. federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, certain transactions that result in the taxpayer’s claiming a loss in excess of specified thresholds. Holders are urged to consult their tax advisors regarding these regulations and whether the transactions contemplated by the Plan would be subject to these regulations and require disclosure on the Holders’ tax returns.

THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX. THE FOREGOING DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER’S CIRCUMSTANCES AND INCOME TAX SITUATION. ALL HOLDERS OF CLAIMS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-U.S. TAX LAWS, AND OF ANY CHANGE IN APPLICABLE TAX LAWS.

 

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VIII.

CERTAIN RISK FACTORS TO BE CONSIDERED

Prior to voting to accept or reject the Plan, Holders of Claims should read and carefully consider the risk factors set forth below, in addition to the other information set forth in this Disclosure Statement together with any attachments, exhibits, or documents incorporated by reference hereto. The risk factors below should not be regarded as the only risks associated with the Debtors’ businesses or the Plan and its implementation. Documents filed with the SEC may contain important risk factors that differ from those discussed below, and such risk factors are incorporated as if fully set forth herein and are a part of this Disclosure Statement. Copies of any document filed with the SEC may be obtained by visiting the SEC website at http://www.sec.gov.

 

  A.

Certain Bankruptcy Law Considerations

 

  1.

The Bankruptcy Process May Have an Adverse Effect on the Debtors’ Businesses, Even If the Restructuring Transactions Are Successfully Consummated

While the Debtors believe that the Chapter 11 Cases will be of short duration and will not be materially disruptive to their businesses, the Debtors cannot be certain that this will be the case. Although the Plan is designed to minimize the length of the Chapter 11 Cases, it is impossible to predict with certainty the amount of time that one or more of the Debtors may spend in bankruptcy or to assure the parties in interest that the Plan will be confirmed. Even if confirmed on a timely basis, bankruptcy proceedings to confirm the Plan could have an adverse effect on the Debtors’ ability to develop and execute their business plan, their financial condition, and their liquidity. Among other things, it is possible that bankruptcy proceedings could adversely affect the Debtors’ relationships with their key customers and employees. The proceedings will also involve additional expense and may divert some of the attention of the Debtors’ management away from business operations.

 

  2.

Parties in Interest May Object to the Plan’s Classification of Claims and Interests

Section 1122 of the Bankruptcy Code provides that a plan may place a claim or an equity interest in a particular class only if such claim or equity interest is substantially similar to the other claims or equity interests in such class. The Debtors believe that the classification of the Claims and Interests under the Plan complies with the requirements set forth in the Bankruptcy Code because the Debtors created Classes of Claims and Interests each encompassing Claims or Interests, as applicable, that are substantially similar to the other Claims or Interests, as applicable, in each such Class. Nevertheless, there can be no assurance that the Court will reach the same conclusion.

 

  3.

The Conditions Precedent to the Confirmation Date and/or Effective Date of the Plan May Not Occur

As more fully set forth in Article IX of the Plan, the Confirmation Date and the Effective Date of the Plan are subject to a number of conditions precedent. If such conditions precedent are not met or waived, the Confirmation Date or the Effective Date will not take place.

 

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  4.

The Debtors May Fail to Satisfy Voting Requirements

If votes are received in number and amount sufficient to enable the Court to confirm the Plan, the Debtors intend to seek, as promptly as practicable thereafter, Confirmation of the Plan. In the event that sufficient votes are not received, the Debtors may seek to confirm an alternative chapter 11 plan or proceed with a sale of all or substantially all of the Debtors’ assets pursuant to section 363 of the Bankruptcy Code. There can be no assurance that the terms of any such alternative chapter 11 plan or sale pursuant to section 363 of the Bankruptcy Code would be similar or as favorable to the Holders of Allowed Claims as those proposed in the Plan.

 

  5.

Contingencies Could Affect Votes of Impaired Classes to Accept or Reject the Plan

The distributions available to Holders of Allowed Claims under the Plan can be affected by a variety of contingencies, including, without limitation, whether the Court orders certain Allowed Claims to be subordinated to other Allowed Claims. The occurrence of any and all such contingencies, which could affect distributions available to Holders of Allowed Claims under the Plan, will not affect the validity of the vote taken by the Impaired Classes to accept or reject the Plan or require any sort of revote by the Impaired Classes.

The estimated Claims and creditor recoveries set forth in this Disclosure Statement are based on various assumptions, and the actual Allowed amounts of Claims may significantly differ from the estimates. Should one or more of the underlying assumptions ultimately prove to be incorrect, the actual Allowed amounts of Claims may vary from the estimated Claims contained in this Disclosure Statement. Moreover, the Debtors cannot determine with any certainty at this time the number or amount of Claims that will ultimately be Allowed. Such differences may materially and adversely affect, among other things, the percentage recoveries to Holders of Allowed Claims under the Plan.

 

  6.

Releases, Injunctions, and Exculpation Provisions May Not Be Approved

Article VIII of the Plan provides for certain releases, injunctions, and exculpations, including a release of liens and third-party releases that may otherwise be asserted against the Debtors, Reorganized Debtors, or Released Parties, as applicable. The releases, injunctions, and exculpations provided in the Plan are subject to objection by parties in interest and may not be approved. If the releases are not approved, certain Released Parties may withdraw their support for the Plan.

 

  7.

The Debtors May Not Be Able to Secure Confirmation of the Plan

Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation of a chapter 11 plan, and requires, among other things, findings by the Court that: (a) such plan “does not unfairly discriminate” and is “fair and equitable” with respect to any non-accepting classes; (b) confirmation of such plan is not likely to be followed by a liquidation or a need for further financial reorganization unless such liquidation or reorganization is contemplated by the plan; and (c) the value of distributions to nonaccepting holders of claims and equity interests within a particular class under such plan will not be less than the value of distributions such holders would receive if the debtors were liquidated under chapter 7 of the Bankruptcy Code.

 

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There can be no assurance that the requisite acceptances to confirm the Plan will be received. Even if the requisite acceptances are received, there can be no assurance that the Court will confirm the Plan. A non-accepting Holder of an Allowed Claim might challenge either the adequacy of this Disclosure Statement or whether the balloting procedures and voting results satisfy the requirements of the Bankruptcy Code or Bankruptcy Rules. Even if the Court determines that this Disclosure Statement, the balloting procedures, and voting results are appropriate, the Court could still decline to confirm the Plan if it finds that any of the statutory requirements for Confirmation are not met. If a chapter 11 plan of reorganization is not confirmed by the Court, it is unclear whether the Debtors will be able to reorganize their business and what distributions, if any, Holders of Allowed Claims would ultimately receive on account of such Allowed Claims.

Confirmation of the Plan is also subject to certain conditions as described in Article IX of the Plan. If the Plan is not confirmed, it is unclear what distributions, if any, Holders of Allowed Claims will receive on account of such Allowed Claims.

The Debtors, subject to the terms and conditions of the Plan and the Restructuring Support Agreement, reserve the right to modify the terms and conditions of the Plan as necessary for Confirmation. Any such modifications could result in less favorable treatment of any non-accepting Class, as well as any Class junior to such non-accepting Class, than the treatment currently provided in the Plan. Such a less favorable treatment could include a distribution of property with a lesser value than currently provided in the Plan or no distribution whatsoever under the Plan.

 

  8.

Nonconsensual Confirmation

In the event that any impaired class of claims or interests does not accept a chapter 11 plan, a court may nevertheless confirm a plan at the proponents’ request if at least one impaired class (as defined in section 1124 of the Bankruptcy Code) has accepted the plan (with such acceptance being determined without including the vote of any “insider” in such class), and, as to each impaired class that has not accepted the plan, the court determines that the plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired class(es). The Debtors believe that the Plan satisfies these requirements, and the Debtors may request such nonconsensual Confirmation in accordance with section 1129(b) of the Bankruptcy Code. Nevertheless, there can be no assurance that the Court will reach this conclusion. In addition, the pursuit of nonconsensual Confirmation or Consummation of the Plan may result in, among other things, increased expenses relating to professional compensation.

 

  9.

Risk of Termination of the Restructuring Support Agreement

The Restructuring Support Agreement contains certain provisions that give the Consenting Creditors the ability to terminate the Restructuring Support Agreement if various conditions are satisfied, such as the failure to meet of the proposed milestones or the conversion of one or more of the Chapter 11 Cases into a case under chapter 7 of the Bankruptcy Code. If

 

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the Consenting Creditors terminate the Restructuring Support Agreement, all obligations of the Consenting Creditors under the Restructuring Support Agreement will terminate. Termination of the Restructuring Support Agreement could result in protracted Chapter 11 Cases, which could significantly and detrimentally impact the Debtors’ relationships with vendors, employees, and major customers.

 

  10.

Conversion into Cases Under Chapter 7 of the Bankruptcy Code

If no plan of reorganization can be confirmed, or if the Court otherwise finds that it would be in the best interest of Holders of Claims and Interests, one or more of the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code.

The Debtors believe that liquidation under chapter 7 would result in significantly smaller distributions being made to creditors than those provided for in a chapter 11 plan because of (a) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner affecting the business as a going concern, (b) additional administrative expenses involved in the appointment of a chapter 7 trustee, and (c) additional expenses and Claims, some of which would be entitled to priority, that would be generated during the liquidation, including Claims resulting from the rejection of Unexpired Leases and other Executory Contracts in connection with cessation of operations. See the Liquidation Analysis attached hereto as Exhibit C for further discussion of the effects that a chapter 7 liquidation would have on the recoveries of Holders of Claims.

 

  B.

Additional Factors Affecting the Value of the Reorganized Debtors and Recoveries Under the Plan

 

  1.

The Total Amount of Claims Could Be More than Projected

There can be no assurance that the estimated Allowed amount of Claims in certain Classes will not be significantly more than what the Debtors have estimated, which, in turn, could cause the value of distributions to each creditor to be reduced substantially.

The Debtors cannot know with certainty, at this time, the number or amount of General Unsecured Claims that will ultimately be Allowed. Accordingly, because General Unsecured Claims under the Plan will be paid Pro Rata, the Debtors cannot state with certainty what recoveries will be available to Holders of Allowed General Unsecured Claims.

 

  2.

The Debtors Cannot Guarantee Recoveries or the Timing of Such Recoveries

Although the Debtors have disclosed projected recoveries in this Disclosure Statement, it is possible that the amount of Allowed Claims will be materially higher than any range of possible Allowed Claims the Debtors have considered to date, and thus creditor recoveries could be materially reduced or eliminated. In addition, the timing of actual distributions to Holders of Allowed Claims may be affected by many factors that cannot be predicted. Therefore, the Debtors cannot guarantee the timing of any recovery on an Allowed Claim.

 

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  3.

Projections and Other Forward-Looking Statements Are Not Assured, and Actual Results May Vary

Certain of the information contained in this Disclosure Statement is, by nature, forward-looking, and contains (i) estimates and assumptions which might ultimately prove to be incorrect and (ii) projections which may be materially different from actual future experiences. There are uncertainties associated with any projections and estimates, and they should not be considered assurances or guarantees of the amount of funds or the amount of Claims in the various Classes that might be allowed.

 

  4.

Any Valuation of Any Assets to Be Distributed Under the Plan Is Speculative and Could Potentially be Zero

Any valuation of any of the assets to be distributed under the Plan is necessarily speculative, and the value of such assets could potentially be zero. Accordingly, the ultimate value, if any, of these assets could materially affect, among other things, recoveries to the Debtors’ creditors.

 

  5.

The Reorganized Debtors May Not Be Able to Achieve Their Projected Financial Results

The Reorganized Debtors may not be able to achieve their projected financial results. The financial projections set forth in this Disclosure Statement represent the Debtors’ management team’s best estimate of the Debtors’ future financial performance, which is necessarily based on certain assumptions regarding the anticipated future performance of the Reorganized Debtors’ operations, as well as the United States and world economies in general, and the industry segments in which the Debtors operate in particular. While the Debtors believe that the financial projections contained in this Disclosure Statement are reasonable, there can be no assurance that they will be realized. If the Debtors do not achieve their projected financial results, the value of the New Equity may be negatively affected and the Debtors may lack sufficient liquidity to continue operating as planned after the Effective Date. Moreover, the financial condition and results of operations of the Reorganized Debtors from and after the Effective Date may not be comparable to the financial condition or results of operations reflected in the Debtors’ historical financial statements.

 

  6.

The Reorganized Debtors May Not Be Able to Generate Sufficient Cash to Service All of Their Indebtedness

The Reorganized Debtors’ ability to make scheduled payments on, or refinance their debt obligations, depends on the Reorganized Debtors’ financial condition and operating performance, which are subject to prevailing economic, industry, and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond the Reorganized Debtors’ control. The Reorganized Debtors may be unable to maintain a level of cash flow from operating activities sufficient to permit the Reorganized Debtors to pay the principal, premium, if any, and interest on their indebtedness.

 

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  C.

Risks Relating to the Debtors’ Business and Financial Condition

 

  1.

Risks Associated with the Debtors’ Business and Industry

The risks associated with the Debtors’ business and industry are more fully described in the Debtors’ SEC filings, including:

 

   

Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed on March 8, 2018 and amended on March 29, 2018 and April 27, 2018, including portions of the definitive Proxy Statement on Schedule 14A filed on April 7, 2018 incorporated by reference therein;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, filed after the Petition Date;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed on August 7, 2018;

 

   

Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed on May 8, 2018; and

 

   

Current Reports on Form 8-K filed on October 31, 2018, October 19, 2018, October 5, 2018, September 28, 2018, September 17, 2018, August 31, 2018, August 15, 2018, July 31, 2018, July 10, 2018, June 22, 2018, May 18, 2018, May 7, 2018, April 17, 2018, February 20, 2018, and February 1, 2018.

The risks associated with the Debtors’ business and industry described in the Debtors’ filings with the SEC include, but are not limited to, the following:

 

   

domestic and foreign supplies of oil and natural gas;

 

   

price and quantity of foreign imports of oil and natural gas;

 

   

actions of the Organization of Petroleum Exporting Countries and other state-controlled oil companies relating to oil and natural gas price and production controls;

 

   

level of global oil and natural gas exploration and production activity;

 

   

the effects of government regulation and permitting and other legal requirements;

 

   

costs associated with perfecting title for mineral rights;

 

   

competition in the oil and gas industry;

 

   

uncertainties in estimating oil and gas reserves and net present values of those reserves;

 

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uncertainties in exploring for and producing oil and gas, including exploitation, development, drilling and operating risks;

 

   

political conditions in or affecting other oil-producing and natural gas-producing countries, including the current conflicts in the Middle East and conditions in South America and Russia;

 

   

weather conditions;

 

   

technological advances affecting oil and natural gas production and consumption; and

 

   

overall U.S. and global economic conditions.

 

  2.

Liquidity During and After the Chapter 11 Cases

Although the Debtors lowered their capital budget and reduced the scale of their operations significantly, their business remains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, the Debtors have incurred significant professional fees and other costs in connection with preparing for and filing the Chapter 11 Cases and expect to continue to incur significant professional fees and costs throughout the Chapter 11 Cases. The Debtors believe that they will have sufficient cash on hand and cash flow from operations to continue to fund the Reorganized Debtors’ operations after emergence from chapter 11.

The Debtors’ current liquidity may not be sufficient to allow the Debtors to satisfy their obligations related to the Chapter 11 Cases, proceed with the confirmation of a chapter 11 plan of reorganization, and/or emerge from bankruptcy. While the Debtors have an agreement in principal with the Prepetition Term Loan Lenders on the terms of the Exit Facility, the Debtors can provide no assurance that they will be able to secure interim financing or exit financing, if needed, to meet their liquidity needs or, if sufficient funds are available, that any financing offered to the Debtors will be on terms acceptable to the Debtors.

 

  3.

Post-Effective Date Indebtedness

Following the Effective Date, the Reorganized Debtors will have significantly reduced their outstanding secured indebtedness, but will still have $130 million of debt outstanding. The Reorganized Debtors’ ability to service their debt obligations will depend on, among other things, their future operating performance, which depends partly on economic, financial, competitive, and other factors beyond the Reorganized Debtors’ control. The Reorganized Debtors may not be able to generate sufficient cash from operations to meet their debt service obligations as well as fund necessary capital expenditures and investments. In addition, if the Reorganized Debtors need to refinance their debt, obtain additional financing, or sell assets or equity, they may not be able to do so on commercially reasonable terms, if at all.

 

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  D.

Factors Relating to Securities to Be Issued Under the Plan

 

  1.

Market for Securities

New Parent will seek listing of the New Equity on the OTC Pink upon consummation of the Plan. There can be no assurance that any public market for the New Equity will exist in the future or that New Parent will be successful with such listing. After the consummation of the Plan, New Parent may determine to obtain a listing on a national exchange. OTC Pink is a significantly more limited market than the national exchanges, and the quotation of the New Equity on the OTC Pink may result in a less liquid market available for existing and potential shareholders to trade shares of New Equity. This could further depress the trading price of New Equity and could also have a long-term adverse effect on New Parent’s ability to raise capital.

 

  2.

Limited Holders

As set forth above, after the Effective Date, the Combined Prepetition Second Lien Noteholders will receive 100% of the New Equity (subject to dilution as set forth herein). If such Holders of the New Equity were to act as a group, such Holders would be in a position to control the outcome of all actions requiring stockholder approval, including the election of directors, without the approval of other stockholders. This concentration of ownership could also facilitate or hinder a negotiated change of control of New Parent and, consequently, have an impact upon the value of the New Equity.

 

  3.

New Parent Will Be a Holding Company

PetroQuest is a holding company, and as such, it conducts its operations through, most of its assets are owned by, and its operating income and cash flow are generated by, its subsidiaries. Upon the Effective Date, New Parent will remain a holding company. Therefore, New Parent will be dependent upon cash flows from its subsidiaries to meet its debt service and related obligations. Contractual provisions or laws, as well as its subsidiaries’ financial conditions and operating requirements, may limit New Parent’s ability to obtain, from such subsidiaries, the cash required to meet such debt service or related obligations. Applicable tax laws may also subject such payments to further taxation. The inability to obtain cash from its subsidiaries may limit New Parent’s ability to meet its debt service and related obligations even though there may be sufficient resources on a consolidated basis to satisfy such obligations.

 

  4.

The New Second Lien PIK Notes Will Be Subordinated to the Exit Facility

On the Effective Date, the Combined Prepetition Second Lien Noteholders will receive New Second Lien PIK Notes, which are structurally subordinated and rank junior in right of payment to the Exit Facility. In the event of New Parent’s bankruptcy, liquidation, reorganization or other winding up, the assets that secure New Parent’s debt or guarantees will be available to pay obligations on the New Second Lien PIK Notes only after the Exit Facility and any other future senior secured debt has been repaid in full from these assets.

 

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  5.

