e424b5
This
preliminary prospectus supplement and the accompanying
prospectus relate to an effective registration statement and are
not complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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Subject
to completion, dated November 8, 2010
Filed
pursuant to Rule 424(b)(5)
Registration No. 333-164371
Preliminary
prospectus supplement
(To
prospectus, dated February 1, 2010)
5,000,000 shares
Common
stock
We are offering 5,000,000 shares of our common stock. Our
common stock is traded on the NASDAQ Global Select Market under
the symbol AREX. On November 5, 2010, the last
sale price of the shares as reported on the NASDAQ Global Select
Market was $15.69 per share.
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Per share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to us
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$
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$
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We have granted the underwriters a
30-day
option to purchase up to 750,000 additional shares of our common
stock to cover over-allotments, if any.
Investing in our common stock involves risk. See Risk
factors beginning on
page S-11
of this prospectus supplement and in the documents incorporated
by reference in this prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
We expect that delivery of the shares will be made to investors
on or about November , 2010.
Sole book-running
manager
J.P. Morgan
Co-managers
KeyBanc Capital
Markets
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Canaccord
Genuity |
RBC Capital Markets |
November , 2010
Table of
contents
Prospectus
supplement
Page
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S-ii
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S-ii
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S-iii
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S-1
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S-7
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S-9
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S-11
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S-14
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S-15
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S-16
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S-16
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S-17
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S-20
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S-22
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S-25
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S-26
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S-26
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Prospectus
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Prospectus summary
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1
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Approach Resources Inc.
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1
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The subsidiary guarantors
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1
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Where you can find more information
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1
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Cautionary statement regarding forward-looking statements
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3
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Risk factors
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5
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Ratios of earnings to fixed charges
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5
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Use of proceeds
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5
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Description of capital stock
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5
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Description of depositary shares
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10
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Description of warrants
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12
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Description of rights
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12
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Description of units
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13
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Description of debt securities
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14
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Plan of distribution
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25
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Legal matters
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27
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Experts
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27
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S-i
About this
prospectus supplement
This document is in two parts. The first part is the prospectus
supplement and the documents incorporated by reference herein,
which describes the specific terms of this offering of our
common stock. The second part is the accompanying prospectus,
which gives more general information, some of which may not
apply to our common stock or this offering. If the information
relating to the offering varies between the prospectus
supplement and the accompanying prospectus, you should rely on
the information in this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement, the
accompanying prospectus and any related free writing prospectus.
We have not authorized anyone to provide you with additional or
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. This
prospectus supplement and the accompanying prospectus are not an
offer to sell or the solicitation of an offer to buy any
securities other than the securities to which they relate and
are not an offer to sell or the solicitation of an offer to buy
securities in any jurisdiction to any person to whom it is
unlawful to make an offer or solicitation in that jurisdiction.
You should not assume that the information contained in this
prospectus supplement is accurate as of any date other than the
date on the front cover of this prospectus supplement, or that
the information contained in any document incorporated by
reference is accurate as of any date other than the date of the
document incorporated by reference, regardless of the time of
delivery of this prospectus supplement or any sale of a security.
In this prospectus supplement, the Company,
we, us, our or
ours refer to Approach Resources Inc. and its
subsidiaries, unless we state otherwise or the context indicates
otherwise.
Where you can
find more information
We file annual, quarterly and current reports and other
information (File
No. 001-33801)
with the Securities and Exchange Commission, which we refer to
as the SEC, pursuant to the Securities Exchange Act of 1934, as
amended, which we refer to as the Exchange Act. You
may read and copy any documents that are filed at the SECs
public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of these
documents at prescribed rates from the public reference section
of the SEC at its Washington address. Please call the SEC at
1-800-SEC-0330
for further information.
Our filings are also available to the public through the
SECs website at
http://www.sec.gov.
The SEC allows us to incorporate by reference
information that we file with it, which means that we can
disclose important information to you by referring you to
documents previously filed with the SEC. The information
incorporated by reference is an important part of this
prospectus supplement, and the information that we later file
with the SEC will automatically update and supersede this
information. The following documents we have filed with the SEC
pursuant to the Exchange Act are incorporated herein by
reference:
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our Annual Report on
Form 10-K
for the year ended December 31, 2009;
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our Quarterly Reports on
Form 10-Q
for the periods ended March 31, 2010, June 30, 2010
and September 30, 2010;
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S-ii
our Current Reports on
Form 8-K
filed on February 4, 2010, May 6, 2010, June 4,
2010, August 6, 2010, October 26, 2010 and
November 2, 2010 (excluding any information furnished
pursuant to Item 2.02 or Item 7.01 on any Current
Report on Form 8-K); and
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the description of our common stock contained in our
registration statement on Form
8-A12B filed
on November 5, 2007, including any amendment to that form
that we may file in the future for the purpose of updating the
description of our common stock.
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These reports contain important information about us, our
financial condition and our results of operations.
All future documents filed pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act (excluding any
information furnished pursuant to Item 2.02 or
Item 7.01 on any Current Report on
Form 8-K)
before the termination of each offering under this prospectus
supplement shall be deemed to be incorporated in this prospectus
supplement by reference and to be a part hereof from the date of
filing of such documents. Any statement contained herein, or in
a document incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded
for purposes of this prospectus supplement to the extent that a
statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
prospectus supplement.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address or telephone number:
Approach Resources Inc.
One Ridgmar Centre
6500 West Freeway, Suite 800
Fort Worth, Texas 76116
Attention: Executive Vice President and General Counsel
(817) 989-9000
We also maintain a website at
http://www.approachresources.com.
The information on our website is not part of this prospectus
supplement, and you should rely only on the information
contained in this prospectus supplement and in the documents
incorporated by reference when making a decision as to whether
to buy our common stock in this offering.
