|
|
Item 1.01.
|
Entry into a Material Definitive Agreement.
|
Restructuring Support Agreement
On June 14, 2020, the Company entered into a Restructuring
Support Agreement (the “RSA”) with (i) significant holders of its 7.375% senior unsecured notes due 2024 (the
“2024 Senior Notes”) issued pursuant to that certain indenture, dated as of August 1, 2017, by and among
Extraction, as issuer, certain guarantors party thereto and Wilmington Savings Fund Society, FSB, as trustee (such trustee,
“WSFS” and such indenture, the “2024 Senior Notes Indenture”) and (ii) significant holders (such
holders, together with the foregoing significant holders under the 2024 Senior Notes, the “Consenting
Stakeholders”) of its 5.625% senior unsecured notes due 2026 (the “2026 Senior Notes” and, together with
the 2024 Senior Notes, the “Senior Notes”) issued pursuant to that certain indenture, dated as of January 25,
2018, by and among Extraction, the subsidiary guarantors party thereto and WSFS, as trustee (the “2026 Senior Notes
Indenture” and, together with the 2024 Senior Notes Indenture, the “Senior Notes Indentures”). The RSA
contemplates a chapter 11 plan (the “Plan”) implementing (a) a sale to, or combination or merger with, a third
party involving all or substantially all of the Company’s restructured equity or assets pursuant to one or more
transactions that the Company determines, in the exercise of its business judgment, satisfies certain requirements set forth
in the RSA (a “Combination Transaction”) or (b) a pre-arranged financial restructuring that leaves unimpaired all
holders of secured debt and provides meaningful recoveries to junior constituencies, including holders of general unsecured
claims and existing equity interests in the Company.
Under the RSA, the Consenting Stakeholders have agreed,
subject to certain terms and conditions, to support a Combination Transaction that is reasonably acceptable to the Consenting
Stakeholders or a financial restructuring (the “Restructuring”) of the existing debt of, existing equity interest
in, and certain other obligations of the Company, on the terms set forth in the RSA pursuant to the Plan to be filed in the
Chapter 11 Cases. The Company expects to file a motion seeking approval of guidelines governing the submission of proposals in connection with
the process related to the Combination Transaction within 10 days after the Petition Date.
If a Combination Transaction is not pursued, the Plan will
be based on the terms set forth in the restructuring term sheet attached to and incorporated into the RSA (the
“Restructuring Term Sheet”), and the various related transactions set forth in or contemplated by the
Restructuring Term Sheet, the DIP Facility Term Sheet (as defined below), and the other restructuring documents attached to
the RSA (such transactions described in, and in accordance with the RSA, the “Restructuring Transactions”),
which, among other things, contemplates:
|
|
·
|
the Company obtaining confirmation of the Plan, which shall be on terms consistent with the RSA and the Restructuring Term
Sheet, no later than 123 calendar days after the Petition Date;
|
|
|
·
|
on the effective date of the Plan (the “Plan Effective Date”), holders of claims under the Amended and Restated
Credit Agreement, dated as of August 16, 2017, by and among Extraction, as borrower, the subsidiary guarantors party thereto, the
lenders from time to time thereto (the “RBL Lenders”), and Wells Fargo Bank, National Association, as administrative
agent (as may be amended, restated, supplemented, or otherwise modified from time to time, the “Revolving Credit Agreement”),
will, in full and final satisfaction of their claims (a) be reinstated under an amended conforming revolving credit agreement or
(b) receive payment in full in cash as set forth in the Plan, and, if applicable, the facility shall be terminated in connection
with the Chapter 11 Cases;
|
|
|
·
|
on the Plan Effective Date, holders of claims under the Senior Notes Indentures (“Senior Notes Claims”) will receive,
in full and final satisfaction of their claims: (i) in the event of a Combination Transaction, their pro rata share of 97%
of (a) the new common stock (the “New Common Stock”) of Extraction, as reorganized pursuant to and under the Plan
(“Reorganized Extraction”), pro forma for the Combination Transaction, subject to dilution by the Management Incentive
Plan (as defined below), the Backstop Commitment Premium (as defined in the RSA), and the New Warrants (as defined below) (such
allocation, the “Equity Allocation”) or (b) the cash proceeds from the Combination Transaction (the “Alternative
Allocation”); or (ii) in the event of a Stand-Alone Restructuring, their pro rata share of (a) 97% of the Equity Allocation
and (b) 97% of the subscription rights (the “Senior Noteholder Subscription Rights”) to purchase the New Common Stock
in accordance with the terms and conditions of the Equity Rights Offering Documents (as defined in the RSA);
|
|
|
·
|
on the Plan Effective Date, (i) in the event of a Combination Transaction, holders of trade claims that are not expressly assumed
by the Combination Transaction partner pursuant to the Combination Transaction will be treated as non-funded debt general unsecured
obligations; or (ii) in the event of a Stand-Alone Restructuring, holders of trade claims will receive, in full and final satisfaction
of their claims, payment in full on the Plan Effective Date or otherwise in the ordinary course of the Debtors’ business,
and the remaining trade claims will be treated as general unsecured claims;
|
|
|
·
|
on the Plan Effective Date, holders of claims arising from non-funded debt general unsecured obligations will receive, in full
and final satisfaction of their claims, (i) in the event of a Combination Transaction, their pro rata share of 97% of (x) the Equity
Allocation pro forma for the Combination Transaction and/or (y) the Alternative Allocation; or (ii) in the event of a Stand-Alone
Restructuring, their pro rata share of 97% of the Equity Allocation.