Potential Dilution

The ownership percentage represented by the New Equity distributed on the Effective Date under the Plan will be subject to dilution from the equity issued in connection with the Management Incentive Plan, as well as the conversion of any options, warrants, convertible securities, exercisable securities, or other securities that may be issued post-emergence.

In the future, similar to all companies, additional equity financings or other share issuances by the Reorganized Debtors could adversely affect the value of the New Equity. The amount and dilutive effect of any of the foregoing could be material.

 

  6.

Equity Interests Subordinated to the Reorganized Debtors’ Indebtedness

In any subsequent liquidation, dissolution, or winding up of the Reorganized Debtors, the New Equity would rank below all debt claims against the Reorganized Debtors. As a result, Holders of New Equity will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution, or winding up of the Reorganized Debtors until after all the Reorganized Debtors’ obligations to their debt holders have been satisfied.

 

  7.

Implied Valuation of New Equity Not Intended to Represent the Trading Value of the New Equity

The valuation of the Reorganized Debtors is not intended to represent the trading value of New Equity in public or private markets and is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities at issuance will depend upon, among other things: (a) prevailing interest rates, (b) conditions in the financial markets, (c) the anticipated initial securities holdings of prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis; and (d) other factors that generally influence the prices of securities. The actual market price of the New Equity is likely to be volatile. Many factors, including factors unrelated to the Reorganized Debtors’ actual operating performance and other factors not possible to predict, could cause the market price of the New Equity to rise and fall. Accordingly, the implied value, stated herein and in the Plan, of the securities to be issued does not necessarily reflect, and should not be construed as reflecting, values that will be attained for the New Equity in the public or private markets.

 

  E.

Additional Factors

 

  1.

The Debtors Could Withdraw the Plan

Subject to the terms of the Restructuring Support Agreement, and without prejudice to the rights of any party thereto, the Plan may be revoked or withdrawn prior to the Confirmation Date by the Debtors.

 

  2.

The Debtors Have No Duty to Update

The statements contained in this Disclosure Statement are made by the Debtors as of the date hereof, unless otherwise specified herein, and the delivery of this Disclosure Statement after that date does not imply that there has been no change in the information set forth herein since that date. The Debtors have no duty to update this Disclosure Statement unless otherwise ordered to do so by the Court.

 

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  3.

No Representations Outside this Disclosure Statement Are Authorized

No representations concerning or related to the Debtors, the Chapter 11 Cases, or the Plan are authorized by the Court or the Bankruptcy Code, other than as set forth in this Disclosure Statement. Any representations or inducements made to secure your acceptance or rejection of the Plan that are other than those contained in, or included with, this Disclosure Statement should not be relied upon in making the decision to accept or reject the Plan.

 

  4.

No Legal or Tax Advice Is Provided by this Disclosure Statement

The contents of this Disclosure Statement should not be construed as legal, business, or tax advice. Each Holder of Claims or Interests should consult their own legal counsel and accountant as to legal, tax, and other matters concerning their Claim or Interest.

This Disclosure Statement is not legal advice to you. This Disclosure Statement may not be relied upon for any purpose other than to determine how to vote on the Plan or object to confirmation of the Plan.

 

  5.

No Admission Made

Nothing contained herein or in the Plan will constitute an admission of, or will be deemed evidence of, the tax or other legal effects of the Plan on the Debtors or Holders of Claims or Interests.

 

  6.

Certain Tax Consequences

For a discussion of certain tax considerations to the Debtors and certain Holders of Claims in connection with the implementation of the Plan, see Section VII of this Disclosure Statement.

 

IX.

VOTING PROCEDURES AND REQUIREMENTS

 

  A.

Parties Entitled to Vote

Under the Bankruptcy Code, only holders of claims or interests in “impaired” classes are entitled to vote on a plan. Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless (i) the plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.

If, however, the holder of an impaired claim or interest will not receive or retain any distribution under the plan on account of such claim or interest, the Bankruptcy Code deems such holder to have rejected the plan, and, accordingly, holders of such claims and interests are not entitled to vote on the plan. If a claim or interest is not impaired by the plan, the Bankruptcy Code deems the holder of such claim or interest to have accepted the plan and, accordingly, holders of such claims and interests are not entitled to vote on the plan.

 

100


A vote may be disregarded if the Court determines, pursuant to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the claims that cast ballots for acceptance or rejection of the plan.

The claims in the following classes (collectively, the “Voting Classes”) are entitled to vote to accept or reject the Plan:

 

   

Class 5 – Prepetition Second Lien Notes Claims;

 

   

Class 6 – Prepetition Second Lien PIK Notes Claims; and

 

   

Class 7 – General Unsecured Claims.

The Holders of Claims in the Voting Classes are Impaired under the Plan and may, in certain circumstances, receive a distribution under the Plan. Accordingly, Holders of Claims in the Voting Classes have the right to vote to accept or reject the Plan.

 

  B.

Voting Procedures

This Disclosure Statement, which is accompanied by a ballot or ballots substantially in the forms attached to the Solicitation Procedures Order (collectively, the “Ballots”, and each, a “Ballot”) to be used for voting on the Plan, is being distributed to the Holders of Claims in those Classes that are entitled to vote to accept or reject the Plan.

The order approving this Disclosure Statement is incorporated herein by reference and should be read in conjunction with this Disclosure Statement and in formulating a decision to vote to accept or reject the Plan.

 

 

THE DISCUSSION OF THE SOLICITATION AND VOTING PROCESS SET FORTH IN THIS DISCLOSURE STATEMENT IS ONLY A SUMMARY.

 

PLEASE REFER TO THE ORDER (I) CONDITIONALLY APPROVING DISCLOSURE STATEMENT, (II) APPROVING PROCEDURES FOR SOLICITATION AND TABULATION OF VOTES TO ACCEPT OR REJECT PLAN, AND (III) GRANTING RELATED RELIEF [DOCKET NO. [___]] (THE “SOLICITATION PROCEDURES ORDER”) FOR A MORE COMPREHENSIVE DESCRIPTION OF THE SOLICITATION AND VOTING PROCESS.

 

101


  C.

Voting Deadline

Ballots will be provided to Holders of Claims in the Voting Classes entitled to vote as of November 13, 2018 (the “Voting Record Date”) for such Holders to vote to accept or reject the Plan. Because all other Classes are Unimpaired and deemed to accept the Plan or Impaired and deemed to reject the Plan, only the Voting Classes are entitled to vote to accept or reject the Plan.

Each Ballot contains detailed voting instructions and sets forth in detail, among other things, the deadlines, procedures, and instructions for voting to accept or reject the Plan, the Voting Record Date, the applicable standards for tabulating Ballots, and instructions for, and the effect of, opting out of the releases set forth in the Plan.

The Debtors have engaged Epiq Corporate Restructuring, LLC as their claims, noticing, solicitation, and balloting agent (the “Voting Agent”) to assist in, among other things, the transmission of voting materials and in the tabulation of votes with respect to the Plan.

IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE OF 5:00 P.M., PREVAILING CENTRAL TIME, ON DECEMBER 17, 2018, UNLESS EXTENDED BY THE DEBTORS AND THE REQUISITE CREDITORS. IF YOU HOLD YOUR CLAIMS THROUGH A NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR NOMINEE FOR RETURNING YOUR VOTING INSTRUCTIONS. UNLESS OTHERWISE INSTRUCTED, PLEASE RETURN YOUR BENEFICIAL HOLDER BALLOT TO YOUR NOMINEE OR YOUR VOTE WILL NOT BE COUNTED.

EACH BALLOT ADVISES THAT CREDITORS WHO (A) VOTE TO ACCEPT THE PLAN OR (B) DO NOT VOTE OR VOTE TO REJECT THE PLAN AND DO NOT ELECT TO OPT OUT OF THE RELEASE PROVISIONS CONTAINED IN ARTICLE VIII OF THE PLAN SHALL BE DEEMED TO HAVE CONSENTED TO THE RELEASE, INJUNCTION, AND EXCULPATION PROVISIONS SET FORTH IN ARTICLE VIII OF THE PLAN AND UNCONDITIONALLY, IRREVOCABLY, AND FOREVER RELEASED AND DISCHARGED THE RELEASED PARTIES FROM ANY AND ALL CAUSES OF ACTION. CREDITORS WHO DO NOT GRANT THE RELEASES CONTAINED IN ARTICLE VIII OF THE PLAN WILL NOT RECEIVE THE BENEFIT OF THE RELEASES SET FORTH IN ARTICLE VIII OF THE PLAN.

 

102


Ballots returnable to the Voting Agent must be returned by the Voting Deadline with an original signed copy to:

 

If by email:

  

Via First Class Mail, Overnight Courier or

Hand Delivery:

tabulation@epiqglobal.com and

reference “PetroQuest – Master Ballot”

in the subject line.

  

PetroQuest Energy, Inc.

Master Ballot Processing

c/o Epiq – Solicitation Team

777 Third Avenue, 12th Floor

New York, NY 10017

FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED BY THE VOTING AGENT NO LATER THAN DECEMBER 17, 2018 AT 5:00 P.M. (PREVAILING CENTRAL TIME).

The delivery of an accepting Ballot pursuant to one of the procedures set forth above will constitute the agreement of the creditor with respect to such Ballot to accept (i) all of the terms of, and conditions to, this solicitation; and (ii) the terms of the Plan including the injunction, releases, and exculpations set forth therein. All parties in interest retain their right to object to confirmation of the Plan pursuant to section 1128 of the Bankruptcy Code, subject to any applicable terms of the Restructuring Support Agreement.

 

  D.

Waivers of Defects and Irregularities

Unless otherwise directed by the Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawals of Ballots will be determined by the Voting Agent and/or the Debtors, as applicable, in consultation with the Requisite Creditors, which determination will be final and binding. The Debtors reserve the right, in consultation with the Requisite Creditors, to reject any and all Ballots submitted by any of their respective creditors not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, as applicable, be unlawful. The Debtors further reserve their respective rights, in consultation with the Requisite Creditors, to waive any defects or irregularities or conditions of delivery as to any particular Ballot by any of their creditors. The interpretation (including the Ballot and the respective instructions thereto) by the applicable Debtor, unless otherwise directed by the Court, will be final and binding on all parties. The Debtors reserve the right, with the consent of the Requisite Creditors, to accept any Ballot submitted after the Voting Deadline.

Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured within such time as the Debtors, in consultation with the Requisite Creditors, determine, unless otherwise ordered by the Court. Neither the Debtors nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of Ballots nor will the Debtors or any other person incur any liabilities for failure to provide such notification. Unless otherwise directed by the Court, delivery of such Ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated.

 

103


X.

CONFIRMATION OF THE PLAN

 

  A.

Confirmation Hearing

Pursuant to sections 1128 and 1129 of the Bankruptcy Code, the Court has scheduled a Confirmation Hearing to consider Confirmation of the Plan. The Confirmation Hearing has been scheduled to be heard on December 20, 2018 at 3:00 p.m. (Prevailing Central Time) in Courtroom 400 of the United States Court for the Southern District of Texas, located at 515 Rusk Street, Houston, Texas 77002. The Confirmation Hearing may be adjourned from time-to-time without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.

In addition, the Court has set the deadline to object to the confirmation of the Plan as December 17, 2018 at 5:00 p.m. (Prevailing Central Time) (the “Objection Deadline”). Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to the confirmation of a plan. Objections and responses to the Plan, if any, must be served and filed as to be received on or before the Objection Deadline in the manner described below. For the avoidance of doubt, an objection to the Plan filed with the Court will not be considered a vote to reject the Plan.

 

  B.

Objections to Confirmation

Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to the confirmation of a plan. Any objection to confirmation of the Plan must be in writing, must conform to the Bankruptcy Rules and the Local Rules, must set forth the name of the objector, the nature and amount of Claims held or asserted by the objector against, or Interests held by the objector in, the Debtors’ estates or properties, the basis for the objection and the specific grounds therefore, and must be filed with the Court, with a copy to the chambers of the United States Bankruptcy Judge appointed to the Chapter 11 Cases, together with proof of service thereof, and served upon the following parties, including such other parties as the Court may order:

 

  1)

The Debtors and Counsel to the Debtors:

PetroQuest Energy, Inc.

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508

Attn: Charles T. Goodson

– and –

 

104


Porter Hedges LLP

1000 Main Street

Houston, Texas 77002

Attn: John F. Higgins

         E. James Cowen

 

  2)

The United States Trustee:

Office of the U.S. Trustee for the Southern District of Texas

515 Rusk Street, Suite 3516

Houston, Texas 77002

Attn: Hector Duran

 

  3)

Counsel to the Consenting Creditors:

Akin Gump Strauss Hauer & Feld LLP

One Bryant Park

New York, New York 10036

Attn: Michael S. Stamer

Akin Gump Strauss Hauer & Feld LLP

1700 Pacific Avenue, Suite 4100

Dallas, Texas 75201

Attn: Sarah Link Schultz

UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE COURT.

 

  C.

Requirements for Confirmation of the Plan

The requirements for Confirmation of the Plan pursuant to section 1129(a) of the Bankruptcy Code include, without limitation, whether:

 

  1)

the Plan complies with the applicable provisions of the Bankruptcy Code;

 

  2)

the Debtors have complied with the applicable provisions of the Bankruptcy Code;

 

  3)

the Plan has been proposed in good faith and not by any means forbidden by law;

 

  4)

any payment made or to be made by the Debtors or by a person issuing securities or acquiring property under the Plan, for services or for costs and expenses in or in connection with the Chapter 11 Cases, or in connection with the Plan and incident to the Chapter 11 Cases, has been disclosed to the Court, and any such payment made before Confirmation of the Plan is reasonable, or if such payment is to be fixed after Confirmation of the Plan, such payment is subject to the approval of the Court as reasonable;

 

105


  5)

the Debtors have disclosed the identity and affiliations of any individual proposed to serve, after Confirmation of the Plan, as a director or officer of the Reorganized Debtors, an Affiliate of the Debtors participating in a Plan with the Debtors, or a successor to the Debtors under the Plan, and the appointment to, or continuance in, such office of such individual is consistent with the interests of Holders of Claims and Interests and with public policy, and the Debtors have disclosed the identity of any Insider who will be employed or retained by the Reorganized Debtors, and the nature of any compensation for such Insider;

 

  6)

with respect to each Class of Claims or Interests, each Holder of an Impaired Claim or Interest has either accepted the Plan or will receive or retain under the Plan, on account of such Holder’s Claim or Interest, property of a value, as of the Effective Date of the Plan, that is not less than the amount such Holder would receive or retain if the Debtors were liquidated on the Effective Date of the Plan under chapter 7 of the Bankruptcy Code;

 

  7)

except to the extent the Plan meets the requirements of section 1129(b) of the Bankruptcy Code (as discussed further below), each Class of Claims either has accepted the Plan or is not Impaired under the Plan;

 

  8)

except to the extent that the Holder of a particular Claim has agreed to a different treatment of such Claim, the Plan provides that Administrative Claims and priority Claims, other than Priority Tax Claims, will be paid in full on the Effective Date, and that Priority Tax Claims will receive either payment in full on the Effective Date or deferred cash payments over a period not exceeding five years after the Petition Date, of a value, as of the Effective Date of the Plan, equal to the Allowed amount of such Priority Tax Claims;

 

  9)

at least one Class of Impaired Claims has accepted the Plan, determined without including any acceptance of the Plan by any Insider holding a Claim in such Class;

 

  10)

Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtors or any successor to the Debtors under the Plan; and

 

  11)

all fees payable under section 1930 of title 28, as determined by the Court at the Confirmation Hearing, have been paid or the Plan provides for the payment of all such fees on the Effective Date of the Plan.

 

106


At the Confirmation Hearing, the Court will determine whether the Plan satisfies all of the requirements of section 1129 of the Bankruptcy Code. The Debtors believe that: (1) the Plan satisfies, or will satisfy, all of the necessary statutory requirements of the Bankruptcy Code; (2) the Debtors have complied, or will have complied, with all of the necessary requirements of the Bankruptcy Code; and (3) the Plan has been proposed in good faith.

 

  D.

Best Interests Test/Liquidation Analysis

Section 1129(a)(7) of the Bankruptcy Code requires that a court find, as a condition to confirmation, that a chapter 11 plan provides, with respect to each impaired class, that each holder of a claim or an equity interest in such impaired class either (1) has accepted the plan or (2) will receive or retain under the plan property of a value that is not less than the amount that the non-accepting holder would receive or retain if the debtors liquidated under chapter 7 of the Bankruptcy Code. This requirement is referred to as the “best interests test.”

This test requires a court to determine what the holders of allowed claims and allowed equity interests in each impaired class would receive from a liquidation of the debtor’s assets and properties in the context of a liquidation under chapter 7 of the Bankruptcy Code. To determine if a plan is in the best interests of each impaired class, the value of the distributions from the proceeds of the liquidation of the debtor’s assets and properties (after subtracting the amounts attributable to the aforesaid claims) is then compared with the value offered to such classes of claims and equity interests under the plan.

Attached hereto as Exhibit C and incorporated herein by reference are liquidation analyses (collectively, the “Liquidation Analysis”) prepared by the Debtors with the assistance of the Debtors’ financial advisor. The Liquidation Analysis provides the Debtors’ analysis with respect to separate liquidations of each of PetroQuest and its Affiliates. As reflected in the Liquidation Analysis, the Debtors believe that liquidation of the Debtors’ businesses under chapter 7 of the Bankruptcy Code would substantially reduce the value to be realized by Holders of Claims as compared to distributions contemplated under the Plan. Consequently, the Debtors and their management believe that Confirmation of the Plan will provide a substantially greater return to Holders of Claims than such Holders would receive in a liquidation under chapter 7 of the Bankruptcy Code.

The Debtors believe that any liquidation analysis is speculative, as it is necessarily premised on assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which would be beyond the control of the Debtors. The Liquidation Analysis provided in Exhibit C is solely for the purpose of disclosing to Holders of Claims and Interests the effects of a hypothetical chapter 7 liquidation of the Debtors, subject to the assumptions set forth therein. There can be no assurance as to values that would actually be realized in a chapter 7 liquidation nor can there be any assurance that a Court will accept the Debtors’ conclusions or concur with such assumptions in making its determinations under section 1129(a)(7) of the Bankruptcy Code.

 

  E.

Feasibility

Section 1129(a)(11) of the Bankruptcy Code requires that a debtor demonstrate that confirmation of a plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor (unless such liquidation or reorganization is proposed in such plan of reorganization).

 

107


For purposes of determining whether the Plan meets this requirement, the Debtors, with the assistance of Seaport Global Securities LLC, have analyzed their ability to meet their obligations under the Plan. As part of this analysis, the Debtors have prepared a projected consolidated income statement, which includes the consolidated, projected, unaudited, financial statement information of the Reorganized Debtors (collectively, the “Financial Projections”) for the period beginning three years from the Effective Date. The Financial Projections are based on an assumed Effective Date of December 31, 2018 and certain assumptions regarding the Debtors’ ability to obtain Exit Financing. To the extent that the Effective Date occurs after December 31, 2018, recoveries on account of Allowed Claims could be impacted. Creditors and other interested parties should review Article VIII of this Disclosure Statement for a discussion of certain factors that may affect the future financial performance of the Reorganized Debtors.