Cautionary
statement regarding
forward-looking statements
Various statements contained in or incorporated by reference
into this prospectus supplement that express a belief,
expectation or intention, or that are not statements of
historical fact, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, which we refer to as the Securities Act,
and Section 21E of the Exchange Act. The forward-looking
statements may include projections and estimates concerning the
timing and success of specific projects and our future reserves,
production, revenues, income and capital spending. When we use
the words will, believe,
intend, expect, may,
should, anticipate, could,
estimate, plan, predict,
project or their negatives, other similar
S-iii
expressions or the statements that include those words, it
usually is a forward-looking statement.
These forward-looking statements are largely based on our
expectations, which reflect estimates and assumptions made by
our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other
factors. Although we believe such estimates and assumptions to
be reasonable, they are inherently uncertain and involve a
number of risks and uncertainties that are beyond our control.
In addition, managements assumptions about future events
may prove to be inaccurate. We caution all readers that the
forward-looking statements contained in this prospectus
supplement are not guarantees of future performance, and we
cannot assure any reader that such statements will be realized
or the forward-looking events and circumstances will occur.
Actual results may differ materially from those anticipated or
implied in the forward-looking statements due to the factors
detailed below and discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2009, our Quarterly Reports
on
Form 10-Q
for the periods ended March 31, 2010, June 30, 2010
and September 30, 2010, and our subsequent SEC filings. All
forward-looking statements contained in this prospectus
supplement speak only as of the date of this prospectus
supplement, and all forward-looking statements incorporated by
reference into this prospectus supplement speak only as of the
dates such statements were issued. We expressly disclaim all
responsibility to publicly update or revise any forward-looking
statements as a result of new information, future events or
otherwise. These cautionary statements qualify all
forward-looking statements attributable to us, or persons acting
on our behalf. The risks, contingencies and uncertainties relate
to, among other matters, the following:
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our business strategy, including our ability to recover oil and
gas in place associated with our Wolffork oil resource play in
the Permian Basin;
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estimated quantities of oil and gas reserves;
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overall United States and global economic and financial market
conditions;
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domestic and foreign demand and supply for oil, gas, natural gas
liquids, or NGLs and liquefied natural gas, or LNG;
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uncertainty of commodity prices in oil, gas and NGLs;
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disruption of credit and capital markets;
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our financial position;
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our cash flow and liquidity;
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replacing our oil and gas reserves;
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our inability to retain and attract key personnel;
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uncertainty regarding our future operating results;
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uncertainties in exploring for and producing oil and gas;
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high costs, shortages, delivery delays or unavailability of
drilling rigs, equipment, labor or other services;
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disruptions to, capacity constraints in or other limitations on
the pipeline systems that deliver our gas and NGLs and other
processing and transportation considerations;
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S-iv
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our inability to obtain additional financing necessary to fund
our operations and capital expenditures and to meet our other
obligations;
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competition in the oil and gas industry;
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marketing of oil, gas and NGLs;
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interpretation of
3-D seismic
data;
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exploitation of our current asset base or property acquisitions;
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the effects of government regulation and permitting and other
legal requirements;
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plans, objectives, expectations and intentions contained in this
prospectus supplement that are not historical; and
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the other factors described in this prospectus supplement, the
accompanying prospectus and the documents we incorporate herein
by reference.
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S-v
Summary
This summary highlights selected information contained
elsewhere in this prospectus supplement, the accompanying
prospectus and the documents we incorporate by reference. It
does not contain all of the information you should consider
before making an investment decision. You should read the entire
prospectus supplement, the accompanying prospectus, the
documents incorporated by reference and the other documents to
which we refer for a more complete understanding of our business
and this offering. Please read the section entitled Risk
factors commencing on
page S-11
of this prospectus supplement and additional information
contained in our Annual Report on
Form 10-K
for the year ended December 31, 2009, and our Quarterly
Reports on
Form 10-Q
for the periods ended March 31, 2010, June 30, 2010
and September 30, 2010, each of which is incorporated by
reference in this prospectus supplement, for more information
about important factors you should consider before investing in
our common stock in this offering. The estimates of our proved
reserves as of June 30, 2010, and December 31, 2009,
included in this prospectus supplement are based on the reserve
reports prepared by DeGolyer and MacNaughton, our independent
petroleum engineers, which reports are filed as exhibits to our
Quarterly Report on
Form 10-Q
for the period ended June 30, 2010, and Annual Report on
Form 10-K
for the year ended December 31, 2009, respectively, and
incorporated herein by reference.
Our
company
We are an independent energy company engaged in the exploration,
development, production and acquisition of oil and gas
properties. We focus on oil and natural gas reserves in oil
shale and tight sands. Our management and technical team has a
proven track record of finding and exploiting reservoirs through
advanced completion, fracturing and drilling techniques. Our
properties are primarily located in the Permian Basin in West
Texas (Clearfork, Wolfcamp Shale, Canyon Sands, Strawn and
Ellenburger). We also own interests in the East Texas Basin in
East Texas (Cotton Valley Sand and Cotton Valley Lime). As the
operator of all of our estimated proved reserves and production,
we have a high degree of control over capital expenditures and
other operating matters.
At June 30, 2010, we had estimated proved oil and gas
reserves of 46.4 MMBoe. Important characteristics of our
reserve base at June 30, 2010, include:
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Estimated proved reserves of 50% oil and NGLs and 50% natural
gas,
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48% proved developed,
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100% operated,
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Reserve life of over 20 years based on average daily
production of 4.5 MBoe/d for the three months ended
September 30, 2010, and
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Standardized measure of discounted future net cash flows of
$180.3 million and
PV-10 of
$277.8 million at mid-year 2010 based on SEC reserves
pricing, and standardized measure of discounted future net cash
flows of $247.5 million and
PV-10 of
$403.8 million based on NYMEX strip pricing at
October 31, 2010. See Reconciliation of standardized
measure to
PV-10.
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Over 95% of our proved reserves and production at June 30,
2010, are located in the Permian Basin. During the first nine
months of 2010, we drilled a total of 72 gross (44.5 net)
wells in the
S-1
Permian Basin with a 100% success rate. Production for the nine
months ended September 30, 2010, was 1,120 MBoe, and
we anticipate that total 2010 production will be between
1,500 MBoe and 1,600 MBoe.