|
|
|
·
|
on the Plan Effective Date, existing preferred interests in the Company (the “Existing Preferred Interests”) will
be cancelled, released, and extinguished, and will be of no further force and effect and each holder of an existing preferred interest
will receive, in full and final satisfaction of such Existing Preferred Interest: (i) in the event of a Combination Transaction,
its pro rata share of (a) 1.5% of (x) the Equity Allocation pro forma for the Combination Transaction and/or (y) the Alternative
Allocation, (b) 50% of the Tranche A Warrants (as defined below), and (c) 50% of the Tranche B Warrants (as defined below);
or (ii) in the event of a Stand-Alone Restructuring, (a) 1.5% of the Equity Allocation, (b) 1.5% of the subscription rights to
purchase the New Common Stock in accordance with the terms and conditions of the Equity Rights Offering Documents, (c) 50% of the
Tranche A Warrants, and (d) 50% of the Tranche B Warrants;
|
|
|
·
|
on the Plan Effective Date, existing common interests in the Company (“Existing Common Interests”) will be cancelled,
released, and extinguished, and will be of no further force and effect and each holder of an Existing Common Interest will receive,
in full and final satisfaction of such Existing Common Interest: (i) in the event of a Combination Transaction, its pro rata share
of (a) 1.5% of (x) the Equity Allocation pro forma for the Combination Transaction and/or (y) the Alternative Allocation,
(b) 50% of the Tranche A Warrants, and (c) 50% of the Tranche B Warrants; or (ii) in the event of a Stand-Alone Restructuring,
(a) 1.5% of the Equity Allocation, (b) 1.5% of the subscription rights to purchase the New Common Stock in accordance with the
terms and conditions of the Equity Rights Offering Documents, (c) 50% of the Tranche A Warrants, and (d) 50% of the Tranche
B Warrants;
|
|
|
·
|
on the Plan Effective Date, holders of claims arising from the DIP Facility (as defined below) will receive on the Plan Effective
Date, in full and final satisfaction of such claims, cash or such other consideration as the DIP Lenders (as defined below) agree
in their sole discretion;
|
|
|
·
|
on the Plan Effective Date, cash payment in full of all administrative expense claims, priority tax claims, other priority
claims, and other secured claims or other such treatment rendering such claims unimpaired, including reinstatement pursuant to
section 1124 of the Bankruptcy Code or delivery of the collateral securing any such secured claim and payment of any interest required
under section 506(b) of the Bankruptcy Code;
|
|
|
·
|
on the Plan Effective Date, and in accordance with the terms of the RSA, Reorganized Extraction will issue to the holders of
Existing Preferred Interests and Existing Common Interests (i) new tranche A warrants, with a 4-year tenor, exercisable into 10%
of New Common Stock, struck at an equity value implying a 110% recovery to the Senior Notes on the face value of their claims (including
accrued interest through the Plan Effective Date), subject to dilution by the Management Incentive Plan (the “Tranche A Warrants”),
and (ii) new tranche B warrants, with a 5-year tenor, exercisable into 5% of New Common Stock, struck at an equity value implying
a 125% recovery to the Senior Notes on the face value of their claims (including accrued interest through the Plan Effective Date),
subject to dilution by the Management Incentive Plan (the “Tranche B Warrants,” together with the Tranche A Warrants,
the “New Warrants”). The New Warrants will not include Black Scholes or similar protections in the event of a sale,
merger, or similar transaction prior to exercise.