The Financial Projections are attached hereto as Exhibit D and incorporated herein by reference. Based upon the Financial Projections, the Debtors believe they will be a viable operation following the Chapter 11 Cases and that Confirmation of the Plan is not likely to be followed by liquidation or the need for further reorganization.

 

  F.

Acceptance by Impaired Classes

The Bankruptcy Code requires, as a condition to confirmation, except as described in the following section, that each class of claims or equity interests impaired under a plan, accept the plan. A class that is not “impaired” under a plan is deemed to have accepted the plan and, therefore, solicitation of acceptances with respect to such a class is not required.8

Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of impaired claims as acceptance by holders of at least two-thirds in a dollar amount and more than one-half in a number of allowed claims in that class, counting only those claims that have actually voted to accept or to reject the plan. Thus, a class of claims will have voted to accept the plan only if two-thirds in amount and a majority in number actually cast their ballots in favor of acceptance.

 

  G.

Additional Requirements for Nonconsensual Confirmation

Section 1129(b) of the Bankruptcy Code allows a court to confirm a plan even if all impaired classes have not accepted it, provided that the plan has been accepted by at least one impaired class, without consideration of any votes in such class cast by insiders. Pursuant to section 1129(b) of the Bankruptcy Code, notwithstanding an impaired class’s rejection or deemed rejection of the plan, the plan will be confirmed, at the plan proponent’s request, in a procedure commonly known as a “cramdown” so long as the plan does not “discriminate unfairly” and is “fair and equitable” with respect to each class of claims or equity interests that is impaired under, and has not accepted, the plan.

 

8 

A class of claims is “impaired” within the meaning of section 1124 of the Bankruptcy Code unless the plan (a) leaves unaltered the legal, equitable and contractual rights to which the claim or equity interest entitles the holder of such claim or equity interest or (b) cures any default, reinstates the original terms of such obligation, compensates the holder for certain damages or losses, as applicable, and does not otherwise alter the legal, equitable, or contractual rights to which such claim or equity interest entitles the holder of such claim or equity interest.

 

108


As described herein, certain Classes are deemed to reject the Plan under section 1126(g) of the Bankruptcy Code. Accordingly, the Debtors will request Confirmation of the Plan, as it may be modified from time to time, under section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to alter, amend, modify, revoke, or withdraw the Plan or any Plan Supplement document, including the right to amend or modify the Plan or any Plan Supplement document to satisfy the requirements of section 1129(b) of the Bankruptcy Code, subject to the terms of the Restructuring Support Agreement.

 

  1.

No Unfair Discrimination

The “unfair discrimination” test applies to classes of claims or interests that are of equal priority and are receiving different treatment under a plan. This test does not require that the treatment be the same or equivalent, but that such treatment is “fair.” In general, courts consider whether a plan discriminates unfairly in its treatment of classes of claims of equal rank (e.g., classes of the same legal character). Courts will take into account a number of factors in determining whether a plan discriminates unfairly.

 

  2.

Fair and Equitable Test

The “fair and equitable” test applies to classes of different priority and status (e.g., secured versus unsecured) and includes the general requirement that no class of claims receive more than 100% of the allowed amount of the claims in such class. As to dissenting classes, the test sets different standards depending on the type of claims in such class. The Debtors believe that the Plan satisfies the “fair and equitable” test as further explained below.

The Debtors submit that the Plan is structured so that it does not “discriminate unfairly” and satisfies the “fair and equitable” requirement of section 1129(b) of the Bankruptcy Code. With respect to the unfair discrimination requirement, all Classes under the Plan are provided treatment that is substantially equivalent to the treatment that is provided to other Classes that have equal rank. With respect to the fair and equitable requirement, no Class under the Plan will receive more than 100% of the amount of Allowed Claims in that Class. The Debtors believe that the Plan and the treatment of all Classes of Claims and Interests under the Plan satisfy the foregoing requirements for nonconsensual Confirmation of the Plan.

 

  H.

Valuation of the Debtors

In conjunction with formulating the Plan and satisfying its obligations under section 1129 of the Bankruptcy Code, the Debtors determined that it was necessary to estimate the post-Confirmation going concern value of the Debtors. The valuation analyses are set forth in Exhibit E attached hereto (together, the “Valuation Analysis”) and incorporated herein by reference.

 

109


XI.

ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

The Debtors have evaluated several alternatives to the Plan. After studying these alternatives, the Debtors have concluded that the Plan is the best alternative and will maximize recoveries to parties in interest, assuming Confirmation and Consummation of the Plan. If Confirmation and Consummation of the Plan do not occur, the alternatives to the Plan are (i) the preparation and presentation of an alternative plan of reorganization, (ii) a sale of some or all of the Debtors’ assets pursuant to section 363 of the Bankruptcy Code, or (iii) a liquidation of the Debtors’ assets under chapter 7 of the Bankruptcy Code.

 

  A.

Alternative Plan of Reorganization

If the Plan is not confirmed, the Debtors (or if the Debtors’ exclusive period in which to file a plan of reorganization has expired, any other party in interest) could attempt to formulate a different plan. Such a plan might involve either a reorganization and continuation of the Debtors’ business or an orderly liquidation of their assets. The Debtors, however, submit that the Plan, as described herein, enables their creditors to realize the most value under the circumstances.

 

  B.

Sale Under Section 363 of the Bankruptcy Code

If the Plan is not confirmed, the Debtors could seek from the Court, after notice and a hearing, authorization to sell their assets under section 363 of the Bankruptcy Code. Holders of Claims in Class 4, and in certain instances Classes 5 and 6, would be entitled to credit bid on any property to which their security interest is attached, and to offset their Claims against the purchase price of the property. In addition, the security interests in the Debtors’ assets held by Holders of Claims in Classes 4, 5 and 6 would attach to the proceeds of any sale of the Debtors’ assets. After these Claims are satisfied, the remaining funds, if any, could be used to pay Holders of Claims and Interests in Classes 7 through 11. Upon analysis and consideration of this alternative, the Debtors do not believe a sale of their assets under section 363 of the Bankruptcy Code would yield a higher recovery for Holders of Claims than the Plan.

 

  C.

Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law

If no plan can be confirmed, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code in which a trustee would be elected or appointed to liquidate the assets of the Debtors for distribution to their creditors in accordance with the priorities established by the Bankruptcy Code. The effect a chapter 7 liquidation would have on the recovery of Holders of Allowed Claims and Interests is set forth in the Liquidation Analysis attached hereto as Exhibit C.

The Debtors believe that liquidation under chapter 7 would result in smaller distributions to creditors than those provided for in the Plan because of the delay resulting from the conversion of the Chapter 11 Cases and the additional administrative expenses associated with the appointment of a trustee and the trustee’s retention of professionals who would be required to become familiar with the many legal and factual issues in the Debtors’ Chapter 11 Cases.

 

110


XII.

CONCLUSION AND RECOMMENDATION

In the opinion of the Debtors, the Plan is preferable to all other available alternatives and provides for a larger distribution to the Debtors’ creditors than would otherwise result in any other scenario. Accordingly, the Debtors recommend that Holders of Claims entitled to vote on the Plan vote to accept the Plan and support Confirmation of the Plan.

Dated:  November 14, 2018

   Houston, Texas

 

PETROQUEST ENERGY, INC.

on behalf of itself and all other Debtors

/s/ Charles T. Goodson

Charles T. Goodson

President and Chief Executive Officer

400 E. Kaliste Saloom Road, Suite 6000

Lafayette, Louisiana 70508

 

111


Exhibit A

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

 

 

In re:

 

PETROQUEST ENERGY, INC., et al.,

 

Debtors.1

  

§

§

§

§

§

§

§

 

  

 

Chapter 11

 

Case No. 18-36322 (MI)

 

(Jointly Administered)

  

DEBTORS’ CHAPTER 11 PLAN OF REORGANIZATION

 

 

 

PORTER HEDGES LLP

 

John F. Higgins (TX 09597500)

Joshua W. Wolfshohl (TX 24038592)

M. Shane Johnson (TX 24083263)

1000 Main Street, 36th Floor

Houston, Texas 77002

 

PROPOSED ATTORNEYS FOR THE DEBTORS

 

Dated: November 6, 2018

 

 

1 

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are as follows: PetroQuest Energy, Inc. (0714), PetroQuest Energy, L.L.C. (2439), TDC Energy LLC (8877), PetroQuest Oil & Gas, L.L.C. (1170), PQ Holdings LLC (7576), Pittrans Inc. (1747), and Sea Harvester Energy Development, L.L.C. (5903). The address of the Debtors’ headquarters is: 400 E. Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana 70508.


TABLE OF CONTENTS

 

ARTICLE I. DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF TIME, AND GOVERNING LAW

     1  

A.

   Defined Terms      1  

B.

   Rules of Interpretation      17  

C.

   Computation of Time      18  

D.

   Governing Law      18  

E.

   Reference to Monetary Figures      18  

F.

   Reference to the Debtors or the Reorganized Debtors      19  

G.

   Controlling Document      19  

ARTICLE II. ADMINISTRATIVE CLAIMS, PROFESSIONAL FEE CLAIMS, AND PRIORITY CLAIMS

     19  

A.

   Administrative Claims      19  

B.

   Professional Compensation      20  

C.

   Priority Tax Claims      21  

D.

   Statutory Fees      21  

ARTICLE III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

     21  

A.

   Summary of Classification      21  

B.

   Treatment of Claims and Interests      22  

C.

   Special Provision Governing Unimpaired Claims      27  

D.

   Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code      27  

E.

   Elimination of Vacant Classes      27  

F.

   Voting Classes; Deemed Acceptance by Non-Voting Classes      27  

G.

   Subordinated Claims      27  

ARTICLE IV. MEANS FOR IMPLEMENTATION OF THE PLAN

     28  

A.

   Restructuring Transactions      28  

B.

   Sources of Consideration for Plan Distributions      28  

C.

   Distributions to Holders of General Unsecured Claims      30  

D.

   Corporate Existence      30  

E.

   Vesting of Assets in the Reorganized Debtors      31  

F.

   Cancellation of Existing Securities      31  

G.

   Corporate Action      32  

H.

   New Organizational Documents      33  

I.

   Directors and Officers of the Reorganized Debtors      34  

J.

   Effectuating Documents; Further Transactions      34  

K.

   Exemption from Certain Taxes and Fees      34  

L.

   Preservation of Causes of Action      34  

M.

   Director and Officer Liability Insurance      35  

N.

   Management Incentive Plan      35  


O.

   Employee and Retiree Benefits      36  

P.

   Fees and Expenses of the Consenting Creditors      36  

Q.

   Preservation of the Charging Lien of the Indenture Trustee      37  

R.

   Preservation of Royalty and Working Interests      37  

S.

   GUC Administrator      37  

ARTICLE V. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

     38  

A.

   Assumption and Rejection of Executory Contracts and Unexpired Leases      38  

B.

   Claims Based on Rejection of Executory Contracts or Unexpired Leases      39  

C.

   Cure of Defaults for Assumed Executory Contracts and Unexpired Leases      39  

D.

   Insurance Policies      40  

E.

   Modifications, Amendments, Supplements, Restatements, or Other Agreements      40  

F.

   Reservation of Rights      40  

G.

   Nonoccurrence of Effective Date      41  

H.

   Contracts and Leases Entered into After the Petition Date      41  

ARTICLE VI. PROVISIONS GOVERNING DISTRIBUTIONS

     41  

A.

   Timing and Calculation of Amounts to Be Distributed      41  

B.

   Delivery of Distributions and Undeliverable or Unclaimed Distributions      41  

C.

   Securities Registration Exemption      44  

D.

   Compliance with Tax Requirements      45  

E.

   Allocations      45  

F.

   No Postpetition Interest on Claims      45  

G.

   Setoffs and Recoupment      45  

H.

   Claims Paid or Payable by Third Parties      46  

ARTICLE VII. PROCEDURES FOR RESOLVING CONTINGENT, UNLIQUIDATED, AND DISPUTED CLAIMS

     46  

A.

   Allowance of Claims      46  

B.

   Claims and Interests Administration Responsibilities      47  

C.

   Estimation of Claims      47  

D.

   Adjustment to Claims Without Objection      48  

E.

   Disputed Claims Reserve      48  

F.

   Time to File Objections to Claims      48  

G.

   Disallowance of Claims      49  

H.

   Amendments to Claims      49  

I.

   No Distributions Pending Allowance      49  

J.

   Distributions After Allowance      49  

K.

   Single Satisfaction of Claims      50  

ARTICLE VIII. SETTLEMENT, RELEASE, INJUNCTION, AND RELATED PROVISIONS

     50  

A.

   Compromise and Settlement of Claims, Interests, and Controversies      50  

B.

   Discharge of Claims and Termination of Interests      51  

 

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C.

   Term of Injunctions or Stays      51  

D.

   Release of Liens      51  

E.

   Releases by the Debtors      52  

F.

   Releases by Holders of Claims and Interests      53  

G.

   Exculpation      54  

H.

   Injunction      55  

I.

   Protection Against Discriminatory Treatment      55  

J.

   Recoupment      56  

K.

   Subordination Rights      56  

L.

   Reimbursement or Contribution      56  

ARTICLE IX. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN

     56  

A.

   Conditions Precedent to the Confirmation Date      56  

B.

   Conditions Precedent to the Effective Date      57  

C.

   Waiver of Conditions      58  

D.

   Substantial Consummation      58  

E.

   Effect of Non-Occurrence of Conditions to the Confirmation Date or the Effective Date      58  

ARTICLE X. MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN

     59  

A.

   Modification and Amendments      59  

B.

   Effect of Confirmation on Modifications      59  

C.

   Revocation or Withdrawal of the Plan      59  

ARTICLE XI. RETENTION OF JURISDICTION

     60  

ARTICLE XII. MISCELLANEOUS PROVISIONS

     62  

A.

   Immediate Binding Effect      62  

B.

   Additional Documents      62  

C.

   Dissolution of the Creditors’ Committee      62  

D.

   Reservation of Rights      62  

E.

   Successors and Assigns      63  

F.

   Service of Documents      63  

G.

   Term of Injunctions or Stays      64  

H.

   Entire Agreement      64  

I.

   Exhibits      64  

J.

   Nonseverability of Plan Provisions      64  

K.

   Votes Solicited in Good Faith      65  

L.

   Closing of Chapter 11 Cases      65  

M.

   Waiver or Estoppel      65  

 

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INTRODUCTION

PetroQuest Energy, Inc. and its Debtor affiliates, as Debtors and debtors in possession, propose this plan of reorganization for the resolution of outstanding Claims against, and Interests in, the Debtors. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in Article I.A hereof. Holders of Claims and Interests should refer to the Disclosure Statement for a discussion of the Debtors’ history, businesses, assets, results of operations, historical financial information, and projections of future operations, as well as a summary and description of the Plan. The Debtors are the proponents of the Plan within the meaning of section 1129 of the Bankruptcy Code.

 

ALL HOLDERS OF CLAIMS AND INTERESTS, TO THE EXTENT APPLICABLE,

ARE ENCOURAGED TO READ THE PLAN AND THE DISCLOSURE STATEMENT

IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.

ARTICLE I.

DEFINED TERMS, RULES OF INTERPRETATION,

COMPUTATION OF TIME, AND GOVERNING LAW

 

A.

Defined Terms

As used in the Plan, capitalized terms have the meanings set forth below.

1. “Administrative Claim” means a Claim for costs and expenses of administration of the Debtors’ Estates pursuant to sections 503(b), 507(a)(2), or 507(b) of the Bankruptcy Code, including: (a) the actual and necessary costs and expenses incurred after the Petition Date and through the Effective Date of preserving the Estates and operating the businesses of the Debtors; (b) Professional Fee Claims; and (c) all Allowed requests for compensation or expense reimbursement for making a substantial contribution in the Chapter 11 Cases pursuant to sections 503(b)(3), (4), and (5) of the Bankruptcy Code.

2. “Administrative Claims Bar Date” means the deadline for Filing requests for payment of Administrative Claims, which: (a) with respect to Administrative Claims other than Professional Fee Claims, shall be 30 days after the Effective Date; and (b) with respect to Professional Fee Claims, shall be 45 days after the Effective Date.

3. “Affiliate” shall have the meaning set forth in section 101(2) of the Bankruptcy Code.

4. “Allowed” means with respect to any Claim against a Debtor, except as otherwise provided herein: (a) a Claim that is evidenced by a Proof of Claim or request for payment of an Administrative Claim Filed by the Claims Bar Date, Administrative Claims Bar Date, Governmental Bar Date, or deadline for Filing Proofs of Claim based on the Debtors’ rejection of the Executory Contracts or Unexpired Leases, as applicable (or for which Claim under the Plan, under the Bankruptcy Code, or pursuant to a Final Order a Proof of Claim is not or shall not be required to be Filed); (b) a Claim that is listed in the Schedules as not contingent, not unliquidated, and not disputed, and for which no Proof of Claim, as applicable, has been timely Filed; or (c) a


Claim Allowed pursuant to the Plan or a Final Order of the Court; provided that with respect to a Claim described in clauses (a) and (b) above, such Claim shall be considered Allowed only if and to the extent that with respect to such Claim no objection to the allowance thereof has been interposed and the applicable period of time fixed by the Plan to File an objection has passed, or such an objection is so interposed and the Claim, as applicable, shall have been Allowed by a Final Order. Any Claim that has been or is hereafter listed in the Schedules as contingent, unliquidated, or disputed, and for which no Proof of Claim is or has been timely Filed, is not considered Allowed and shall be expunged without further action by the Debtors and without further notice to any party or action, approval, or order of the Court. Notwithstanding anything to the contrary herein, no Claim of any Entity subject to section 502(d) of the Bankruptcy Code shall be deemed Allowed unless and until such Entity pays in full the amount that it owes such Debtor or Reorganized Debtor, as applicable. For the avoidance of doubt, a Proof of Claim or request for payment of an Administrative Claim Filed after the Claims Bar Date, Administrative Claims Bar Date, Governmental Bar Date, or deadline for Filing Proofs of Claim based on the Debtors’ rejection of the Executory Contracts or Unexpired Leases, as applicable, shall not be Allowed for any purposes whatsoever absent entry of a Final Order allowing such late-filed Claim. “Allow” and “Allowing” shall have correlative meanings.

5. “Avoidance Actions” means any and all actual or potential Claims and Causes of Action to avoid a transfer of property or an obligation incurred by the Debtors arising under chapter 5 of the Bankruptcy Code, including sections 544, 545, 547 through 553, and 724(a) of the Bankruptcy Code or under similar or related state or federal statutes and common law, including fraudulent transfer laws.