Our core operating area is in the Permian Basin in Crockett and
Schleicher Counties, Texas. We operate two fields, Ozona
Northeast and Cinco Terry. In 2010, we acquired 28,994 net
acres and joined Ozona Northeast and Cinco Terry into one
project area that we refer to as Project Pangea.
Project Pangea includes approximately 98,000 net, primarily
contiguous acres and is characterized by multiple oil and
liquids-rich formations.
Business
strategy
Our objective is to build long-term stockholder value through
growth in reserves and production in a cost-efficient manner. We
intend to accomplish this objective by using a balanced program
of (1) developing our drilling inventory,
(2) evaluating, developing and exploiting our Wolffork oil
resource play, (3) operating as a low cost producer,
(4) completing strategic, complementary acquisitions and
(5) maintaining financial flexibility. The following are
key elements of our strategy:
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Continue to develop our low risk, multi-year drilling
inventory. Our core properties, located in the Permian Basin
of West Texas, are characterized by multiple prospective target
formations and development opportunities. Focusing on our core
properties allows us to develop operating, technical and
regional expertise important to interpreting geological and
operating trends and developing economies of scale. At
September 30, 2010, we estimate that, excluding our
Wolffork resource potential, we had approximately 1,190
identified gross, unrisked drilling locations in inventory, both
proved and unproved, including approximately 1,100 drilling
locations in the Permian Basin targeting the Canyon Sands and
deeper zones. During the first nine months of 2010, we have
drilled a total of 72 gross (44.5 net) wells in the Permian
Basin with a 100% success rate.
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Evaluate, develop and exploit our Wolffork oil shale resource
play. We recently announced the results of a detailed
geological and petrophysical study of the Wolfcamp Shale and
Clearfork formations, which we refer to collectively as the
Wolffork, located across our acreage position in the
Permian Basin in our Project Pangea area. We identified the
Wolffork through extensive regional mapping and whole-core data,
3-D seismic
data from over 135,000 acres and well data from over
400 wellbores that we have drilled and completed while
targeting the deeper zones. We have identified approximately
2,810 gross, unrisked Wolffork drilling and recompletion
locations across our approximately 98,000 net acres,
including:
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1,100 locations targeting the Canyon Sands and deeper zones,
which we believe can be drilled, completed and comingled with
the shallower Wolffork,
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1,230 horizontal Wolfcamp Shale locations, and
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480 Wolffork recompletion locations.
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We have dedicated substantially all of our 2011 capital budget
to this play.
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Operate our properties as a low cost producer. We seek to
minimize our operating costs by concentrating our assets within
geographic areas where we can consolidate operating control and
thus create operating efficiencies. We operate all of our
production and estimated proved
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S-2
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reserves and plan to continue to operate a substantial portion
of our producing properties in the future. Operating control
allows us to better manage timing and risk as well as the cost
of exploration and development, drilling and ongoing operations.
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Acquire strategic, complementary assets. We continually
review opportunities to acquire producing properties,
undeveloped acreage and drilling prospects in our existing core
area in the Permian Basin. We focus particularly on
opportunities where we believe our operational and reservoir
management and geological expertise in unconventional oil and
gas properties will enhance value and performance. We remain
focused on unconventional resource opportunities, but also look
at conventional opportunities based on individual project
economics.
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Maintain financial flexibility. Our financial results
depend on many factors, particularly the price of oil, gas and
NGLs. We believe in maintaining financial flexibility given the
volatility of these prices, fluctuation in drilling and oilfield
service costs and the risks involved in drilling. During times
of severe price declines, we may from time to time reduce
capital expenditures and curtail drilling in order to preserve
our financial flexibility and the net asset value of our
existing proved reserves. A strong balance sheet and liquidity
provide us with significant financial flexibility to pursue our
strategic and financial objectives. Also, we may from time to
time enter into commodity price swaps and collars to partially
mitigate the risk of commodity price volatility.
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Recent
developments
Mid-Year
2010 Proved Reserves
Our proved oil and gas reserves at June 30, 2010, were
46.4 MMBoe, an increase of 27% over year end 2009 proved
reserves. Our proved oil and NGL reserves grew 173% to
23.1 MMBbls, up from 8.4 MMBbls at year end 2009.
Total proved reserves at June 30, 2010, were 50% oil and
NGLs and 50% natural gas, compared to 23% oil and NGLs and 77%
natural gas at year end 2009. Proved developed reserves grew by
44% to 22.4 MMBoe and now represent 48% of our reserve
base, compared to 43% at year end 2009. Our increase in proved
reserves at June 30, 2010, was primarily due to planned
processing upgrades in our largest field in the Permian Basin,
Ozona Northeast, after the first quarter of 2011. At that time,
our current, wellhead gas purchase contract will have expired
and we will begin realizing NGL revenues from the liquids-rich
gas stream in Ozona Northeast. Improved pricing for natural gas,
oil and NGLs, and planned processing upgrades, well performance
and development drilling in Cinco Terry also contributed to the
increase in proved reserves at June 30, 2010. Excluding the
effect of any future acquisitions, we expect that continued
development of Cinco Terry in 2010 and beyond, along with
processing gas and continued development in Ozona Northeast in
2011 and beyond, will continue to increase the oil and NGL
component of our production and reserves in the future.
S-3
The following table is a summary of our estimated proved
reserves at June 30, 2010, compared to proved reserves at
year end 2009. We determined the barrel of oil equivalent using
a conversion ratio of six Mcf of natural gas to one Bbl of oil,
condensate or NGLs.