|
|
|
·
|
on the Plan Effective Date, (i) in the event of a Combination Transaction, customary cash incentives will be provided to the
management with an aggregate value that is no less than the value of the MIP Equity (as defined below), or (ii) in the event of
a Stand-Alone Restructuring, the Plan will provide for the establishment of a post-emergence management incentive plan to be adopted
by the New Board (the “Management Incentive Plan”), which will include (a) restricted stock units, options, New Common
Shares, or other rights exercisable, exchangeable, or convertible into New Common Shares representing up to 10% of the New Common
Shares on a fully diluted and fully distributed basis (the “MIP Equity”) and (b) other terms and conditions customary
for similar type equity plans, and otherwise in form and substance reasonably acceptable to the Required Consenting Senior Noteholder
(as defined in the RSA);
|
In accordance with the Restructuring Support Agreement, the
Consenting Stakeholders agreed, among other things, to: (i) support the Restructuring Transactions as contemplated by, and within
the timeframes outlined in, the Restructuring Support Agreement and the definitive documents governing the Restructuring Transactions;
(ii) not take any action, directly or indirectly, to interfere with acceptance, implementation, or consummation of the Restructuring
Transactions; (iii) vote each of its Senior Notes Claims to accept the Plan; and (iv) not transfer Senior Notes Claims
held by each Consenting Stakeholder except with respect to limited and customary exceptions, including requiring any transferee
to either already be bound or become bound by the terms of the Restructuring Support Agreement.
In accordance with the Restructuring Support Agreement, the
Company Parties agreed, among other things, to: (i) support and take all steps reasonably necessary and desirable to consummate
the Restructuring Transactions in accordance with the Restructuring Support Agreement; (ii) support and take all steps reasonably
necessary and desirable to obtain entry of (a) the final order of the Bankruptcy Court (as defined below) authorizing the Company’s
entry into the DIP Facility Documents (as defined below), (b) the order of the Bankruptcy Court approving the Plan disclosure statement
pursuant to section 1125 of the Bankruptcy Code and (c) the Bankruptcy Court’s order confirming the Plan; and (iii)
not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or
consummation of the Restructuring Transactions.
Debtor-in-Possession Financing
On June 14, 2020, and prior to the commencement of the Chapter
11 Cases, the Company entered into a commitment letter (the “Commitment Letter) with certain of the RBL Lenders, including
Wells Fargo Bank, National Association, (the “Commitment Parties”) pursuant to which, and subject to the satisfaction
of certain customary conditions, including the approval of the Bankruptcy Court, the Commitment Parties have agreed to provide
the Company (the “DIP Credit Parties”) with a superpriority senior secured debtor-in-possession credit facility
(the “DIP Facility”) comprised of (x) an aggregate principal amount of $50,000,000 (the “New DIP Facility”)
comprised of $15,000,000 available upon entry of the Interim DIP Order (the “Interim DIP Facility) and the balance available
upon entry of the Final DIP Order and (y) an aggregate principal amount of $75,000,000 currently outstanding under the Revolving
Credit Agreement provided by the Commitment Parties that will be rolled into the DIP Facility and deemed outstanding under the
DIP Facility upon entry of the Final DIP Order.
All loans outstanding under the DIP Facility bear interest at
an adjusted LIBOR plus 5.75% per annum. During the continuance of an event of default, the outstanding amounts under the DIP Facility
bear interest at an additional 2.00% per annum above the interest rate otherwise applicable. The DIP Facility contains an unused
line fee of 0.50% per annum of the average daily undrawn amount of (i) prior to the Final DIP Order, the Interim DIP Facility and
(ii) following entry of the Final DIP Order, the New DIP Facility.
The terms and conditions of the DIP Facility are set forth in
the debtor-in-possession financing facility term sheet, attached to and incorporated into the RSA (the “DIP Term Sheet”).
The DIP Facility includes conditions precedent, representations and warranties, affirmative and negative covenants and events of
default customary for financings of this type and size.
The DIP Credit Facility is subject to approval by the Bankruptcy
Court, which has not been obtained at this time. The foregoing description of the DIP Term Sheet does not purport to be complete
and is qualified in its entirety by reference to the final, executed documents memorializing the DIP Credit Facility, as approved
by the Bankruptcy Court.
The foregoing description of the RSA, including the Restructuring
Term Sheet and the DIP Term Sheet attached thereto, does not purport to be complete and is qualified by reference to the full text
of the RSA, a copy of which is filed herewith as Exhibit 10.1 and is incorporated herein by reference.