6. “Bankruptcy Code” means title 11 of the United States Code, as amended and in effect during the pendency of the Chapter 11 Cases.

7. “Bankruptcy Rules” means the Federal Rules of Bankruptcy Procedure, as applicable to the Chapter 11 Cases, promulgated under section 2075 of the Judicial Code and the general, local, and chambers rules of the Court other than the Local Rules.

8. “Bar Date Order” means an order entered by the Court setting the Claims Bar Date and the Governmental Bar Date.

9. “Business Day” means any day, other than a Saturday, Sunday, or “legal holiday” (as defined in Bankruptcy Rule 9006(a)).

10. “Cash” means the legal tender of the United States of America or the equivalent thereof.

11. “Cash Collateral” shall have the meaning set forth in section 363(a) of the Bankruptcy Code.

12. “Cash Collateral Order” means the Final Order entered by the Court authorizing the Debtors to, on a final basis, use Cash Collateral.

 

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13. “Causes of Action” means any action, claim, cause of action, controversy, demand, right, action, Lien, indemnity, guaranty, suit, obligation, liability, damage, judgment, account, defense, offset, power, privilege, license, and franchise of any kind or character whatsoever, whether known, unknown, contingent or non-contingent, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, disputed or undisputed, secured or unsecured, assertable directly or derivatively, whether arising before, on, or after the Petition Date, in contract or in tort, in law, or in equity or pursuant to any other theory of law. For the avoidance of doubt, a “Cause of Action” includes: (a) any right of setoff, counterclaim, or recoupment and any claim for breach of contract or for breach of duties imposed by law or in equity; (b) the right to object to Claims or Interests; (c) any Claim pursuant to section 362 or chapter 5 of the Bankruptcy Code; (d) any claim or defense including fraud, mistake, duress, and usury; and any other defenses set forth in section 558 of the Bankruptcy Code; and (e) any state or foreign law fraudulent transfer or similar claim.

14. “Chapter 11 Cases” means (a) when used with reference to a particular Debtor, the case pending for that Debtor under chapter 11 of the Bankruptcy Code in the Court and (b) when used with reference to all of the Debtors, the procedurally consolidated and jointly administered chapter 11 cases pending for the Debtors in the Court.

15. “Charging Lien” means any Lien or other right to payment arising prior to the Effective Date pursuant to which the Indenture Trustee is entitled, under the terms of its Indenture or any related or ancillary document, instrument, agreement or principle of law, to receive payment of its fees, costs and expenses prior to payment of any distributions under the Plan owing to the Holders of the Notes issued under such Indenture, which Lien or other priority in payment shall be deemed a separate right and Claim of the Indenture Trustee arising under the Plan.

16. “Claim” shall have the meaning set forth in section 101(5) of the Bankruptcy Code.

17. “Claims Bar Date” means the date, established pursuant to the Bar Date Order, that Claims other than Administrative Claims and Claims held by Governmental Units, must be Filed.

18. “Claims Objection Deadline” means the deadline for objecting to a Claim against a Debtor, which shall be on the date that is the later of (a) 180 days after the Effective Date and (b) such other period of limitation as may be fixed by the Debtors or the Reorganized Debtors, as applicable, or by an order of the Court for objecting to such Claims.

19. “Claims Register” means the official register of Claims against and Interests in the Debtors maintained by the Notice and Claims Agent.

20. “Class” means a category of Claims against or Interests in the Debtors as set forth in Article III hereof pursuant to section 1122(a) of the Bankruptcy Code.

21. “Combined Consenting Second Lien Noteholders” means the Consenting Second Lien Noteholders and the Consenting Second Lien PIK Noteholders.

22. “Combined Prepetition Second Lien Noteholders” means the Prepetition Second Lien Noteholders and the Prepetition Second Lien PIK Noteholders.

23. “Commitment Parties” means the MacKay Funds and the Corre Funds.

 

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24. “Confirmation” means the entry of the Confirmation Order on the docket of the Chapter 11 Cases.

25. “Confirmation Date” means the date upon which the Court enters the Confirmation Order on the docket of the Chapter 11 Cases, within the meaning of Bankruptcy Rules 5003 and 9021.

26. “Confirmation Hearing” means the hearing or hearings held by the Court to consider Confirmation of the Plan pursuant to section 1129 of the Bankruptcy Code.

27. “Confirmation Order” means the order of the Court confirming the Plan pursuant to section 1129 of the Bankruptcy Code.

28. “Consenting Creditors” means the Consenting Term Loan Lenders and the Combined Consenting Second Lien Noteholders.

29. “Consenting Creditors Fee Escrow Account” means an interest-bearing account in an amount equal to the Consenting Creditors Fee Reserve Amount and funded by the Debtors on the Effective Date, pursuant to Article IV.P.

30. “Consenting Creditors Fee Reserve Amount” means the total amount of Consenting Creditors Fees reasonably estimated in accordance with Article IV.P.

31. “Consenting Creditors Fees” means, to the extent not already authorized pursuant to the Cash Collateral Order or other order of the Court, and except with respect to the Debtors and the Creditors’ Committee, the reasonable and documented fees and expenses incurred on or after the Petition Date of the Consenting Creditors Professionals.

32. “Consenting Creditors Professionals” means (i) Akin Gump Strauss Hauer & Feld LLP, as counsel to the Consenting Creditors, (ii) Houlihan Lokey, Inc., as financial advisor to the Consenting Creditors, and (iii) Reed Smith LLP, as counsel to the Indenture Trustee.

33. “Consenting Second Lien Noteholders” means the Prepetition Second Lien Noteholders that are party to the Restructuring Support Agreement.

34. “Consenting Second Lien PIK Noteholders” means the Prepetition Second Lien PIK Noteholders that are party to the Restructuring Support Agreement.

35. “Consenting Term Loan Lenders” means the Prepetition Term Loan Lenders that are party to the Restructuring Support Agreement.

36. “Consummation” means the occurrence of the Effective Date.

37. “Corre Funds” means Corre Opportunities Qualified Master Fund, LP, Corre Opportunities II Master Fund, LP, Corre Horizon Interim Fund LLC, any funds related to the foregoing that are signatories to the Restructuring Support Agreement, and any of such funds’ successors or assigns.

 

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38. “Court” means the United States Bankruptcy Court for the Southern District of Texas having jurisdiction over the Chapter 11 Cases, and, to the extent of the withdrawal of any reference under 28 U.S.C. § 157 and/or the General Order of the District Court pursuant to 28 U.S.C. § 151, the United States District Court for the Southern District of Texas.

39. “Creditors’ Committee” means the official committee of unsecured creditors appointed in the Chapter 11 Cases pursuant to section 1102(a) of the Bankruptcy Code, if any such committee is appointed.

40. “Cure Claim” means a monetary Claim based upon a Debtor’s defaults under an Executory Contract or Unexpired Lease at the time such contract or lease is assumed by the Debtor pursuant to section 365 of the Bankruptcy Code.

41. “Cure Notice” means a notice of a proposed amount to be paid on account of a Cure Claim in connection with an Executory Contract or Unexpired Lease to be assumed or assumed and assigned under the Plan pursuant to section 365 of the Bankruptcy Code, which notice shall include (a) procedures for objecting to proposed assumptions or assumptions and assignments of Executory Contracts and Unexpired Leases, (b) Cure Claims to be paid in connection therewith, and (c) procedures for resolution by the Court of any related disputes.

42. “D&O Liability Insurance Policies” means all unexpired directors’, managers’, and officers’ liability insurance policies (including any “tail policy”) of any of the Debtors with respect to directors, managers, officers, and employees of the Debtors.

43. “Debt Documents” means, as the context may require, the “Loan Documents as defined in the Prepetition Term Loan Agreement, and the “Note Documents” as defined in each of the Prepetition Second Lien Indenture and the Prepetition Second Lien PIK Indenture.

44. “Debtors” means, collectively, the following: PetroQuest, PQE, TDC, PetroQuest Oil & Gas, L.L.C., PQ Holdings LLC, Pittrans Inc., and Sea Harvester Energy Development, L.L.C.

45. “Definitive Documentation” means the definitive documents and agreements governing the Restructuring Transactions and shall include, without limitation: (a) the Restructuring Support Agreement and all exhibits thereto; (b) the Plan (including the Plan Supplement and all exhibits thereto, including, without limitation, the New Organizational Documents and the Registration Rights Agreement) and the Confirmation Order; (c) the Disclosure Statement; (d) the motion to approve the Disclosure Statement, the order approving the Disclosure Statement, and the solicitation materials with respect to the Plan; (e) the motion seeking assumption of the Debtors’ obligation under the Restructuring Support Agreement to pay the fees, costs, and documented out of pocket expenses of the Consenting Creditors Professionals; (f) the New Second Lien PIK Notes Documents, (g) the Exit Facility and the Exit Facility Documents; (h) the motion seeking authority for the Debtors to use the cash collateral of the Prepetition Term Loan Lenders and the Combined Prepetition Second Lien Noteholders and any interim and final orders related thereto; (i) the first day motions, second day motions, and orders of the Court approving any first day motions or second day motions; (j) a 3-year business plan for the Debtors; and (k) any other documents, instruments, schedules or exhibits described in, related to, contemplated in, or necessary to implement, each of the foregoing. Any document that is included within this definition of “Definitive Documentation,” including any amendment, supplement, or modification thereof, shall be in form and substance acceptable to the Debtors and the Requisite Creditors.

 

5


46. “Disallowed” means, with respect to any Claim, or any portion thereof, that such Claim, or any portion thereof, is not Allowed.

47. “Disbursing Agent” means, on the Effective Date, the Reorganized Debtors, their agent, or any Entity or Entities designated by the Reorganized Debtors, including the Indenture Trustee in accordance with Art. VI.B.1.d, to make or facilitate distributions that are to be made pursuant to the Plan, except for distributions to Holders of General Unsecured Claims.

48. “Disclosure Statement” means the Disclosure Statement for the Debtors’ Chapter 11 Plan of Reorganization, dated as of November 6, 2018, as may be amended, supplemented, or modified from time to time, including all exhibits and schedules thereto and references therein that relate to the Plan, that is prepared and distributed in accordance with the Bankruptcy Code, the Bankruptcy Rules, and any other applicable law.

49. “Disputed Claim” means a Claim that is not yet Allowed.

50. “Disputed Claims Reserve” means a reserve of Cash that may be funded on or after the Effective Date pursuant to Article VII.E hereof.

51. “Distribution Record Date” means, other than with respect to the Second Lien Notes Claims, the date for determining which Holders of Allowed Claims are eligible to receive distributions pursuant to the Plan, which shall be the date that the Confirmation Order is entered by the Court, or such other date specified in the Confirmation Order. For the avoidance of doubt, distributions to the Second Lien Notes Claims shall be made pursuant to the surrender of the underlying notes, on or as soon as practicable after the Effective Date; provided, however, that no Distribution Record Date shall apply to publicly held securities if distribution of such securities will be effectuated through DTC and shall be made through the facilities of the DTC in accordance with the customary practices of DTC for a mandatory distribution.

52. “DTC” means The Depository Trust Company.

53. “Effective Date” means the date that is a Business Day selected by the Debtors and the Requisite Creditors, on which: (a) no stay of the Confirmation Order is in effect; (b) all conditions precedent specified in Article IX.B have been satisfied or waived (in accordance with Article IX.C); and (c) the Plan is declared effective.

54. “Entity” shall have the meaning set forth in section 101(15) of the Bankruptcy Code.

55. “Estate” means, as to each Debtor, the estate created for the Debtor in its Chapter 11 Case pursuant to section 541 of the Bankruptcy Code.

56. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

6


57. “Exculpated Party” means the Debtors, the Reorganized Debtors, each of the Debtors’ and the Reorganized Debtors’ current and former Affiliates, and each of the Debtors’ and the Reorganized Debtors’ and their current and former Affiliates’ current and former directors, managers, officers, managed accounts and funds, predecessors, successors, and assigns, subsidiaries, and each of their respective current and former officers, directors, managers, principals, members, employees, subcontractors, agents, advisory board members, financial advisors, partners, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors, and other professionals, each solely in their capacity as such.

58. “Executory Contract” means a contract to which one or more of the Debtors is a party that is subject to assumption or rejection under section 365 or 1123 of the Bankruptcy Code.

59. “Exit Facility” means a new credit facility or credit facilities among the Debtors, [•], the Exit Facility Agent, and [•] on the terms and conditions set forth in the Exit Facility Documents, which terms and conditions shall be consistent with Exhibit B of the Restructuring Support Agreement and otherwise acceptable to the Debtors and the Requisite Creditors.

60. “Exit Facility Agent” means the administrative agent and collateral agent under the Exit Facility, or any successor thereto, solely in its capacity as such.

61. “Exit Facility Commitment Letter” means the commitment letter entered into by the Commitment Parties in connection with the Exit Facility pursuant to which the Commitment Parties agree to backstop the Exit Facility as described in Article IV.B.3 herein, which terms and conditions shall be acceptable to the Debtors and the Requisite Creditors.

62. “Exit Facility Documents” means the Exit Facility, the Exit Facility Commitment Letter, and any other guarantee, security, and relevant documentation with respect to the Exit Facility, each in form and substance acceptable to the Debtors and the Requisite Creditors.

63. “Federal Judgment Rate” means the federal judgment rate in effect as of the Petition Date, compounded annually.

64. “File,” “Filed,” or “Filing” means file, filed, or filing in the Chapter 11 Cases with the Court or, with respect to the filing of a Proof of Claim or proof of Interest, the Notice and Claims Agent or the Court through the PACER or CM/ECF website.

65. “Final Order” means (i) an order or judgment of the Court, as entered on the docket in any Chapter 11 Case (or any related adversary proceeding or contested matter) or the docket of any other court of competent jurisdiction, or (ii) an order or judgment of any other court having jurisdiction over any appeal from (or petition seeking certiorari or other review of) any order or judgment entered by the Court (or any other court of competent jurisdiction, including in an appeal taken) in the Chapter 11 Cases (or in any related adversary proceeding or contested matter), in each case that has not been reversed, stayed, modified, or amended, and as to which the time to appeal, or seek certiorari or move for a new trial, reargument, or rehearing has expired according to applicable law and no appeal or petition for certiorari or other proceedings for a new trial, reargument, or rehearing has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been or may be timely Filed has been withdrawn or resolved by

 

7


the highest court to which the order or judgment was appealed or from which certiorari was sought or the new trial, reargument, or rehearing shall have been denied, resulted in no modification of such order, or has otherwise been dismissed with prejudice; provided, however, that the possibility a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules or the Local Rules, may be Filed relating to such order shall not prevent such order from being a Final Order.

66. “First Lien Claims” means, collectively, Claims against the Debtors arising under the Prepetition Term Loan Agreement.

67. “General Unsecured Claim” means any Unsecured Claim against any Debtor (including, for the avoidance of doubt, any Claim arising from the rejection of an Executory Contract or Unexpired Lease) that is not otherwise paid in full or otherwise satisfied during the Chapter 11 Cases pursuant to an order of the Court, other than a Priority Tax Claim, an Other Priority Claim, a Section 510(b) Claim, or an Intercompany Claim.

68. “General Unsecured Claims Distribution” means $400,000 in Cash, less the reasonable out of pocket expenses of the GUC Administrator, including, without limitation, the fees and expenses of the GUC Administrator’s counsel.

69. “Governmental Unit” shall have the meaning set forth in section 101(27) of the Bankruptcy Code.

70. “Governmental Bar Date” means the date established pursuant to the Bar Date Order by which Proofs of Claim of Governmental Units must be Filed.

71. “GUC Administrator” means the Entity designated by the Debtors and the Requisite Creditors, in consultation with the Creditors’ Committee, and identified at or prior to the Confirmation Hearing, to, among other things, (a) object to General Unsecured Claims, (b) administer the General Unsecured Claims allowance process, and (c) authorize distributions to Holders of General Unsecured Claims from the General Unsecured Claims Distribution, in each case, as set forth in the Plan and the GUC Administrator Agreement.

72. “GUC Administrator Agreement” means the agreement governing the GUC Administrator’s duties and responsibilities to be Filed as part of the Plan Supplement.

73. “Holder” means any Person or Entity holding a Claim or an Interest.

74. “Impaired” means, with respect to a Class of Claims or Interests, a Class of Claims or Interests that is not Unimpaired.

75. “Indenture Trustee” means Wilmington Trust, National Association as the Prepetition Second Lien Trustee and the Prepetition Second Lien PIK Trustee.

76. “Indentures” means the Prepetition Second Lien Indenture and the Prepetition Second Lien PIK Indenture.

77. “Insider” has the meaning set forth in section 101(31) of the Bankruptcy Code.

 

8


78. “Intercompany Claim” means any Claim held by one Debtor against another Debtor.

79. “Intercompany Interest” means an Interest in one Debtor held by another Debtor.

80. “Interests” means the common stock, preferred stock, limited liability company interests, and any other equity, ownership, or profits interests of any Debtor, including, without limitation, the PetroQuest Preferred Stock and the PetroQuest Common Stock, and options, warrants, rights, or other securities or agreements to acquire the common stock, preferred stock, limited liability company interests, or other equity, ownership, or profits interests of any Debtor (whether or not arising under or in connection with any employment agreement), including any Claim against the Debtors that is subject to subordination pursuant to section 510(b) of the Bankruptcy Code arising from or related to any of the foregoing.

81. “Interim Compensation Order” means the order entered by the Court establishing procedures for compensation of Professionals.

82. “Judicial Code” means title 28 of the United States Code, 28 U.S.C. §§ 1–4001.

83. “Lien” shall have the meaning set forth in section 101(37) of the Bankruptcy Code.

84. “Local Rules” means the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the Southern District of Texas.

85. “MacKay Funds” means any funds or accounts to which MacKay Shields LLC has sole investment or voting discretion that are or become signatories to the Restructuring Support Agreement and any of the foregoing funds’ or accounts’ successors or assigns.

86. “Management Equity Pool” means the New Equity (on a fully diluted basis as of the Effective Date) reserved under the Management Incentive Plan after the New Equity is issued pursuant to the Put Option Premium and to Holders of Second Lien Notes Claims, 9% of which will be allocated by the New Parent Board to the management of the Reorganized Debtors no later than the Effective Date on the terms and conditions set forth in the MIP Term Sheet, and 200,000 shares of which will be granted following the Effective Date to such persons, at such times and subject to such terms and conditions as are determined by the New Parent Board. For the avoidance of doubt, the total New Equity reserved under the Management Incentive Plan will be calculated after the New Equity is issued pursuant to the Put Option Premium and will dilute both the New Equity issued pursuant to the Put Option Premium and the New Equity issued to Holders of Second Lien Notes Claims.

87. “Management Incentive Plan” means that certain post-Effective Date management incentive plan, pursuant to which the Management Equity Pool shall be reserved and allocated as part of the compensation provided to the Reorganized Debtors’ management on the terms and conditions set forth in the MIP Term Sheet.