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December 31, 2009
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June 30, 2010
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Natural
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Natural
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gas
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Oil
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NGLs
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Total
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gas
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Oil
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NGLs
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Total
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Percent
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(MMcf)
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(MBbls)
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(MBbls)
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(MMBoe)
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(MMcf)
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(MBbls)
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(MBbls)
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(MMBoe)
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change
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Ozona Northeast
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126,615
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1,359
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22,462
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96,638
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1,597
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13,450
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31,153
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39%
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Cinco Terry
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26,235
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2,979
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4,094
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11,446
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28,250
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2,995
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5,017
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12,720
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11%
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North Bald Prairie
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15,484
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2,581
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15,009
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2,502
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(3%
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Total
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168,334
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4,338
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4,094
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36,489
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139,897
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4,592
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18,467
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46,375
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27%
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Operational
Update
During the three months ended September 30, 2010, we
produced 419 MBoe, or 4.5 MBoe/d. Our production for the
three months ended September 30, 2010, was 66% natural gas
and 34% oil and NGLs. We drilled 27 gross (15 net) wells in
the Permian Basin during the three months ended
September 30, 2010, of which five gross (four net) wells
were waiting on completion at September 30, 2010. During
2010, we have drilled a total of 72 gross (44.5 net) wells
in the Permian Basin with a 100% success rate. At
September 30, 2010, we owned working interests in
approximately 550 gross (480 net) producing oil and gas
wells.
Wolffork
Oil Resource Play
We recently announced the results of a detailed geological and
petrophysical study of the Wolffork play located across our
acreage position in the Permian Basin in our Project Pangea
area. We identified the Wolffork through extensive regional
mapping and whole-core data,
3-D seismic
data from over 135,000 acres and well data from over
400 wellbores that we have drilled and completed while
targeting the deeper Canyon Sands, Strawn and Ellenburger zones.
The Wolffork is comprised of three stacked pay zones, the
Clearfork, Dean and Wolfcamp Shale formations. Petrophysical
analyses indicate more than 2,500 feet of gross pay from
the Wolffork. We have recompleted three wells in the Wolfcamp
Shale and commingled the Wolfcamp and Canyon Sands zones in one
additional well to date. During the fourth quarter of 2010, we
plan to further delineate the Wolffork trend across our acreage
position. Our Wolffork pilot program for the balance of 2010 is
outlined below.
|
|
|
Drill one horizontal well, the Cinco Terry M 901-H,
targeting the Wolfcamp Shale, which we expect to complete during
the first quarter of 2011,
|
|
|
Recomplete the Cinco Terry 1601, targeting the Wolfcamp Shale
zone,
|
|
|
Recomplete two wells in Ozona Northeast (southeast portion of
Project Pangea), targeting the Wolffork, and
|
|
|
Complete the Baker C 1201, targeting the Wolffork
and Canyon Sands zones.
|
S-4
Recent
Acquisition
In October 2010, we acquired an additional 10% working interest
in Cinco Terry (northwest portion of Project Pangea) from a
non-operating partner for $21.5 million. The acquisition
included 1.9 MMBoe of estimated proved reserves (60% oil
and NGLs and 61% proved developed), 470 Boe/d of production and
5,033 net acres. Project Pangea now covers approximately
98,000 net acres that we believe are prospective for one or
more of the Clearfork, Wolfcamp Shale, Canyon Sands, Strawn and
Ellenburger formations. The acquisition was funded through
borrowings under our revolving credit facility.
2011
Capital Expenditures
Our 2011 capital budget is estimated to be approximately
$100 million, substantially all of which will be allocated
to Project Pangea. The 2011 budget includes operating:
|
|
|
One rig to drill approximately 11 gross (7 net) horizontal
wells targeting the Wolfcamp Shale,
|
|
|
One rig to drill approximately 19 gross (19 net) vertical
wells targeting the Wolffork and Canyon Sands,
|
|
|
One rig to drill approximately 26 gross (16 net) vertical
wells targeting the Canyon Sands and deeper zones, which we
expect to recomplete and commingle with the shallower Wolffork
in 2012, and
|
|
|
One workover rig to recomplete approximately 10 gross (10
net) wells in the Wolffork.
|
The 2011 capital expenditure budget is subject to change
depending upon a number of factors, including additional data on
our Wolffork oil resource play, results of Wolfcamp Shale and
Wolffork pilot wells and recompletions, lease expirations,
extensions and renewals, economic and industry conditions at the
time of drilling, prevailing and anticipated prices for oil, gas
and NGLs, the availability of sufficient capital resources for
drilling prospects, our financial results, the availability of
leases on reasonable terms and our ability to obtain permits for
drilling locations.
Corporate
information
Our principal executive offices are located at One Ridgmar
Centre, 6500 West Freeway, Suite 800, Fort Worth,
Texas 76116, and our telephone number is
(817) 989-9000.
We maintain a website at
http://www.approachresources.com.
However, the information on our website is not part of this
prospectus supplement, and you should rely only on the
information contained in this prospectus supplement and in the
documents incorporated by reference when making a decision as to
whether to buy our common stock in this offering.
S-5
The
offering
|
|
|
Common stock offered by us |
|
5,000,000 shares (or up to 5,750,000 shares if the
underwriters exercise in full their option to purchase an
additional 750,000 shares). |
|
Common stock to be outstanding after this offering(1) |
|
26,531,094 shares (or up to 27,281,094 shares if the
underwriters exercise in full their option to purchase an
additional 750,000 shares). |
|
Use of proceeds |
|
We estimate that the net proceeds from this offering will be
approximately $74.3 million ($85.5 million if the
underwriters exercise in full their option to purchase
additional shares) after deducting fees and expenses (including
underwriting discounts and commissions). We intend to use the
net proceeds from this offering primarily to fund our capital
expenditures associated with the development of our Wolffork oil
resource play, potential acquisitions of oil and gas leases and
other properties in our core areas of operations and general
working capital needs. Pending such uses, we intend to repay
outstanding borrowings under our revolving credit facility,
which amounts may be reborrowed in accordance with the terms of
the facility. See Use of proceeds. |
|
Conflicts of interest |
|
Affiliates of J.P. Morgan Securities LLC and KeyBanc
Capital Markets Inc. serve as lenders under our revolving credit
facility and, in such capacity, will receive a portion of the
net proceeds from this offering. See Conflicts of
interest. |
|
Risk factors |
|
Investing in our common stock involves substantial risk. You
should carefully consider the risk factors set forth in the
section entitled Risk factors and the other
information contained in this prospectus supplement and the
accompanying prospectus and the documents incorporated by
reference herein, prior to making an investment in our common
stock. See Risk factors beginning on
page S-11
of this prospectus supplement. |
|
NASDAQ Global Select Market symbol |
|
AREX |
|
|
|
(1)
|
|
Based on 21,531,094 shares
outstanding as of November 5, 2010. Excludes
393,127 shares of our common stock issuable pursuant to the
exercise of outstanding stock options held by our officers and
employees at a weighted average exercise price of $7.87 per
share.