88. “MIP Term Sheet” means the term sheet attached as Exhibit D to the Restructuring Support Agreement detailing the terms of the Management Incentive Plan.

 

9


89. “New Boards” means the initial board of directors, members, or managers, as applicable, of each Reorganized Debtor, including the New Parent Board, as designated in accordance with Article IV.I.

90. “New Equity” means the common stock, par value $[0.01] per share, of New Parent to be issued pursuant to the Plan on the Effective Date.

91. “New Organizational Documents” means the form of the certificates or articles of incorporation, bylaws, limited liability company agreement, or such other applicable formation, constitutional, or organizational documents of each of the Reorganized Debtors, which forms shall be included in the Plan Supplement and shall be consistent in all respects with the Registration Rights Agreement and the Governance Term Sheet attached as Exhibit F to the Restructuring Support Agreement.

92. “New Parent” means PetroQuest or any successor thereto, by merger, consolidation, or otherwise, on or after the Effective Date.

93. “New Parent Board” means the initial board of directors of New Parent, as determined pursuant to Article IV.I.

94. “New Second Lien PIK Indenture” means that certain Indenture dated as of the Effective Date (as amended or supplemented from time to time) among PetroQuest, as borrower, PQE and TDC as guarantors, and the New Second Lien PIK Trustee.

95. “New Second Lien PIK Notes” means the 10% Second Lien Senior Secured PIK Notes due 2023 issued pursuant to the New Second Lien PIK Indenture, which New Second Lien PIK Notes shall be consistent with Exhibit C of the Restructuring Support Agreement and otherwise acceptable to the Debtors and the Requisite Creditors.

96. “New Second Lien PIK Notes Documents” means the New Second Lien PIK Indenture and any other guarantee, security, and relevant documentation with respect to the New Second Lien PIK Notes, each in form and substance acceptable to the Requisite Creditors.

97. “New Second Lien PIK Trustee” means Wilmington Trust, National Association as the Trustee and Collateral Trustee under the New Second Lien PIK Indenture.

98. “Notes” means the Prepetition Second Lien Notes and the Prepetition Second Lien PIK Notes.

99. “Notice and Claims Agent” means Epiq Corporate Restructuring, LLC, the notice, claims, and solicitation agent retained by the Debtors in the Chapter 11 Cases.

100. “Other Priority Claim” means any Claim against a Debtor other than an Administrative Claim or a Secured Tax Claim entitled to priority in right of payment under section 507(a) of the Bankruptcy Code, to the extent such claim has not already been paid during the Chapter 11 Cases.

 

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101. “Other Secured Claim” means any Secured Claim other than the following: (a) First Lien Claims; (b) Second Lien Notes Claims; or (c) Secured Tax Claims. For the avoidance of doubt, “Other Secured Claims” includes any Claim against a Debtor, arising under, derived from, or based upon any letter of credit issued for the account of one or more Debtors, the reimbursement obligation for which is either secured by a Lien or is subject to a valid right of setoff pursuant to section 553 of the Bankruptcy Code.

102. “Person” shall have the meaning set forth in section 101(41) of the Bankruptcy Code.

103. “Petition Date” means November 6, 2018, the date on which each Debtor Filed its voluntary petition for relief commencing the Chapter 11 Cases.

104. “PetroQuest” means PetroQuest Energy, Inc., a Delaware corporation.

105. “PetroQuest Common Stock” means PetroQuest’s authorized and issued common stock, par value $.001 per share, outstanding as of the Petition Date.

106. “PetroQuest Interests” means, collectively, any Interests in PetroQuest, including the PetroQuest Common Stock and PetroQuest Preferred Stock.

107. “PetroQuest Preferred Stock” means PetroQuest’s authorized and issued shares of 6.875% Series B Cumulative Convertible Perpetual Preferred Stock outstanding as of the Petition Date.

108. “Plan” means this chapter 11 plan, as it may be altered, amended, modified, or supplemented from time to time in accordance with the Restructuring Support Agreement and the terms hereof, including the Plan Supplement and all exhibits, supplements, appendices, and schedules to the Plan.

109. “Plan Supplement” means the compilation of documents and forms of documents, schedules, and exhibits to the Plan, each of which shall be in form and substance acceptable to the Requisite Creditors (as amended, supplemented, or modified from time to time in accordance with the terms hereof, the Bankruptcy Code, the Bankruptcy Rules, and the Restructuring Support Agreement), to be Filed by the Debtors no later than seven (7) days before the Voting Deadline, and additional documents or amendments to previously Filed documents, Filed before the Confirmation Date as amendments to the Plan Supplement (which, for the avoidance of doubt, shall also be in form and substance acceptable to the Requisite Creditors), including the following, as applicable: (a) the New Organizational Documents; (b) the terms of the Exit Facility and the Exit Facility Documents; (c) the Schedule of Rejected Executory Contracts and Unexpired Leases; (d) the Schedule of Assumed Executory Contracts and Unexpired Leases; (e) a list of retained Causes of Action; (f) the Management Incentive Plan; (g) the identity of the members of the New Boards and the senior management team to be retained by the Reorganized Debtors as of the Effective Date (to the extent known); (h) the Registration Rights Agreement; and (i) any and all other documentation necessary to effectuate the Restructuring Transactions or that is contemplated by the Plan. The Debtors shall have the right to amend the documents contained in, and exhibits to, the Plan Supplement through the Effective Date subject in all respects to the consent rights set forth herein and in the Restructuring Support Agreement.

 

11


110. “PQE” means PetroQuest Energy, L.L.C., a Louisiana limited liability company.

111. “Prepetition Agreements” means (i) the Prepetition Term Loan Agreement, (ii) the Prepetition Second Lien Indenture, and (iii) the Prepetition Second Lien PIK Indenture.

112. “Prepetition Second Lien Indenture” means that certain Indenture dated as of February 17, 2016 (as amended or supplemented from time to time, including by the First Supplemental Indenture dated as of September 13, 2016), among PetroQuest, as borrower, PQE and TDC as guarantors, and the Prepetition Second Lien Trustee.

113. “Prepetition Second Lien Noteholders” means the Holders of the Prepetition Second Lien Notes.

114. “Prepetition Second Lien Notes” means the 10% Second Lien Secured Senior Notes due 2021 issued pursuant to the Prepetition Second Lien Indenture.

115. “Prepetition Second Lien Notes Claims” means Claims against the Debtors arising under the Prepetition Second Lien Indenture and the Prepetition Second Lien Notes.

116. “Prepetition Second Lien PIK Indenture” means that certain Indenture dated as of September 27, 2016 (as amended or supplemented from time to time), among PetroQuest, as borrower, PQE and TDC as guarantors, and the Prepetition Second Lien PIK Trustee.

117. “Prepetition Second Lien PIK Noteholders” means the Holders of the Prepetition Second Lien PIK Notes.

118. “Prepetition Second Lien PIK Notes” means the 10% Second Lien Senior Secured PIK Notes due 2021 issued pursuant to the Prepetition Second Lien PIK Indenture.

119. “Prepetition Second Lien PIK Notes Claims” means Claims against the Debtors arising under the Prepetition Second Lien PIK Indenture and the Prepetition Second Lien PIK Notes.

120. “Prepetition Second Lien PIK Trustee” means Wilmington Trust, National Association, as the Trustee and Collateral Trustee under the Prepetition Second Lien PIK Indenture.

121. “Prepetition Second Lien Trustee” means Wilmington Trust, National Association, as the Trustee and Collateral Trustee under the Prepetition Second Lien Indenture.

122. “Prepetition Term Loan Agent” means Wells Fargo Bank, N.A., as administrative agent under the Prepetition Term Loan Agreement.

123. “Prepetition Term Loan Agreement” means that certain Multidraw Term Loan Agreement, dated as of August 31, 2018 (as amended from time to time), among PetroQuest, PQE, TDC, the Prepetition Term Loan Agent, and the Prepetition Term Loan Lenders.

 

12


124. “Prepetition Term Loan Lenders” means the lenders under the Prepetition Term Loan Agreement.

125. “Priority Tax Claim” means any Claim of a Governmental Unit against a Debtor of the kind specified in section 507(a)(8) of the Bankruptcy Code.

126. “Pro Rata” means, unless indicated otherwise, the proportion that an Allowed Claim in a particular Class bears to the aggregate amount of Allowed Claims in that respective Class, or the proportion that Allowed Claims in a particular Class bear to the aggregate amount of Allowed Claims in a particular Class and other Classes entitled to share in the same recovery as such Allowed Claim under the Plan.

127. “Professional” means an Entity employed pursuant to a Court order in accordance with sections 327 or 1103 of the Bankruptcy Code and to be compensated for services rendered before or on the Effective Date pursuant to sections 327, 328, 329, 330, or 331 of the Bankruptcy Code.

128. “Professional Fee Claims” means all Administrative Claims for the compensation of Professionals and the reimbursement of expenses incurred by such Professionals through and including the Effective Date to the extent such fees and expenses have not been paid pursuant to the Interim Compensation Order or any other order of the Court. To the extent the Court denies or reduces by a Final Order any amount of a Professional’s requested fees and expenses, then the amount by which such fees or expenses are reduced or denied shall reduce the applicable Allowed Professional Fee Claim.

129. “Professional Fee Escrow Account” means an interest-bearing account in an amount equal to the Professional Fee Reserve Amount and funded by the Debtors on the Effective Date, pursuant to Article II.B.2.

130. “Professional Fee Reserve Amount” means the total amount of Professional Fee Claims estimated in accordance with Article II.B.3.

131. “Proof of Claim” means a proof of Claim Filed against any of the Debtors in the Chapter 11 Cases.

132. “Put Option Premium” means the premium payable to the Commitment Parties in consideration of their commitments under the Exit Facility Commitment Letter in the form of New Equity equal to 3% of the principal amount of the Exit Facility, which New Equity shall be valued in accordance with the Plan. For the avoidance of doubt, the Put Option Premium will not dilute the Management Equity Pool granted pursuant to the Management Incentive Plan.

133. “Registration Rights Agreement” means the registration rights agreement by and among New Parent and the Consenting Creditors signatory thereto, dated as of the Effective Date, which shall be in form and substance acceptable to the Debtors and the Requisite Creditors.

134. “Reinstated” or “Reinstatement” means, with respect to Claims and Interests, the treatment provided for in section 1124 of the Bankruptcy Code.

 

13


135. “Released Party” means each of the following solely in its capacity as such: (a) the Debtors; (b) the Reorganized Debtors; (c) the Consenting Creditors; (d) the Indenture Trustee; (e) the Creditors’ Committee and its past and current members in their capacities as such; and (f) with respect to each of the foregoing parties under (a) through (e), such Entity and its current and former direct and indirect Affiliates, and such Entity’s current and former direct and indirect Affiliates’ current and former directors, managers, officers, managed accounts and funds, predecessors, successors, and assigns, subsidiaries, and each of their respective current and former equityholders, officers, directors, managers, principals, members, employees, subcontractors, advisors, agents, advisory board members, financial advisors, partners, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors, and other professionals, each solely in their capacity as such.

136. “Releasing Party” means each of the following solely in its capacity as such: (a) the Debtors; (b) the Reorganized Debtors; (c) the Consenting Creditors; (d) the Indenture Trustee; (e) the Creditors’ Committee and its past and current members in their capacities as such; (f) all Holders of Claims and Interests that are deemed to accept the Plan; (g) all Holders of Claims who vote to accept the Plan; (h) all Holders of Claims who abstain from voting on the Plan and who do not opt out of the releases provided by the Plan; (i) all Holders of Claims who vote to reject the Plan and who do not opt out of the releases provided by the Plan; and (j) with respect to each of the foregoing parties under (a) through (i), such Entity and its current and former direct and indirect Affiliates, and such Entities’ and their current and former Affiliates’ current and former directors, managers, officers, managed accounts and funds, predecessors, successors, and assigns, subsidiaries, and each of their respective current and former officers, directors, managers, principals, members, employees, subcontractors, agents, advisory board members, financial advisors, partners, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors, and other professionals, each solely in their capacity as such. For the avoidance of doubt, the term “Releasing Party” does not include Holders of Claims or Interests who are not entitled to vote on the Plan.

137. “Reorganized Debtors” means the Debtors, or any successors thereto, by merger, consolidation, or otherwise (including New Parent), in each case in accordance with the Plan and the Restructuring Transactions, on or after the Effective Date.

138. “Requisite Creditors” means each of (i) the Requisite Term Loan Lenders, (ii) the Requisite Second Lien Noteholders, and (iii) the Requisite Second Lien PIK Noteholders.

139. “Requisite Second Lien Noteholders” means, as of the date of determination, the MacKay Funds and the Corre Funds; provided, however, that to the extent either the MacKay Funds or the Corre Funds Transfer some or all of their Prepetition Second Lien Notes after the Support Effective Date and such Transfer results in the MacKay Funds and the Corre Funds holding or Beneficially Owning Prepetition Second Lien Notes that together equal less than 50% of the Prepetition Second Lien Notes held by the Consenting Second Lien Noteholders, “Requisite Second Lien Noteholders” shall mean Consenting Second Lien Noteholders holding or Beneficially Owning at least a majority of the outstanding Prepetition Second Lien Notes held by the Consenting Second Lien Noteholders as of such date; provided, further, that in all cases, “Requisite Second Lien Noteholders” shall include the MacKay Funds or the Corre Funds (not including any successors or assigns that have purchased Prepetition Second Lien Notes after the Support Effective Date), as applicable, to the extent that such party has not Transferred its Prepetition Second Lien Notes after the Support Effective Date as described in the foregoing provision.

 

14


140. “Requisite Second Lien PIK Noteholders” means, as of the date of determination, the MacKay Funds and the Corre Funds; provided, however, that to the extent either the MacKay Funds or the Corre Funds Transfer some or all of their Prepetition Second Lien PIK Notes after the Support Effective Date and such Transfer results in the MacKay Funds and the Corre Funds holding or Beneficially Owning Prepetition Second Lien PIK Notes that together equal less than 50% of the Prepetition Second Lien PIK Notes held by the Consenting Second Lien PIK Noteholders, “Requisite Second Lien PIK Noteholders” shall mean Consenting Second Lien PIK Noteholders holding or Beneficially Owning at least a majority of the outstanding Prepetition Second Lien PIK Notes held by the Consenting Second Lien PIK Noteholders as of such date; provided, further, that in all cases, “Requisite Second Lien PIK Noteholders” shall include the MacKay Funds or the Corre Funds (not including any successors or assigns that have purchased Prepetition Second Lien PIK Notes after the Support Effective Date), as applicable, to the extent that such party has not Transferred its Prepetition Second Lien PIK Notes after the Support Effective Date as described in the foregoing provision.

141. “Requisite Term Loan Lenders” means, as of the date of determination, the MacKay Funds and the Corre Funds; provided, however, that to the extent either the MacKay Funds or the Corre Funds Transfer some or all of their Prepetition Term Loans after the Support Effective Date and such Transfer results in the MacKay Funds and the Corre Funds holding Prepetition Term Loans in amounts that together equal less than 50% of the Prepetition Term Loans held by the Consenting Term Loan Lenders, “Requisite Term Loan Lenders” shall mean Consenting Term Loan Lenders holding at least a majority of the outstanding Prepetition Term Loans held by the Consenting Term Loan Lenders as of such date; provided, further, that in all cases, “Requisite Term Loan Lenders” shall include the MacKay Funds or the Corre Funds (not including any successors or assigns that have purchased Prepetition Term Loans after the Support Effective Date), as applicable, to the extent that such party has not Transferred its Prepetition Term Loans after the Support Effective Date as described in the foregoing provision.

142. “Restructuring Support Agreement” means that certain Restructuring Support Agreement, dated November 6, 2018, by and among the Debtors and the Consenting Creditors, as amended, modified, or supplemented, from time to time.

143. “Restructuring Transactions” means all actions that may be necessary or appropriate to effectuate the transactions described in, approved by, contemplated by, or necessary to effectuate, the Restructuring Support Agreement and the Plan.

144. “Royalty and Working Interests” means the working interests granting the right to exploit oil and gas, and certain other royalty or mineral interests including but not limited to, landowner’s royalty interests, overriding royalty interests, net profit interests, non-participating royalty interests, production payments, and all rights to payment or production arising from such interests.

 

15


145. “Schedule of Assumed Executory Contracts and Unexpired Leases” means the schedule of Executory Contracts and Unexpired Leases to be assumed by the Debtors and assigned to the Reorganized Debtors pursuant to the Plan with the consent of the Requisite Creditors, as set forth in the Plan Supplement, as may be amended from time to time prior to the Effective Date.

146. “Schedule of Rejected Executory Contracts and Unexpired Leases” means the schedule of Executory Contracts and Unexpired Leases to be rejected by the Debtors pursuant to the Plan with the consent of the Requisite Creditors, as set forth in the Plan Supplement, as may be amended from time to time prior to the Effective Date.

147. “Schedules” means, collectively, the schedules of assets and liabilities, schedules of Executory Contracts and Unexpired Leases, and statements of financial affairs Filed by the Debtors pursuant to section 521 of the Bankruptcy Code and in substantial accordance with the Official Bankruptcy Forms B 206A-H, as the same may have been amended, modified, or supplemented from time to time.

148. “Second Lien Deficiency Claims” means any deficiency Claims held by the Combined Prepetition Second Lien Noteholders.

149. “Second Lien Notes Claims” means collectively, the Prepetition Second Lien Notes Claims and the Prepetition Second Lien PIK Notes Claims.

150. “Section 510(b) Claim” means any Claim against a Debtor arising from (a) rescission of a purchase or sale of a security of any Debtor or an Affiliate of any Debtor, (b) purchase or sale of such a security, or (c) reimbursement or contribution allowed under section 502 of the Bankruptcy Code on account of such a Claim.

151. “Secured” means when referring to a Claim, a Claim: (a) secured by a Lien on property in which the applicable Estate has an interest, which Lien is valid, perfected, and enforceable pursuant to applicable law or by reason of a Court order, or that is subject to setoff pursuant to section 553 of the Bankruptcy Code, to the extent of the value of the creditor’s interest in such Estate’s interest in such property or to the extent of the amount subject to setoff, as applicable, as determined pursuant to section 506(a) of the Bankruptcy Code; or (b) otherwise Allowed pursuant to the Plan as a Secured Claim.

152. “Secured Tax Claim” means any Secured Claim against any Debtor that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of time limitations), including any related Secured Claim for penalties.

153. “Securities Act” means the Securities Act of 1933, 15 U.S.C. §§ 77a–77aa, as amended.

154. “Security” shall have the meaning set forth in section 101(49) of the Bankruptcy Code.

155. “Settled Issues” shall have the meaning set forth in Article VIII.A.

 

16


156. “Support Effective Date” means the earliest date on which counterpart signature pages to the Restructuring Support Agreement shall have been executed and delivered by (i) the Debtors, (ii) Consenting Term Loan Lenders holding at least 6623%, in aggregate principal amount outstanding as of such date, of the Prepetition Term Loans, (iii) Consenting Second Lien Noteholders holding at least 6623%, in aggregate principal amount outstanding as of such date, of the Prepetition Second Lien Notes, and (iv) Consenting Second Lien PIK Noteholders holding at least 6623%, in aggregate principal amount outstanding as of such date, of the Prepetition Second Lien PIK Notes.

157. “TDC” means TDC Energy, LLC, a Louisiana limited liability company.

158. “Transfer” has the meaning given to such term in the Restructuring Support Agreement.

159. “U.S. Trustee” means the Office of the United States Trustee for the Southern District of Texas.

160. “U.S. Trustee Fees” means fees arising under 28 U.S.C. § 1930(a)(6) and, to the extent applicable, accrued interest thereon arising under 31 U.S.C. § 3717.

161. “Unclaimed Distribution” means any distribution under the Plan on account of an Allowed Claim whose Holder has not: (a) accepted such distribution or, in the case of distributions made by check, negotiated such check; (b) given notice to the Reorganized Debtors of an intent to accept such distribution; (c) responded to the Debtors’ or Reorganized Debtors’ requests for information necessary to facilitate such distribution; or (d) taken any other action necessary to facilitate such distribution.

162. “Unexpired Lease” means a lease of nonresidential real property to which one or more of the Debtors is a party that is subject to assumption or rejection under section 365 or 1123 of the Bankruptcy Code.

163. “Unimpaired” means, with respect to a Class of Claims or Interests, a Class consisting of Claims or Interests that are “unimpaired” within the meaning of section 1124 of the Bankruptcy Code, including through payment in full in Cash or Reinstatement.

164. “Unsecured” means not Secured.

165. “Voting Deadline” means December [•], 2018, the deadline for submitting votes to accept or reject the Plan as set by the Court.

 

B.

Rules of Interpretation

For purposes herein: (1) in the appropriate context, each term, whether stated in the singular or the plural, shall include both the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, feminine, and the neuter gender; (2) except as otherwise provided, any reference herein to a contract, lease, instrument, release, indenture, or other agreement or document being in a particular form or on particular terms and conditions means that the referenced document shall be substantially in that form or substantially on those

 

17


terms and conditions; (3) except as otherwise provided, any reference herein to an existing document or exhibit having been Filed or to be Filed shall mean that document or exhibit, as it may thereafter be amended, restated, supplemented, or otherwise modified in accordance with the terms of the Plan and the Restructuring Support Agreement; (4) unless otherwise specified, all references herein to “Articles” are references to Articles of the Plan or hereto; (5) unless otherwise stated, the words “herein,” “hereof,” and “hereto” refer to the Plan in its entirety rather than to a particular portion of the Plan; (6) captions and headings to Articles are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation hereof; (7) the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, and shall be deemed to be followed by the words “without limitation;” (8) the rules of construction set forth in section 102 of the Bankruptcy Code shall apply; (9) any term used in capitalized form herein that is not otherwise defined but that is used in the Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to that term in the Bankruptcy Code or the Bankruptcy Rules, as the case may be; (10) any docket number references in the Plan shall refer to the docket number of any document Filed with the Court in the Chapter 11 Cases; (11) references to “shareholders,” “directors,” and/or “officers” shall also include “members” and/or “managers,” as applicable, as such terms are defined under the applicable state limited liability company laws; and (12) except as otherwise provided, any reference to the Effective Date shall mean the Effective Date or as soon as reasonably practicable thereafter.

 

C.

Computation of Time

Unless otherwise specifically stated herein, the provisions of Bankruptcy Rule 9006(a) shall apply in computing any period of time prescribed or allowed herein. If the date on which a transaction may occur pursuant to the Plan shall occur on a day that is not a Business Day, then such transaction shall instead occur on the next succeeding Business Day.

 

D.

Governing Law

Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules) or unless otherwise specifically stated herein, the laws of the State of Texas without giving effect to the principles of conflict of laws, shall govern the rights, obligations, construction, and implementation of the Plan, any agreements, documents, instruments, or contracts executed or entered into in connection with the Plan (except as otherwise set forth in those agreements, in which case the governing law of such agreement shall control); provided that corporate or limited liability company governance matters relating to the Debtors or the Reorganized Debtors, as applicable, shall be governed by the laws of the state of incorporation or formation (as applicable) of the applicable Debtor or Reorganized Debtor.

 

E.

Reference to Monetary Figures

All references in the Plan to monetary figures shall refer to currency of the United States of America, unless otherwise expressly provided herein.

 

18


F.

Reference to the Debtors or the Reorganized Debtors

Except as otherwise specifically provided in the Plan to the contrary, references in the Plan to the Debtors or the Reorganized Debtors shall mean the Debtors and the Reorganized Debtors, as applicable, to the extent the context requires.

 

G.

Controlling Document

In the event of an inconsistency between the Plan and the Disclosure Statement or any other order (other than the Confirmation Order) referenced in the Plan (or any exhibits, schedules, appendices, supplements or amendments to any of the foregoing, other than the Plan Supplement), the terms of the Plan shall control in all respects. In the event of an inconsistency between the Plan and the Plan Supplement, the terms of the relevant document in the Plan Supplement shall control (unless stated otherwise in such Plan Supplement document or in the Confirmation Order). In the event of an inconsistency between the Confirmation Order and the Plan, the Confirmation Order shall control.

ARTICLE II.

ADMINISTRATIVE CLAIMS, PROFESSIONAL

FEE CLAIMS, AND PRIORITY CLAIMS

In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been classified and, thus, are excluded from the Classes of Claims and Interests set forth in Article III hereof.

 

A.

Administrative Claims

Except with respect to Administrative Claims that are Professional Fee Claims, and except to the extent that an Administrative Claim has already been paid during the Chapter 11 Cases or a Holder of an Allowed Administrative Claim and the applicable Debtor(s) agree to less favorable treatment, each Holder of an Allowed Administrative Claim shall be paid in full in Cash on the latest of: (a) on or as soon as reasonably practicable after the Effective Date if such Administrative Claim is Allowed as of the Effective Date; (b) on or as soon as reasonably practicable after the date such Administrative Claim is Allowed, if not Allowed as of the Effective Date; and (c) the date such Allowed Administrative Claim becomes due and payable, or as soon thereafter as is reasonably practicable; provided that Allowed Administrative Claims that arise in the ordinary course of the Debtors’ businesses shall be paid in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions.

Except as otherwise provided in this Article II.A and except with respect to Administrative Claims that are Professional Fee Claims, requests for payment of Administrative Claims arising between the Petition Date and the Effective Date must be Filed and served on the Reorganized Debtors pursuant to the procedures specified in the Confirmation Order and the notice of entry of the Confirmation Order no later than the Administrative Claims Bar Date. Holders of Administrative Claims that are required to, but do not, File and serve a request for payment of such Administrative Claims by such dates shall be forever barred, estopped, and enjoined from asserting such Administrative Claims against the Debtors or their property and such Administrative Claims

 

19


shall be deemed discharged as of the Effective Date. Objections to such requests, if any, must be Filed and served on the Reorganized Debtors and the requesting party no later than 60 days after the Effective Date or such other date fixed by the Court. Notwithstanding the foregoing, no request for payment of an Administrative Claim need be Filed with respect to an Administrative Claim previously Allowed.

For the avoidance of doubt, Claims for fees and expenses of advisors to the Debtors and the Creditors’ Committee shall constitute Professional Fee Claims.

 

B.

Professional Compensation

 

  1.

Final Fee Applications

All final requests for payment of Professional Fee Claims, including the Professional Fee Claims incurred during the period from the Petition Date through the Effective Date, must be Filed and served on the Reorganized Debtors no later than 45 days after the Effective Date. All such final requests will be subject to approval by the Court after notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior orders of the Court in the Chapter 11 Cases, including the Interim Compensation Order, and once approved by the Court, will be promptly paid from the Professional Fee Escrow Account in the full Allowed amount of each such Professional Fee Claim. If the Professional Fee Escrow Account is insufficient to fund the full Allowed amounts of Professional Fee Claims, remaining unpaid Allowed Professional Fee Claims will be promptly paid by the Reorganized Debtors without any further action or order of the Court.

 

  2.

Professional Fee Escrow Account

On the Effective Date, the Reorganized Debtors shall establish and fund the Professional Fee Escrow Account with Cash equal to the Professional Fee Reserve Amount. The Professional Fee Escrow Account shall not be subject to any Lien and shall be maintained in trust solely for the benefit of the Professionals. The funds in the Professional Fee Escrow Account shall not be considered property of the Estates or of the Reorganized Debtors. When all Allowed amounts owing to Professionals have been paid in full, any remaining amount in the Professional Fee Escrow Account shall promptly be turned over to the Reorganized Debtors without any further action or order of the Court.

 

  3.

Professional Fee Reserve Amount

Professionals shall reasonably estimate their unpaid Professional Fee Claims before and as of the Effective Date, and shall deliver such estimate to the Debtors no later than five (5) Business Days before the Effective Date, provided, however, that such estimate shall not be deemed to limit the amount of the fees and expenses that are the subject of the Professional’s final request for payment of Professional Fee Claims. If a Professional does not provide an estimate, the Debtors or Reorganized Debtors may estimate the unpaid and unbilled fees and expenses of such Professional.

 

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  4.

Post-Effective Date Fees and Expenses

Except as otherwise specifically provided in the Plan, from and after the Effective Date, the Debtors or Reorganized Debtors shall, in the ordinary course of business and without any further notice or application to or action, order, or approval of the Court, pay in Cash the reasonable, actual, and documented legal, professional, or other fees and expenses related to implementation of the Plan and Consummation incurred on or after the Effective Date by the Professionals. Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331, 363, and 1103 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date shall terminate, and the Debtors or Reorganized Debtors may employ and pay any Professional for fees and expenses incurred after the Effective Date in the ordinary course of business without any further notice to or action, order, or approval of the Court.

 

C.

Priority Tax Claims

Except to the extent that a Holder of an Allowed Priority Tax Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Tax Claim, each Holder of such Allowed Priority Tax Claim shall be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code. In the event an Allowed Priority Tax Claim is also a Secured Tax Claim, such Claim shall, to the extent it is Allowed, be treated as an Other Secured Claim if such Claim is not otherwise paid in full.

 

D.

Statutory Fees

All fees payable pursuant to 28 U.S.C. § 1930(a) shall be paid by the Debtors or Reorganized Debtors, as applicable, for each quarter (including any fraction thereof) until the Chapter 11 Cases are converted, dismissed or closed, whichever occurs first. The Reorganized Debtors shall continue to File quarterly-post confirmation operating reports in accordance with the U.S. Trustee’s Region 7 Guidelines for Debtors-in-Possession.

ARTICLE III.

CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

 

A.

Summary of Classification

Claims and Interests, except for Administrative Claims, Professional Fee Claims, Cure Claims, and Priority Tax Claims, are classified in the Classes set forth in this Article III. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to the extent that any portion of the Claim or Interest qualifies within the description of such other Classes. A Claim or Interest also is classified in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim is an Allowed Claim in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date. The Plan constitutes a separate chapter 11 plan of reorganization for each Debtor and the classifications set forth in Classes 1 through 11 shall be deemed to apply to each Debtor. For all purposes under the Plan, each Class will contain sub-Classes for each of the Debtors (i.e., there will be 11 Classes for each Debtor); provided that any Class that is vacant as to a particular Debtor will be treated in accordance with Article III.E below.

 

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  1.

Class Identification

The classification of Claims and Interests against each Debtor (as applicable) pursuant to the Plan is as follows:

 

Class

  

Claim or Interest

  

Status

  

Entitled to Vote

1   

Other Priority Claims

  

Unimpaired

  

No (Deemed to Accept)

2   

Other Secured Claims

  

Unimpaired

  

No (Deemed to Accept)

3   

Secured Tax Claims

  

Unimpaired

  

No (Deemed to Accept)

4   

First Lien Claims

  

Unimpaired

  

No (Deemed to Accept)

5   

Prepetition Second Lien Notes Claims

  

Impaired

  

Yes

6   

Prepetition Second Lien PIK Notes Claims

  

Impaired

  

Yes

7   

General Unsecured Claims

  

Impaired

  

Yes

8   

Section 510(b) Claims

  

Impaired

  

No (Deemed to Reject)

9   

Intercompany Claims

  

Unimpaired/Impaired

  

No (Deemed to Either Accept or Reject)

10   

Intercompany Interests

  

Unimpaired/Impaired

  

No (Deemed to Either Accept or Reject)

11   

PetroQuest Interests

  

Impaired

  

No (Deemed to Reject)

 

B.

Treatment of Claims and Interests

 

  1.

Class 1 – Other Priority Claims

 

  a.

Classification: Class 1 consists of Other Priority Claims.

 

  b.

Treatment: In full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Other Priority Claim, each Holder thereof shall receive (i) payment in full, in Cash, of the unpaid portion of its Allowed Other Priority Claim or (ii) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

  c.

Voting: Class 1 is Unimpaired under the Plan. Each Holder of an Other Priority Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the Holders of Other Priority Claims will not be entitled to vote to accept or reject the Plan.

 

  2.

Class 2 – Other Secured Claims

 

  a.

Classification: Class 2 consists of Other Secured Claims.

 

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  b.

Treatment: Except to the extent that a Holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Other Secured Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Other Secured Claim, (iii) the return or abandonment of the collateral securing such Allowed Other Secured Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

  c.

Voting: Class 2 is Unimpaired under the Plan. Each Holder of an Other Secured Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the Holders of Other Secured Claims will not be entitled to vote to accept or reject the Plan.

 

  3.

Class 3 – Secured Tax Claims

 

  a.

Classification: Class 3 consists of Secured Tax Claims.

 
  b.

Treatment: Except to the extent that a Holder of an Allowed Secured Tax Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Secured Tax Claim, each such Holder shall receive, at the Debtors’ election, either (i) Cash equal to the full Allowed amount of its Claim, (ii) Reinstatement of such Holder’s Allowed Secured Tax Claim, (iii) the return or abandonment of the collateral securing such Allowed Secured Tax Claim to such Holder, or (iv) such other treatment as may otherwise be agreed to by such Holder, the Debtors, and the Requisite Creditors.

 

  c.

Voting: Class 3 is Unimpaired under the Plan. Each Holder of a Secured Claim Tax will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Secured Tax Claims will not be entitled to vote to accept or reject the Plan.

 

  4.

Class 4 – First Lien Claims

 

  a.

Classification: Class 4 consists of the First Lien Claims.

 

  b.

Allowance: The First Lien Claims shall be Allowed in the aggregate principal amount of $50,000,000, plus any accrued and unpaid interest and expenses.

 

  c.

Treatment: On or before the Effective Date, each Holder of a First Lien Claim will receive Cash equal to the amount of its Allowed Claim from funds available pursuant to the Exit Facility.

 

23


  d.

Voting: Class 4 is Unimpaired under the Plan. Each Holder of a First Lien Claim will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of First Lien Claims will not be entitled to vote to accept or reject the Plan.

 

  5.

Class 5 – Prepetition Second Lien Notes Claims

 

  a.

Classification: Class 5 consists of all Prepetition Second Lien Notes Claims.

 

  b.

Allowance: The Prepetition Second Lien Notes Claims shall be Allowed in the aggregate amount of $9,427,000 plus any accrued and unpaid interest thereon payable through the Petition Date.

 

  c.

Treatment: Except to the extent that a Holder of an Allowed Prepetition Second Lien Notes Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $275,045,768 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien PIK Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New Second Lien PIK Notes.

 

  d.

Voting: Class 5 is Impaired under the Plan. Each Holder of an Allowed Prepetition Second Lien Notes Claim will be entitled to vote to accept or reject the Plan.

 

  6.

Class 6 – Prepetition Second Lien PIK Notes Claims

 

  a.

Classification: Class 6 consists of all Prepetition Second Lien PIK Notes Claims.

 

  b.

Allowance: The Prepetition Second Lien PIK Notes Claims shall be Allowed in the aggregate amount of $275,045,768 plus any accrued and unpaid interest thereon payable through the Petition Date.

 

  c.

Treatment: Except to the extent that a Holder of an Allowed Prepetition Second Lien PIK Notes Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for its Allowed Prepetition Second Lien PIK Notes Claim, each such Holder shall receive (i) its Pro Rata share of 100% of the New Equity under the Plan, subject to (x) dilution by the awards related to New Equity

 

24


  issued under the Management Incentive Plan and (y) the Put Option Premium, and (ii) its Pro Rata share of $80 million in New Second Lien PIK Notes; such Pro Rata share of the New Equity and New Second Lien PIK Notes calculated by including the $9,427,000 (plus any accrued and unpaid interest thereon payable through the Petition Date) of Prepetition Second Lien Notes Claims as Claims that will share Pro Rata in 100% of New Equity, subject to (x) dilution by the awards related to New Equity issued under the Management Incentive Plan and (y) the Put Option Premium, and $80 million in New Second Lien PIK Notes.

 

  d.

Voting: Class 6 is Impaired under the Plan. Each Holder of an Allowed Prepetition Second Lien Notes Claim will be entitled to vote to accept or reject the Plan.

 

  7.

Class 7 – General Unsecured Claims

 

  a.

Classification: Class 7 consists of all General Unsecured Claims.

 

  b.

Treatment: Except to the extent that a Holder of an Allowed General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release, and discharge of each Allowed General Unsecured Claim and of and in exchange for each Allowed General Unsecured Claim, each such Holder shall receive its Pro Rata share of the General Unsecured Claims Distribution on the Effective Date; provided, however, that to the extent that Class 7 votes to accept the Plan, the Holders of Second Lien Notes Claims shall not receive any distribution on account of their Allowed Second Lien Deficiency Claims.

 

  c.

Voting: Class 7 is Impaired under the Plan. Each Holder of a General Unsecured Claim will be entitled to vote to accept or reject the Plan.

 

  8.

Class 8 – Section 510(b) Claims

 

  a.

Classification: Class 8 consists of all Section 510(b) Claims.

 

  b.

Treatment: Section 510(b) Claims, if any, shall be discharged, canceled, released, and extinguished as of the Effective Date, and shall be of no further force or effect, and Holders of Section 510(b) Claims shall not receive any distribution on account of such Section 510(b) Claims.

 

  c.

Voting: Class 8 is Impaired under the Plan. Each Holder of a Section 510(b) Claim will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Section 510(b) Claims will not be entitled to vote to accept or reject the Plan.

 

25


  9.

Class 9 – Intercompany Claims

 

  a.

Classification: Class 9 consists of all Intercompany Claims.

 

  b.

Treatment: Intercompany Claims shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Claims other than in the ordinary course of business of the Reorganized Debtors, as applicable. For the avoidance of doubt, Intercompany Claims that are Reinstated as of the Effective Date, if any, shall be subordinate in all respects to the Exit Facility and the New Second Lien PIK Notes.