|
S-6
Summary condensed
consolidated financial data
The following table shows selected financial information as of
and for the periods indicated. We derived the information in the
following table from, and that information should be read
together with and is qualified in its entirety by reference to,
(i) our audited consolidated financial statements and the
accompanying notes included in our Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
herein by reference, and (ii) our unaudited consolidated
financial statements and the accompanying notes included in our
Quarterly Report on
Form 10-Q
for the period ended September 30, 2010, which is
incorporated herein by reference. This summary table should be
read in conjunction with the section titled
Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in each of
our Annual Report on
Form 10-K
for the year ended December 31, 2009, and our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2010, each of which is
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
Year ended December 31,
|
|
|
September 30,
|
|
(in thousands, except per-share data)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
Operating results data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
39,114
|
|
|
$
|
79,869
|
|
|
$
|
40,648
|
|
|
$
|
28,767
|
|
|
$
|
41,291
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating
|
|
|
3,815
|
|
|
|
7,621
|
|
|
|
7,777
|
|
|
|
6,016
|
|
|
|
6,038
|
|
Severance and production taxes
|
|
|
1,659
|
|
|
|
4,202
|
|
|
|
1,996
|
|
|
|
1,392
|
|
|
|
2,047
|
|
Exploration
|
|
|
883
|
|
|
|
1,478
|
|
|
|
1,621
|
|
|
|
534
|
|
|
|
2,245
|
|
Impairment of unproved properties
|
|
|
267
|
|
|
|
6,379
|
|
|
|
2,964
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
12,667
|
|
|
|
8,881
|
|
|
|
10,617
|
|
|
|
7,277
|
|
|
|
7,902
|
|
Depletion, depreciation and amortization
|
|
|
13,098
|
|
|
|
23,710
|
|
|
|
24,660
|
|
|
|
18,766
|
|
|
|
16,677
|
|
|
|
|
|
|
|
Total expenses
|
|
|
32,389
|
|
|
|
52,271
|
|
|
|
49,635
|
|
|
|
33,985
|
|
|
|
34,909
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
6,725
|
|
|
|
27,598
|
|
|
|
(8,987
|
)
|
|
|
(5,218
|
)
|
|
|
6,382
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of investment
|
|
|
|
|
|
|
(917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(5,219
|
)
|
|
|
(1,269
|
)
|
|
|
(1,787
|
)
|
|
|
(1,353
|
)
|
|
|
(1,631
|
)
|
Realized gain on commodity derivatives
|
|
|
4,732
|
|
|
|
2,936
|
|
|
|
14,659
|
|
|
|
11,896
|
|
|
|
3,613
|
|
Unrealized (loss) gain on commodity derivatives
|
|
|
(3,637
|
)
|
|
|
7,149
|
|
|
|
(9,899
|
)
|
|
|
(8,589
|
)
|
|
|
2,882
|
|
|
|
|
|
|
|
Income (loss) before income tax (benefit) provision
|
|
|
2,601
|
|
|
|
35,497
|
|
|
|
(6,014
|
)
|
|
|
(3,264
|
)
|
|
|
11,246
|
|
Income tax (benefit) provision
|
|
|
(108
|
)
|
|
|
12,111
|
|
|
|
(785
|
)
|
|
|
(317
|
)
|
|
|
4,045
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,709
|
|
|
$
|
23,386
|
|
|
$
|
(5,229
|
)
|
|
$
|
(2,947
|
)
|
|
$
|
7,201
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
1.13
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.34
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
1.12
|
|
|
$
|
(0.25
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.34
|
|
|
|
|
|
|
|
Statement of cash flows data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
30,746
|
|
|
$
|
56,435
|
|
|
$
|
39,761
|
|
|
$
|
22,930
|
|
|
$
|
32,455
|
|
Investing activities
|
|
|
(52,940
|
)
|
|
|
(100,633
|
)
|
|
|
(29,553
|
)
|
|
|
(19,468
|
)
|
|
|
(53,115
|
)
|
Financing activities
|
|
|
22,062
|
|
|
|
43,696
|
|
|
|
(11,618
|
)
|
|
|
(6,848
|
)
|
|
|
18,396
|
|
|
|
S-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
Year ended December 31,
|
|
|
September 30,
|
|
(in thousands, except per-share data)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
Balance sheet data (as of period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,785
|
|
|
$
|
4,077
|
|
|
$
|
2,685
|
|
|
$
|
700
|
|
|
$
|
417
|
|
Other current assets
|
|
|
12,021
|
|
|
|
30,760
|
|
|
|
9,318
|
|
|
|
7,509
|
|
|
|
16,171
|
|
Property, equipment, net, successful efforts method
|
|
|
230,819
|
|
|
|
303,404
|
|
|
|
304,483
|
|
|
|
304,104
|
|
|
|
339,199
|
|
Other assets
|
|
|
1,101
|
|
|
|
|
|
|
|
2,440
|
|
|
|
220
|
|
|
|
2,521
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
248,726
|
|
|
$
|
338,241
|
|
|
$
|
318,926
|
|
|
$
|
312,533
|
|
|
$
|
358,308
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
22,017
|
|
|
$
|
30,775
|
|
|
$
|
21,996
|
|
|
$
|
9,199
|
|
|
$
|
28,243
|
|
Long-term debt
|
|
|
|
|
|
|
43,537
|
|
|
|
32,319
|
|
|
|
36,939
|
|
|
|
51,069
|
|
Other long-term liabilities
|
|
|
26,890
|
|
|
|
40,116
|
|
|
|
44,115
|
|
|
|
43,965
|
|
|
|
49,331
|
|
Stockholders equity
|
|
|
199,819
|
|
|
|
223,813
|
|
|
|
220,496
|
|
|
|
222,430
|
|
|
|
229,665
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
248,726
|
|
|
$
|
338,241
|
|
|
$
|
318,926
|
|
|
$
|
312,533
|
|
|
$
|
358,308
|
|
|
|
S-8
Summary
production data
The following table sets forth summary data with respect to our
natural gas, oil and NGL revenues, production, average product
prices and average production costs and expenses for the periods
indicated. For additional information on price calculations, see
the information set forth in the section titled
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in each of
our Annual Report on
Form 10-K
for the year ended December 31, 2009, and our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2010, each of which is
incorporated herein by reference. Natural gas is converted at
the rate of 6 Mcf per one Bbl of oil.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
Year ended December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
Revenues (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
$
|
33,497
|
|
|
$
|
58,819
|
|
|
$
|
23,406
|
|
|
$
|
16,936
|
|
|
$
|
21,762
|
|
Oil
|
|
|
5,062
|
|
|
|
16,413
|
|
|
|
11,323
|
|
|
|
7,700
|
|
|
|
12,630
|
|
NGLs
|
|
|
555
|
|
|
|
4,637
|
|
|
|
5,919
|
|
|
|
4,131
|
|
|
|
6,899
|
|
|
|
|
|
|
|
Total oil and gas sales
|
|
|
39,114
|
|
|
|
79,869
|
|
|
|
40,648
|
|
|
|
28,767
|
|
|
|
41,291
|
|
Realized gain on commodity derivatives
|
|
|
4,732
|
|
|
|
2,936
|
|
|
|
14,659
|
|
|
|
11,896
|
|
|
|
3,613
|
|
|
|
|
|
|
|
Total oil and gas sales including derivative impact
|
|
$
|
43,846
|
|
|
$
|
82,805
|
|
|
$
|
55,307
|
|
|
$
|
40,663
|
|
|
$
|
44,904
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (MMcf)
|
|
|
4,801
|
|
|
|
7,092
|
|
|
|
6,320
|
|
|
|
4,900
|
|
|
|
4,646
|
|
Oil (MBbls)
|
|
|
72
|
|
|
|
175
|
|
|
|
206
|
|
|
|
155
|
|
|
|
172
|
|
NGLs (MBbls)
|
|
|
12
|
|
|
|
102
|
|
|
|
209
|
|
|
|
164
|
|
|
|
174
|
|
|
|
|
|
|
|
Total (MBoe)
|
|
|
884
|
|
|
|
1,459
|
|
|
|
1,468
|
|
|
|
1,136
|
|
|
|
1,120
|
|
Total (MBoe/d)
|
|
|
2.4
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.2
|
|
|
|
4.1
|
|
Average prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (per Mcf)
|
|
$
|
6.98
|
|
|
$
|
8.29
|
|
|
$
|
3.70
|
|
|
$
|
3.46
|
|
|
$
|
4.68
|
|
Oil (per Bbl)
|
|
|
70.31
|
|
|
|
93.79
|
|
|
|
54.97
|
|
|
|
49.53
|
|
|
|
73.41
|
|
NGLs (per Bbl)
|
|
|
46.25
|
|
|
|
45.46
|
|
|
|
28.32
|
|
|
|
25.18
|
|
|
|
39.64
|
|
|
|
|
|
|
|
Total (per Boe)
|
|
$
|
44.25
|
|
|
$
|
54.74
|
|
|
$
|
27.69
|
|
|
$
|
25.32
|
|
|
$
|
36.87
|
|
Realized gain on commodity derivatives (per Boe)
|
|
|
5.35
|
|
|
|
2.01
|
|
|
|
9.99
|
|
|
|
10.47
|
|
|
|
3.22
|
|
|
|
|
|
|
|
Total including derivative impact (per Boe)
|
|
$
|
49.60
|
|
|
$
|
56.75
|
|
|
$
|
37.68
|
|
|
$
|
35.79
|
|
|
$
|
40.09
|
|
Costs and expenses (per Boe)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating(1)
|
|
$
|
4.32
|
|
|
$
|
5.22
|
|
|
$
|
5.30
|
|
|
$
|
5.30
|
|
|
$
|
5.39
|
|
Severance and production taxes
|
|
|
1.88
|
|
|
|
2.88
|
|
|
|
1.36
|
|
|
|
1.23
|
|
|
|
1.83
|
|
Exploration
|
|
|
1.00
|
|
|
|
1.01
|
|
|
|
1.10
|
|
|
|
0.47
|
|
|
|
2.00
|
|
Impairment of unproved properties
|
|
|
0.30
|
|
|
|
4.37
|
|
|
|
2.02
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
14.33
|
|
|
|
6.09
|
|
|
|
7.23
|
|
|
|
6.41
|
|
|
|
7.06
|
|
Depletion, depreciation and amortization
|
|
|
14.82
|
|
|
|
16.25
|
|
|
|
16.80
|
|
|
|
16.52
|
|
|
|
14.89
|
|
|
|
|
|
|
(1)
|
|
Lease operating expenses per Boe
include ad valorem taxes.
|
S-9
Reconciliation of
standardized measure to
PV-10
PV-10 is our
estimate of the present value of future net revenues from proved
oil and gas reserves after deducting estimated production and ad
valorem taxes, future capital costs and operating expenses, but
before deducting any estimates of future income taxes.
PV-10 is a
non-GAAP financial measure and generally differs from the
standardized measure of discounted future net cash flows, the
most directly comparable GAAP financial measure, because it does
not include the effects of income taxes on future cash flows.