 

  c.

Voting: Intercompany Claims are either Unimpaired, in which case the Holders of such Intercompany Claims will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code, or Impaired and not receiving any distribution under the Plan, in which case the Holders of such Intercompany Claims will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Intercompany Claims will not be entitled to vote to accept or reject the Plan.

 

  10.

Class 10 – Intercompany Interests

 

  a.

Classification: Class 10 consists of all Intercompany Interests.

 

  b.

Treatment: Intercompany Interests shall be Reinstated as of the Effective Date or, at the Reorganized Debtors’ option, shall be cancelled. No distribution shall be made on account of any Intercompany Interests.

No distributions on account of Intercompany Interests are being made to the Holders of such Intercompany Interests. Instead, to the extent Intercompany Interests are Reinstated under the Plan, such Reinstatement is solely for the purposes of administrative convenience, for the ultimate benefit of the Holders of the New Equity, and in exchange for the Debtors’ and Reorganized Debtors’ agreement under the Plan to make certain distributions to the Holders of Allowed Claims. For the avoidance of doubt, to the extent Reinstated pursuant to the Plan, on and after the Effective Date, all Intercompany Interests shall continue to be owned by the Reorganized Debtor that corresponds to the Debtor that owned such Intercompany Interests prior to the Effective Date.

 

  c.

Voting: Intercompany Interests are either Unimpaired, in which case the Holders of such Intercompany Interests will be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code, or Impaired, in which case the Holders of such Intercompany Interests will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of Intercompany Interests will not be entitled to vote to accept or reject the Plan.

 

26


  11.

Class 11 – PetroQuest Interests

 

  a.

Classification: Class 11 consists of all PetroQuest Interests.

 

  b.

Treatment: On the Effective Date, or as soon thereafter as reasonably practicable, all PetroQuest Interests will be extinguished and the Holders of PetroQuest Interests shall not receive or retain any distribution, property, or other value on account of their PetroQuest Interests.

 

  c.

Voting: Class 11 is Impaired under the Plan. Each Holder of a PetroQuest Interest will be conclusively deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, the Holders of PetroQuest Interests will not be entitled to vote to accept or reject the Plan.

 

C.

Special Provision Governing Unimpaired Claims

Nothing under the Plan shall affect the Debtors’ or the Reorganized Debtors’ rights in respect of any Unimpaired Claims, including all rights in respect of legal and equitable defenses to or setoffs or recoupment against any such Unimpaired Claims.

 

D.

Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code

The Debtors reserve the right to seek Confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to any rejecting Class of Claims or Interests, and the Filing of the Plan shall constitute a motion for such relief.

 

E.

Elimination of Vacant Classes

Any Class of Claims that does not contain an Allowed Claim or a Claim temporarily Allowed by the Court as of the date of the Confirmation Hearing shall be deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for purposes of determining acceptance or rejection of the Plan by such Class pursuant to section 1129(a)(8) of the Bankruptcy Code.

 

F.

Voting Classes; Deemed Acceptance by Non-Voting Classes

If a Class contains Claims eligible to vote and no Holder of Claims eligible to vote in such Class votes to accept or reject the Plan, the Plan shall be deemed accepted by such Class.

 

G.

Subordinated Claims

Except as may be the result of the settlement described in Article VIII.A of the Plan, the allowance, classification, and treatment of all Claims and Interests and the respective distributions and treatments under the Plan take into account and conform to the relative priority and rights of the Claims and Interests in each Class in connection with any contractual, legal, and equitable subordination rights relating thereto, whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise. Pursuant to section 510 of the Bankruptcy Code, the Debtors or Reorganized Debtors reserve the right to re-classify any Claim or Interest in accordance with any contractual, legal, or equitable subordination relating thereto.

 

27


ARTICLE IV.

MEANS FOR IMPLEMENTATION OF THE PLAN

 

A.

Restructuring Transactions

On the Effective Date, or as soon as reasonably practicable thereafter, the Reorganized Debtors, with the consent of the Requisite Creditors, shall undertake the Restructuring Transactions, including: (1) the execution and delivery of any appropriate agreements or other documents of merger, consolidation, restructuring, conversion, disposition, transfer, dissolution, or liquidation containing terms that are consistent with the terms of the Plan, and that satisfy the requirements of applicable law and any other terms to which the applicable Entities may agree; (2) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Plan and having other terms for which the applicable Entities agree; (3) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, or dissolution pursuant to applicable state law; (4) all transactions necessary to provide for the purchase of some or substantially all of the assets of or Interests in any of the Debtors, which transactions shall be structured in the most tax efficient manner, including in whole or in part as a taxable transaction for United States federal income tax purposes, as determined by the Debtors and the Requisite Creditors; (5) the execution and delivery of the Exit Facility Documents; (6) the execution and delivery of Definitive Documentation not otherwise included in the foregoing, if any; and (7) all other actions that the Debtors, the Reorganized Debtors, or the Requisite Creditors determine to be necessary or appropriate, including making filings or recordings that may be required by applicable law.

 

B.

Sources of Consideration for Plan Distributions

The Reorganized Debtors shall fund distributions under the Plan as follows:

 

  1.

Issuance and Distribution of New Equity

The New Equity, including options, or other equity awards, if any, reserved under the Management Incentive Plan, shall be authorized on the Effective Date without the need for any further corporate action and without any further action by the Debtors, the Reorganized Debtors, or Holders of Claims or Interests.

All of the shares of New Equity issued pursuant to the Plan shall be duly authorized, validly issued, fully paid, and non-assessable. Each distribution and issuance of the New Equity under the Plan shall be governed by the terms and conditions set forth in the Plan applicable to such distribution or issuance and by the terms and conditions of the instruments evidencing or relating to such distribution or issuance, which terms and conditions shall bind each Entity receiving such distribution or issuance.

 

28


  2.

New Second Lien PIK Notes

On the Effective Date, New Parent will issue the New Second Lien PIK Notes in accordance with the terms of the New Second Lien PIK Notes Documents. The Confirmation Order shall constitute approval of the New Second Lien PIK Notes (including the transactions contemplated thereby, and all actions to be taken, undertakings to be made, and obligations to be incurred and fees paid by the Reorganized Debtors in connection therewith, including the payment of all fees and expenses provided for therein), and authorization for the Reorganized Debtors to enter into and perform under the New Second Lien PIK Notes Documents and such other documents as may be required or appropriate.

The New Second Lien PIK Notes Documents shall constitute legal, valid, binding, and authorized obligations of the Reorganized Debtors, enforceable in accordance with their terms. The financial accommodations pursuant to the New Second Lien PIK Notes are being issued, and shall be deemed to have been issued, in good faith, for legitimate business purposes, are reasonable, shall not be subject to avoidance, recharacterization, or subordination (including equitable subordination) for any purposes whatsoever, and shall not constitute preferential transfers, fraudulent transfers, obligations, or conveyances, or other voidable transfers or obligations under the Bankruptcy Code or any other applicable non-bankruptcy law. On the Effective Date, all of the Liens and security interests to be granted in accordance with the New Second Lien PIK Notes Documents (a) shall be legal, binding, and enforceable Liens on, and security interests in, the collateral granted thereunder in accordance with the terms of the New Second Lien PIK Notes Documents, (b) shall be deemed automatically perfected on the Effective Date, subject only to such Liens and security interests as may be permitted under the New Second Lien PIK Notes Documents, and (c) shall not be subject to avoidance, recharacterization, or subordination (including equitable subordination) for any purposes whatsoever and shall not constitute preferential transfers, fraudulent transfers, obligations, or conveyances, or other voidable transfers or obligations under the Bankruptcy Code or any applicable non-bankruptcy law. The Reorganized Debtors and the Persons and Entities granted such Liens and security interests are authorized to make all filings and recordings and to obtain all governmental approvals and consents necessary to establish and perfect such Liens and security interests under the provisions of the applicable state, provincial, federal, or other law (whether domestic or foreign) that would be applicable in the absence of the Plan and the Confirmation Order (it being understood that perfection shall occur automatically by virtue of the entry of the Confirmation Order, and any such filings, recordings, approvals, and consents shall not be required), and will thereafter cooperate to make all other filings and recordings that otherwise would be necessary under applicable law to give notice of such Liens and security interests to third parties.

 

  3.

Exit Facility

On the Effective Date, the Combined Consenting Second Lien Noteholders shall provide the Exit Facility in accordance with the terms of the Exit Facility Documents, which terms and conditions shall be acceptable to the Debtors and the Requisite Creditors. The Reorganized Debtors shall use the proceeds of the Exit Facility to pay the outstanding amount of the First Lien Claims and for any other purpose permitted by the Exit Facility Documents. The Exit Facility shall include the following material terms:

 

  a.

The Combined Prepetition Second Lien Noteholders will be offered the opportunity to become a lender under the Exit Facility on a Pro Rata basis, based on each Holder’s respective holdings of Second Lien Notes Claims, through a syndication process.

 

29


  b.

The Commitment Parties will enter into the Exit Facility Commitment Letter pursuant to which the Commitment Parties shall agree to backstop any portion of the principal amount of the Exit Facility for which the other Combined Prepetition Second Lien Noteholders have not exercised their ability to become a lender under the Exit Facility in accordance with the terms of the Plan and the applicable syndication procedures.

 

  c.

In consideration for their commitments under the Exit Facility Commitment Letter, the Commitment Parties shall receive the Put Option Premium.

 

  d.

Terms of the Exit Facility to include:

 

  i.

Borrower: New Parent

 

  ii.

Guarantors: Each subsidiary of New Parent

 

  iii.

Principal Amount: $50 million

 

  iv.

Term: 5 years

 

  v.

Interest Rate: LIBOR + 750 bps (subject to a 1.00% floor)

 

  vi.

Security: Secured by a first lien security interest in the equity of each subsidiary of New Parent on the same collateral that secures the Prepetition Term Loan Agreement

 

C.

Distributions to Holders of General Unsecured Claims

The GUC Administrator shall make distributions to Holders of Allowed General Unsecured Claims to be funded from Cash from the General Unsecured Claims Distribution in accordance with the GUC Administrator Agreement.

 

D.

Corporate Existence

Except as otherwise provided in the Plan, the Plan Supplement, or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, each Debtor shall continue to exist on and after the Effective Date as a separate corporation, limited liability company, partnership, or other form of entity, as the case may be, with all the powers of a corporation, limited liability company, partnership, or other form of entity, as the case may be, pursuant to the New Organizational Documents and the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and bylaws (or other analogous formation, constituent, or governance documents)

 

30


in effect before the Effective Date, except to the extent such certificate of incorporation or bylaws (or other analogous formation, constituent, or governance documents) is amended by the Plan or otherwise, and to the extent any such document is amended, such document is deemed to be amended pursuant to the Plan and requires no further action or approval (other than any requisite filings required under applicable state or federal law).

 

E.

Vesting of Assets in the Reorganized Debtors

Except as otherwise provided in the Plan, the Plan Supplement, or any agreement, instrument, or other document incorporated in the Plan or the Plan Supplement, on the Effective Date, all property in each Estate, including all Causes of Action, and any property acquired by any of the Debtors shall vest in each applicable Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances. On and after the Effective Date, except as otherwise provided in the Plan, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property, and compromise or settle any Claims, Interests, or Causes of Action without supervision or approval by the Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules.

To the extent that any Holder of a Secured Claim that has been satisfied or discharged in full pursuant to the Plan, or any agent for such Holder, has filed or recorded publicly any Liens and/or security interests to secure such Holder’s Secured Claim, as soon as practicable on or after the Effective Date, such Holder (or the agent for such Holder) shall take any and all steps requested by the Debtors, the Reorganized Debtors or any administrative agent or indenture trustee under the Exit Facility Documents or the New Second Lien PIK Notes Documents that are necessary to cancel and/or extinguish such Liens and/or security interests.

After the Effective Date, the Reorganized Debtors may present Court order(s) or assignment(s) suitable for filing in the records of every county or governmental agency where the property vested in accordance with the foregoing paragraph is or was located, which provide that such property is conveyed to and vested in the Reorganized Debtors. The Court order(s) or assignment(s) may designate all Liens, Claims, encumbrances, or other interests which appear of record and/or from which the property is being transferred, assigned and/or vested free and clear of. The Plan shall be conclusively deemed to be adequate notice that such Lien, Claim, encumbrance, or other interest is being extinguished and no notice, other than by this Plan, shall be given prior to the presentation of such Court order(s) or assignment(s). Any Person having a Lien, Claim, encumbrance, or other interest against any of the property vested in accordance with the foregoing paragraph shall be conclusively deemed to have consented to the transfer, assignment, and vesting of such property to or in the Reorganized Debtors free and clear of all Liens, Claims, charges, or other encumbrances by failing to object to confirmation of this Plan, except as otherwise provided in this Plan.

 

F.

Cancellation of Existing Securities

Except for the purpose of evidencing a right to distribution under the Plan and except as otherwise provided in the Plan, on the Effective Date: (i) the obligations of the Debtors under the Prepetition Agreements, and each certificate, share, note, bond, indenture, purchase right, option, warrant, or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of, or ownership interest in, the Debtors or giving rise to any Claim or

 

31


Interest shall be cancelled or extinguished and the Debtors and the Reorganized Debtors shall not have any continuing obligations thereunder; and (ii) the obligations of the Debtors pursuant, relating, or pertaining to any agreements, indentures, certificates of designation, bylaws, or certificate or articles of incorporation or similar documents governing the shares, certificates, notes, bonds, purchase rights, options, warrants, or other instruments or documents evidencing or creating any indebtedness or obligation of the Debtors shall be released and discharged.

On and after the Effective Date, all duties and responsibilities of the Prepetition Term Loan Agent under the Prepetition Term Loan Agreement and the Indenture Trustee under the Prepetition Second Lien Indenture and the Prepetition Second Lien PIK Indenture shall be fully discharged unless otherwise specifically set forth in or provided for under the Plan, the Plan Supplement, or the Confirmation Order. Notwithstanding the foregoing, each of the Indentures shall continue in effect solely for the purposes of, as applicable, (a) allowing Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims to receive distributions under the Plan and (b) allowing and preserving the rights of the Indenture Trustees to (i) make distributions in satisfaction of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, (ii) maintain and exercise their respective Charging Liens under the terms of the Indentures or any related or ancillary document, instrument, agreement, or principle of law against Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, as applicable, and distributions thereto, (iii) seek compensation and reimbursement for any reasonable and documented fees and expenses incurred in making such distributions, (iv) maintain and enforce any right to indemnification, expense reimbursement, contribution, or subrogation or any other claim or entitlement that the Indenture Trustees may have under the applicable Indentures, (v) exercise their rights and obligations relating to the interests of their Holders pursuant to the applicable Indentures, and (vi) appear in these Chapter 11 Cases. For the avoidance of doubt, all indemnification obligations and expense reimbursement obligations of the Debtors arising under the Indentures in favor of the Indenture Trustees, and each of their respective directors, officers, employees, agents, affiliates, controlling persons, and legal and financial advisors shall survive, remain in full force and effect, and be enforceable against the Debtors or their Estates on and after the Effective Date and shall be enforceable through the exercise of the applicable Charging Lien against the Holders of Allowed Prepetition Second Lien Notes Claims and Allowed Prepetition Second Lien PIK Notes Claims, as applicable, and distributions thereto.

If the record Holder of any Prepetition Second Lien Notes, Prepetition Second Lien PIK Notes, or PetroQuest Interests is DTC or its nominee or another securities depository or custodian thereof, and such Note or Interest is represented by a global security held by or on behalf of DTC or such other securities depository or custodian, then each beneficial owner of such Note or Interest shall be deemed to have surrendered its Note or Interest upon surrender of such global security by DTC or such other securities depository or custodian thereof.

 

G.

Corporate Action

Upon the Effective Date, all actions (whether to occur before, on, or after the Effective Date) contemplated by the Plan shall be deemed authorized and approved by the Court in all respects without any further corporate or equityholder action, including, as applicable: (1) issuance of the New Second Lien PIK Notes; (2) execution and delivery of the New Second Lien PIK Notes

 

32


Documents; (3) the adoption and/or filing of the New Organizational Documents and the Registration Rights Agreement; (4) the authorization, issuance, and distribution of the New Equity; (5) appointment of the directors and officers for New Parent and the other Reorganized Debtors; (6) the Management Incentive Plan on the terms and conditions set forth in the MIP Term Sheet; (7) implementation of the Restructuring Transactions; and (8) all other actions contemplated by the Plan. Upon the Effective Date, all matters provided for in the Plan involving the corporate structure of New Parent and the other Reorganized Debtors, and any corporate action required by the Debtors, New Parent, or the other Reorganized Debtors in connection with the Plan (including any items listed in the first sentence of this paragraph) shall be deemed to have occurred and shall be in effect, without any requirement of further action by the security holders, directors, or officers of the Debtors, New Parent or the other Reorganized Debtors, as applicable. On or (as applicable) before the Effective Date, the appropriate officers of the Debtors, New Parent, or the other Reorganized Debtors shall be authorized and directed to issue, execute, and deliver the agreements, documents, securities, and instruments contemplated by the Plan (or necessary or desirable to effectuate the transactions contemplated by the Plan) in the name of and on behalf of New Parent and the other Reorganized Debtors, including the Exit Facility Documents, the New Second Lien PIK Notes Documents, the New Organizational Documents, and any and all other agreements, documents, securities, and instruments relating to the foregoing, to the extent not previously authorized by the Court. The authorizations and approvals contemplated by this Article IV.G shall be effective notwithstanding any requirements under non-bankruptcy law or contract, including for any vote of shareholders or equityholders.

 

H.

New Organizational Documents

To the extent required under the Plan or applicable non-bankruptcy law, New Parent and the other Reorganized Debtors will, on or as soon as practicable after the Effective Date, file their respective New Organizational Documents with the applicable Secretaries of State and/or other applicable authorities in their respective states, provinces, or countries of incorporation in accordance with the corporate laws of the respective states, provinces, or countries of incorporation. Pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, the New Organizational Documents of the Reorganized Debtors will prohibit the issuance of non-voting equity securities and will comply with all other applicable provisions of section 1123(a)(6) of the Bankruptcy Code regarding the distribution of power among, and dividends to be paid to, different classes of voting securities. From and after the Effective Date, New Parent and the other Reorganized Debtors, as applicable, may amend and restate their respective New Organizational Documents and other constituent documents, as permitted by the laws of their respective states, provinces, or countries of incorporation and their respective New Organizational Documents.

On the Effective Date, the New Organizational Documents, substantially in the forms set forth in the Plan Supplement, shall be deemed to be valid, binding, and enforceable in accordance with their terms and provisions.

 

33


I.