PV-10 should
not be considered as an alternative to the standardized measure
of discounted future net cash flows as computed under GAAP.
The following table shows our reconciliation of our
PV-10 to the
standardized measure of discounted future net cash flows (the
most directly comparable measure calculated and presented in
accordance with GAAP). The estimated future net revenues are
discounted at an annual rate of 10% to determine their
present value.
|
|
|
|
|
|
|
|
|
|
|
SEC Price Case
|
|
|
NYMEX Strip Price Case
|
|
|
As of June 30,
|
|
|
As of October 31,
|
(in thousands)
|
|
2010
|
|
|
2010
|
|
|
PV-10
|
|
$
|
277,793
|
|
|
$
|
403,809
|
Less income taxes:
|
|
|
|
|
|
|
|
Undiscounted future income taxes
|
|
|
(235,984
|
)
|
|
|
(503,744)
|
10% discount factor
|
|
|
138,459
|
|
|
|
347,451
|
|
|
|
|
|
|
Future discounted income taxes
|
|
|
(97,525
|
)
|
|
|
(156,293)
|
Standardized measure of discounted future net cash flows
|
|
$
|
180,268
|
|
|
$
|
247,516
|
|
|
We believe
PV-10 to be
an important measure for evaluating the relative significance of
our oil and gas properties and that the presentation of the
non-GAAP financial measure of
PV-10
provides useful information to investors because it is widely
used by professional analysts and investors in evaluating oil
and gas companies. Because there are many unique factors that
can impact an individual company when estimating the amount of
future income taxes to be paid, we believe the use of a pretax
measure is valuable for evaluating the Company. We believe that
PV-10 is a
financial measure routinely used and calculated similarly by
other companies in the oil and gas industry.
S-10
Risk
factors
Any investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below
and all of the information contained in this prospectus
supplement and the accompanying prospectus before deciding
whether to purchase our common stock. In addition, you should
carefully consider, among other things, the matters discussed
under Risk factors in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, in our
Quarterly Reports on
Form 10-Q
for the periods ended June 30, 2010, and September 30,
2010, and in other documents that we subsequently file with the
Securities and Exchange Commission, all of which are
incorporated by reference to the prospectus accompanying this
prospectus supplement. The risks and uncertainties described
below are not the only risks and uncertainties we face.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our
business, financial condition and results of operations would
suffer. In that event, the trading price of our common stock
could decline, and you may lose all or part of your investment
in our common stock. The risks discussed below also include
forward-looking statements and our actual results may differ
substantially from those discussed in these forward-looking
statements. See Cautionary statement regarding
forward-looking statements.
Future sales
of our common stock in the public market or the issuance of
securities senior to our common stock could adversely affect the
trading price of our common stock and our ability to raise funds
in new stock offerings.
Sales by us or our stockholders of a substantial number of
shares of our common stock in the public markets following this
offering, or the perception that these sales might occur, could
cause the market price of our common stock to decline or could
impair our ability to raise capital through a future sale of, or
pay for acquisitions using, our equity securities.
We and certain of our executive officers, our directors and
certain stockholders will agree, with limited exceptions, for a
period of 90 days after the date of this prospectus
supplement, that we and they will not, without the prior written
consent of J.P. Morgan Securities LLC, as representative of
the underwriters, directly or indirectly, offer to sell, sell or
otherwise dispose of any shares of our common stock. All of the
shares sold in this offering will be freely transferable, except
for any shares sold to our affiliates, as that term
is defined in Rule 144 under the Securities Act.
We may issue common stock or equity securities senior to our
common stock in the future for a number of reasons, including to
finance our operations and growth plans, to adjust our ratio of
debt-to-total
book capital, to satisfy our obligations upon the exercise of
options or for other reasons. We cannot predict the effect, if
any, that future sales or issuance of shares of our common stock
or other equity securities, or the availability of shares of
common stock or such other equity securities for future sale or
issuance, will have on the trading price of our common stock.
The price of
our common stock may fluctuate significantly, which could
negatively affect us and holders of our common
stock.
The trading price of our common stock may fluctuate
significantly in response to a number of factors, many of which
are beyond our control. For instance, if our financial results
are below
S-11
the expectations of securities analysts and investors, the
market price of our common stock could decrease, perhaps
significantly. Other factors that may affect the market price of
our common stock include announcements relating to significant
corporate transactions; fluctuations in our quarterly and annual
financial results; operating and stock price performance of
companies that investors deem comparable to us; and changes in
government regulation or proposals relating to us. In addition,
the U.S. securities markets have experienced significant
price and volume fluctuations. These fluctuations often have
been unrelated to the operating performance of companies in
these markets. Market fluctuations and broad market, economic
and industry factors may negatively affect the price of our
common stock, regardless of our operating performance. You may
not be able to sell your shares of our common stock at or above
the public offering price, or at all. Any volatility of or a
significant decrease in the market price of our common stock
could also negatively affect our ability to make acquisitions
using common stock. Further, if we were to be the object of
securities class action litigation as a result of volatility in
our common stock price or for other reasons, it could result in
substantial costs and diversion of our managements
attention and resources, which could negatively affect our
financial results.
The issuance
of additional stock in connection with acquisitions or otherwise
will dilute all other stockholdings.
After this offering, we will have an aggregate of
63,468,906 shares of common stock authorized but unissued.
Subject to certain volume limitations imposed by the NASDAQ
Global Select Market, we may issue all of these shares without
any action or approval by our stockholders. We intend to
continue to actively seek to expand our business through
complementary or strategic acquisitions of assets, and we may
issue shares of common stock in connection with those
acquisitions. Any shares issued in connection with these
activities, the exercise of stock options or otherwise would
dilute the percentage ownership held by the investors who
purchase our shares in this offering.
Because we
have no plans to pay dividends on our common stock, investors
must look solely to stock appreciation for a return on their
investment in us.