Directors and Officers of the Reorganized Debtors

As of the Effective Date, the term of the current members of the board of directors, members or managers of each of the Debtors shall expire automatically, and the New Boards and the officers of each of the Reorganized Debtors shall be appointed in accordance with this Plan, the New Organizational Documents, and other constituent documents of each Reorganized Debtor. The initial New Parent Board shall consist of five (5) members, consisting of Charles T. Goodson as the President and Chief Executive Officer of New Parent and four (4) additional Persons selected by the Requisite Creditors.

Pursuant to section 1129(a)(5) of the Bankruptcy Code, the Debtors will, to the extent known, disclose in advance of the Confirmation Hearing the identity and affiliations of any Person proposed to serve on the initial New Boards, as well as those Persons that will serve as an officer of New Parent or any of the Reorganized Debtors. To the extent any such director, member, manager or officer is an Insider, the nature of any compensation to be paid to such director, member, manager or officer will also be disclosed. Each such director, member, manager and officer shall serve from and after the Effective Date pursuant to the terms of the New Organizational Documents and other constituent documents of New Parent and each of the other Reorganized Debtors.

 

J.

Effectuating Documents; Further Transactions

On and after the Effective Date, New Parent and each of the other Reorganized Debtors, the Reorganized Debtors’ officers, and the members of the New Boards are authorized to and may issue, execute, deliver, file, or record such contracts, Securities, instruments, releases, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement, and further evidence the terms and conditions of the Plan and the Securities issued pursuant to the Plan, including the New Equity and the New Second Lien PIK Notes, in the name of and on behalf of New Parent or the other Reorganized Debtors, without the need for any approvals, authorization, or consents except those expressly required pursuant to the Plan.

 

K.

Exemption from Certain Taxes and Fees

Pursuant to, and to the fullest extent permitted by, section 1146(a) of the Bankruptcy Code, any issuance, transfer, or exchange of a Security (including, without limitation, of the New Equity and the New Second Lien PIK Notes) or transfer of property, in each case, pursuant to, in contemplation of, or in connection with, the Plan shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, sale or use tax, mortgage recording tax, or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forgo the collection of any such tax or governmental assessment and accept for filing and recordation any instruments of transfer or other relevant documents without the payment of any such tax, recordation fee, or governmental assessment.

 

L.

Preservation of Causes of Action

In accordance with section 1123(b) of the Bankruptcy Code, but subject in all respects to Article VIII hereof, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Petition Date, including any actions specifically enumerated in the Plan Supplement, and such rights to commence, prosecute, or settle such Causes of Action shall be preserved notwithstanding

 

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the occurrence of the Effective Date. The Reorganized Debtors may pursue such Causes of Action, as appropriate, in accordance with the best interests of the Reorganized Debtors. A schedule of the Causes of Action known by the Debtors to be retained by the Reorganized Debtors will be included as part of the Plan Supplement. No Entity may rely on the absence of a specific reference in the Plan, the Plan Supplement, or the Disclosure Statement to any Causes of Action against it as any indication that the Debtors or the Reorganized Debtors will not pursue any and all available Causes of Action against it. The Debtors or the Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except as otherwise expressly provided in the Plan. Unless any Causes of Action against an Entity are expressly waived, relinquished, exculpated, released, compromised, or settled in the Plan or a Court order, including, without limitation, pursuant to Article VIII hereof, the Debtors or Reorganized Debtors, as applicable, expressly reserve all Causes of Action for later adjudication, and, therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable, or otherwise), or laches, shall apply to such Causes of Action upon, after, or as a consequence of the Confirmation or Consummation. For the avoidance of doubt, in no instance will any Cause of Action preserved pursuant to this Article IV.L include any claim or Cause of Action with respect to, or against, a Released Party.

In accordance with section 1123(b)(3) of the Bankruptcy Code, except as otherwise provided herein, any Causes of Action that a Debtor may hold against any Entity shall vest in the applicable Reorganized Debtor. The applicable Reorganized Debtors, through their authorized agents or representatives, shall retain and may exclusively enforce any and all such Causes of Action. The Reorganized Debtors shall have the exclusive right, authority, and discretion to determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, withdraw, or litigate to judgment any such Causes of Action, and to decline to do any of the foregoing without the consent or approval of any third party or further notice to or action, order, or approval of the Court.

 

M.

Director and Officer Liability Insurance

Notwithstanding anything in the Plan to the contrary, effective as of the Effective Date, the Reorganized Debtors shall be deemed to have assumed all D&O Liability Insurance Policies pursuant to section 365(a) of the Bankruptcy Code. Entry of the Confirmation Order will constitute the Court’s approval of the Reorganized Debtors’ assumption of such D&O Liability Insurance Policies to the extent they are Executory Contracts. Notwithstanding anything to the contrary contained in the Plan, Confirmation of the Plan shall not discharge, impair, or otherwise modify any indemnity obligations assumed by the foregoing assumption of the D&O Liability Insurance Policies, and each such indemnity obligation will be deemed and treated as an Executory Contract that has been assumed by the Reorganized Debtors under the Plan as to which no Proof of Claim need be Filed, and shall survive the Effective Date.

 

N.

Management Incentive Plan

The Management Incentive Plan will be a comprehensive equity-based award plan as part of the go-forward compensation for the Reorganized Debtors’ management in accordance with the MIP Term Sheet. The Confirmation Order shall authorize and require the New Parent Board to adopt and enter into the Management Incentive Plan, on the terms and conditions set forth in the MIP Term Sheet.

 

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O.

Employee and Retiree Benefits

Except as otherwise provided in the Plan or the Plan Supplement, all written employment, severance, retirement, and other similar employee-related agreements or arrangements in place as of the Effective Date with the Debtors, including any key employee incentive plans and/or key employee retention plans that may be approved by the Court in the Chapter 11 Cases and any items approved as part of the Confirmation Order, retirement income plans and welfare benefit plans, or discretionary bonus plans or variable incentive plans regarding payment of a percentage of annual salary based on performance goals and financial targets for certain employees, shall be assumed by the Reorganized Debtors and shall remain in place after the Effective Date, as may be amended by agreement between the beneficiaries of such agreements, plans, or arrangements, on the one hand, and the Debtors, with the consent of the Requisite Creditors, on the other hand, or, after the Effective Date, by agreement with the Reorganized Debtors, and the Reorganized Debtors will continue to honor such agreements, arrangements, programs, and plans; provided that the foregoing shall not apply to any equity-based compensation, agreement, or arrangement existing as of the Petition Date. Nothing in the Plan shall limit, diminish, or otherwise alter the Reorganized Debtors’ defenses, claims, Causes of Action, or other rights with respect to any such contracts, agreements, policies, programs, and plans.

 

P.

Fees and Expenses of the Consenting Creditors

 

  1.

Payment of Fees and Expenses of the Consenting Creditors

On the Effective Date, to the extent not otherwise paid pursuant to an order of this Court, the Reorganized Debtors shall establish and fund the Consenting Creditors Fee Escrow Account with Cash equal to the Consenting Creditors Fee Reserve Amount. The Consenting Creditors Fee Escrow Account shall be maintained in trust solely for the benefit of the applicable Consenting Creditors Professionals. The funds in the Consenting Creditors Fee Escrow Account shall not be considered property of the Estates or of the Reorganized Debtors and shall not be subject to any Liens.

After the Effective Date, the Consenting Creditors Fees will be subject to a review by the Reorganized Debtors for a period of seven (7) Business Days following submission of each invoice (including reasonable documentation of such fees and expenses), which may be redacted to preserve privilege and/or confidentiality. To the extent the Reorganized Debtors deliver to the applicable Consenting Creditor a written notice of objection within the seven (7) Business Day review period, and the applicable Consenting Creditor and the Reorganized Debtors are unable to resolve such objection on a consensual basis within seven (7) Business Days after such objection has been submitted, the Reorganized Debtors may File with the Court a motion or other pleading setting forth the specific objections to the disputed invoice, and the Court shall adjudicate the matter. The Reorganized Debtors will promptly pay any undisputed Consenting Creditors Fees on the later of the Effective Date or one (1) Business Day following the expiration of the seven (7) Business Day review period. When all such amounts owing to Consenting Creditors have been paid in full, any remaining amount in the Consenting Creditors Fee Escrow Account shall promptly be turned over to the Reorganized Debtors without any further action or order of the Court.

 

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  2.

Consenting Creditors Fee Reserve Amount

Consenting Creditors Professionals shall reasonably estimate their unpaid Consenting Creditors Fees before and as of the Effective Date, and shall deliver such estimate to the Debtors no later than five (5) Business Days before the Effective Date. If any of the Consenting Creditors Professionals does not provide an estimate, the Debtors or Reorganized Debtors may estimate the unpaid and unbilled fees and expenses of such Consenting Creditors Professional.

 

Q.

Preservation of the Charging Lien of the Indenture Trustee

Each Indenture Trustee shall be entitled to assert its Charging Lien arising under and in accordance with the applicable Indenture and any ancillary document, instrument, or agreement to obtain payment of its respective fees and expenses and the fees and expenses of its professionals. Reasonable fees and expenses incurred by the Indenture Trustee after the Effective Date in its capacity as Disbursing Agent and for matters related to distributions to the Combined Prepetition Second Lien Noteholders shall be paid by the Reorganized Debtors and any dispute between the Reorganized Debtors and the Indenture Trustee regarding the reasonableness of such fees and expenses may be submitted to the Court for resolution.

 

R.

Preservation of Royalty and Working Interests

Notwithstanding any other provision in the Plan, on and after the Effective Date all Royalty and Working Interests shall be fully preserved and remain in full force and effect in accordance with the terms of the relevant granting instruments or other governing documents applicable to such Royalty and Working Interests, which granting instruments and governing documents shall remain in full force and effect, and no Royalty and Working Interests or any liabilities and obligations arising therefrom, including payment obligations, whether arising before or after the Petition Date, shall be compromised or discharged by the Plan.

 

S.

GUC Administrator

The GUC Administrator shall have the power to administer the General Unsecured Claims Distribution and make or authorize distributions to Holders of General Unsecured Claims. Without limiting the generality of the foregoing, the GUC Administrator shall: (a) hold and administer the Cash that comprises the General Unsecured Claims Distribution; (b) have authority to pay from the General Unsecured Claims Distribution all out of pocket expenses incurred in connection with the discharge of its duties under the Plan; (c) have the power and authority to retain such attorneys, advisors, other professionals and employees as may be appropriate to perform the duties required of the GUC Administrator in the Plan and in the GUC Administrator Agreement; (d) make distributions to Holders of General Unsecured Claims as provided in the Plan and in the GUC Administrator Agreement; and (e) provide periodic reports and updates to the Reorganized Debtors regarding the status of the administration of the General Unsecured Claims as may be reasonably required. The Reorganized Debtors shall cooperate in a commercially reasonable manner and in good faith with the GUC Administrator to assure that the GUC Administrator has reasonable access to the Reorganized Debtors’ books and records in possession of the Reorganized Debtors in connection with its duty to object to and resolve General Unsecured Claims.

 

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Prior to the Effective Date, an amount of Cash from the General Unsecured Claims Distribution determined by the Debtors and the Creditors’ Committee in consultation with the Requisite Creditors sufficient to perform the functions of the GUC Administrator in connection with its responsibilities, including fees for its counsel, shall be placed into a segregated account. Any excess amount remaining in the account in connection with the closing of the Chapter 11 Cases will be treated as distributable Cash to Holders of General Unsecured Claims.

ARTICLE V.

TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

 

A.

Assumption and Rejection of Executory Contracts and Unexpired Leases

On the Effective Date, except as otherwise provided herein, all Executory Contracts or Unexpired Leases will be deemed assumed and assigned to the Reorganized Debtors or their designated assignee in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code, regardless of whether such Executory Contract or Unexpired Lease is set forth on the Schedule of Assumed Executory Contracts and Unexpired Leases, other than: (1) those that are identified on the Schedule of Rejected Executory Contracts and Unexpired Leases; (2) those that have been previously rejected by a Final Order; (3) those that are the subject of a motion to reject Executory Contracts or Unexpired Leases that is pending on the Effective Date; or (4) those that are subject to a motion to reject an Executory Contract or Unexpired Lease pursuant to which the requested effective date of such rejection is after the Effective Date.

Entry of the Confirmation Order shall constitute the Court’s order approving the assumptions, assumptions and assignments, or rejections, as applicable, of Executory Contracts or Unexpired Leases as set forth in the Plan or in the Schedule of Rejected Executory Contracts and Unexpired Leases and the Schedule of Assumed Executory Contracts and Unexpired Leases, pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Unless otherwise indicated, assumptions, assumptions and assignments, or rejections of Executory Contracts and Unexpired Leases pursuant to the Plan are effective as of the Effective Date. Each Executory Contract or Unexpired Lease assumed pursuant to the Plan but not assigned to a third party before the Effective Date shall re-vest in and be fully enforceable by the applicable Reorganized Debtor in accordance with its terms, except as such terms may have been modified by the provisions of the Plan or any order of the Court. Any motions to assume Executory Contracts or Unexpired Leases pending on the Effective Date shall be subject to approval by the Court on or after the Effective Date. Notwithstanding anything to the contrary in the Plan, the Debtors, with the consent of the Requisite Creditors, reserve the right to alter, amend, modify, or supplement the Schedule of Rejected Executory Contracts and Unexpired Leases at any time prior to the Effective Date on no less than three (3) days’ notice to the applicable non-Debtor counterparties.

 

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B.

Claims Based on Rejection of Executory Contracts or Unexpired Leases

Counterparties to Executory Contracts or Unexpired Leases listed on the Schedule of Rejected Executory Contracts and Unexpired Leases shall be promptly served with a notice of rejection of Executory Contracts and Unexpired Leases. Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts or Unexpired Leases, if any, must be Filed with the Court within the earliest to occur of (1) thirty (30) days after the date of entry of an order of the Court (including the Confirmation Order) approving such rejection or (2) thirty (30) days after notice of any rejection that occurs after the Effective Date. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease that are not Filed within such time will be automatically Disallowed, forever barred from assertion, and shall not be enforceable against, as applicable, the Debtors, the Reorganized Debtors, the Estates, or property of the foregoing parties, without the need for any objection by the Debtors or the Reorganized Debtors or further notice to, or action, order, or approval of the Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules or any Proof of Claim to the contrary. Claims arising from the rejection of the Executory Contracts or Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III.B.7 of the Plan.

 

C.

Cure of Defaults for Assumed Executory Contracts and Unexpired Leases

At least fourteen (14) days before the Confirmation Hearing, the Debtors shall distribute, or cause to be distributed, Cure Notices of proposed assumption or assumption and assignment and proposed amounts of Cure Claims to the applicable counterparties and the Requisite Creditors. Any objection by a counterparty to an Executory Contract or Unexpired Lease to the proposed assumption or assumption and assignment or related Cure Claim must be Filed, served and actually received by the Debtors and the Requisite Creditors at least seven (7) days before the Confirmation Hearing. In the event that any Executory Contract or Unexpired Lease is removed from the Schedule of Rejected Executory Contracts and Unexpired Leases after such time as the Cure Notices referred to above have been distributed, a separate Cure Notice of proposed assumption or assumption and assignment and the proposed amount of the Cure Claim with respect to such Executory Contract or Unexpired Lease will be sent promptly to the counterparty thereof and a hearing will be set to consider whether such Executory Contract or Unexpired Lease can be assumed or assumed and assigned.

Any counterparty to an Executory Contract or Unexpired Lease that fails to object timely to the proposed assumption or assumption and assignment or the proposed Cure Claim will be deemed to have assented to such assumption or assumption and assignment and the Cure Claim. Payment in Cash, on the Effective Date or as soon as reasonably practicable thereafter, to such counterparty of the amount set forth on the applicable Cure Notice shall, as a matter of law, satisfy any and all monetary defaults under the applicable Executory Contract or Unexpired Lease. In the event of a dispute regarding (1) the amount of any payments to cure such a default, (2) the ability of the Reorganized Debtors or any assignee, to provide “adequate assurance of future performance” (within the meaning of section 365 of the Bankruptcy Code) under the Executory Contract or Unexpired Lease to be assumed, or (3) any other matter pertaining to assumption or assumption and assignment, such dispute shall be resolved by a Final Order of the Court.

 

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In any case, if the Court determines that the Allowed Cure Claim with respect to any Executory Contract or Unexpired Lease is greater than the amount set forth in the applicable Cure Notice, the Debtors or the Reorganized Debtors, as applicable, with the consent of the Requisite Creditors, will have the right to add such Executory Contract or Unexpired Lease to the Schedule of Rejected Executory Contracts and Unexpired Leases, in which case such Executory Contract or Unexpired Lease will be deemed rejected as of the Effective Date. After such Executory Contract or Unexpired Lease is added to the Schedule of Rejected Executory Contracts and Unexpired Leases, the applicable counterparty shall be served with a notice of rejection of its Executory Contract or Unexpired Lease.

Assumption of any Executory Contract or Unexpired Lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time before the date that the Debtors assume such Executory Contract or Unexpired Lease. Any Proofs of Claim Filed with respect to an Executory Contract or Unexpired Lease that has been assumed shall be deemed Disallowed and expunged, without further notice to or action, order, or approval of the Court.

 

D.

Insurance Policies

Without limiting Article IV.M, all of the Debtors’ insurance policies and any agreements, documents, or instruments relating thereto, are treated as and deemed to be Executory Contracts under the Plan. On the Effective Date, the Debtors shall be deemed to have assumed all insurance policies and any agreements, documents, and instruments related thereto.

 

E.

Modifications, Amendments, Supplements, Restatements, or Other Agreements

Unless otherwise provided in the Plan, each Executory Contract or Unexpired Lease that is assumed or assumed and assigned shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such Executory Contract or Unexpired Lease, and Executory Contracts and Unexpired Leases related thereto, if any, including easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests, unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

Modifications, amendments, supplements, and restatements to prepetition Executory Contracts and Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases, shall not be deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

 

F.

Reservation of Rights

Neither the exclusion nor inclusion of any Executory Contract or Unexpired Lease on the Schedule of Rejected Executory Contracts and Unexpired Leases, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an Executory Contract or Unexpired Lease or that any Reorganized Debtor has any liability thereunder. If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors, or, after the Effective Date, the Reorganized Debtors, in each case with the consent of the Requisite Creditors, shall have thirty (30) days following entry of a Final Order resolving such dispute to alter the treatment of such contract or lease.

 

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G.

Nonoccurrence of Effective Date

In the event that the Effective Date does not occur, the Court shall retain jurisdiction with respect to any request to extend the deadline for assuming or rejecting Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code.

 

H.

Contracts and Leases Entered into After the Petition Date

Contracts and leases entered into after the Petition Date by any Debtor will be performed by the applicable Debtor or Reorganized Debtor liable thereunder in the ordinary course of its business. Accordingly, such contracts and leases that have not been rejected as of the date of Confirmation will survive and remain unaffected by entry of the Confirmation Order.

ARTICLE VI.

PROVISIONS GOVERNING DISTRIBUTIONS

 

A.

Timing and Calculation of A