We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We currently intend to retain
all future earnings to fund the development and growth of our
business. Any payment of future dividends will be at the
discretion of our board of directors and will depend on, among
other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual
restrictions applying to the payment of dividends and other
considerations that our board of directors deems relevant.
Covenants contained in our revolving credit facility restrict
the payment of dividends. Investors must rely on sales of their
common stock after price appreciation, which may never occur, as
the only way to realize a return on their investment. Investors
seeking cash dividends should not purchase our common stock.
Our future
reserve and production growth is dependent in part on the
success of our Wolffork play, which has a limited operational
history and is subject to change.
We began drilling wells in the Wolffork play only recently. We
have recompleted three wells in the Wolfcamp Shale and
commingled the Wolfcamp and Canyon Sands zone in one additional
well to date. We are currently drilling one horizontal well and
are recompleting three other
S-12
wells targeting the Wolffork. The wells that have been drilled
or recompleted in these areas only represent a very small sample
of our large acreage position and we cannot assure you that our
horizontal wells or recompletions of existing wells will be
successful. As of June 30, 2010, we had no proved reserves
attributable to this play. Accordingly, we have limited
information on the amount of reserves that will ultimately be
recovered from such wells. Our drilling plans with respect to
the Wolffork play are flexible and depend on a number of
factors, including the extent to which our initial pilot wells
are successful. The determination of whether we continue to
drill prospects in the Wolffork play may, among other things,
depend on any one or a combination of the following factors:
|
|
|
our ability to determine the most effective and economic
fracture stimulation for the Wolffork play;
|
|
|
changes in the estimates of costs to drill or complete wells;
|
|
|
the extent of our success in drilling and completing horizontal
wells;
|
|
|
our ability to reduce our exposure to costs and drilling
risks; and
|
|
|
the costs and availability of drilling and completion services
and equipment, particularly fracture stimulation services and
equipment.
|
We continue to gather data about our prospects in the Wolffork
play, and it is possible that additional information may cause
us to alter our drilling schedule or determine that prospects in
some portion of our acreage position should not be pursued at
all.
S-13
Use of
proceeds
We estimate that the net proceeds from this offering will be
approximately $74.3 million ($85.5 million if the
underwriters exercise in full their option to purchase
additional shares) after deducting fees and expenses (including
underwriting discounts and commissions), based on an assumed
offering price of $15.69 (the closing price of our common stock
on November 5, 2010). We intend to use the net proceeds
from this offering primarily to fund our capital expenditures
associated with the development of our Wolffork oil resource
play, potential acquisitions of oil and gas leases and other
properties in our core areas of operations and general working
capital needs. Pending such uses, we intend to repay outstanding
borrowings under our revolving credit facility, which amounts
may be reborrowed in accordance with the terms of the facility.
Our revolving credit facility matures on July 31, 2012. At
September 30, 2010, we had outstanding borrowings of
approximately $51.1 million under our revolving credit
facility, which bore weighted average interest at a rate of
approximately 3.5%. Borrowings under our revolving credit
facility were incurred for general corporate purposes, including
our recent acquisition. See SummaryRecent
developmentsRecent Acquisition. Any amounts repaid
with the proceeds from this offering may be reborrowed in the
future. Affiliates of J.P. Morgan Securities LLC and
KeyBanc Capital Markets Inc. serve as lenders under our
revolving credit facility and, in such capacity, will receive a
portion of the net proceeds from this offering. See
Conflicts of interest.
S-14
Capitalization
The following table sets forth our capitalization at
September 30, 2010:
|
|
|
on a historical basis; and
|
|
|
on an as adjusted basis to give effect to the completion of this
offering and our application of the estimated net proceeds from
this offering of approximately $74.3 million, after
deducting fees and expenses (including underwriting discounts
and commissions), based on an assumed offering price of $15.69
(the closing price of our common stock on November 5,
2010), in the manner described in Use of proceeds,
as if the transaction had occurred on September 30, 2010.
|
The As Adjusted column assumes that a portion of the net
proceeds from this public offering are held in cash and cash
equivalents, based on outstanding borrowings of approximately
$51.1 million under our revolving credit facility as of
September 30, 2010. As of October 31, 2010, we had
borrowings outstanding of approximately $73.5 million under
our revolving credit facility, and intend to use the proceeds
from this public offering to repay outstanding borrowings, as
discussed in Use of proceeds.
You should read the information in this table together with our
consolidated financial statements and the related notes and the
information contained in the documents incorporated by reference
in the accompanying prospectus.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
(in thousands)
|
|
Historical
|
|
|
As adjusted
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
417
|
|
|
$
|
23,626
|
|
|
|
|
|
|
|
Long-term debt(a)
|
|
$
|
51,069
|
|
|
$
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized none outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 90,000,000 authorized;
21,527,145 shares issued at September 30, 2010,
actual; 26,527,145 shares issued at September 30,
2010, as adjusted
|
|
$
|
215
|
|
|
$
|
265
|
|
Additional paid-in capital
|
|
|
170,958
|
|
|
|
245,186
|
|
Retained earnings
|
|
|
58,725
|
|
|
|
58,725
|
|
Accumulated other comprehensive loss
|
|
|
(233
|
)
|
|
|
(233
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
229,665
|
|
|
$
|
303,943
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
280,734
|
|
|
$
|
303,943
|
|
|
|
|
|
|
(a)
|
|
As of October 31, 2010,
outstanding borrowings under our revolving credit facility
totaled approximately $73.5 million.
|
S-15
Price range of
common stock
Our common stock is quoted on the NASDAQ Global Select Market
under the symbol AREX. The following table shows,
for the periods indicated, the high and low reported sale prices
for our common stock, as reported on the NASDAQ Global Select
Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
17.38
|
|
|
$
|
9.20
|
|
Second quarter
|
|
|
28.87
|
|
|
|
15.17
|
|
Third quarter
|
|
|
30.00
|
|
|
|
9.92
|
|
Fourth quarter
|
|
|
14.25
|
|
|
|
5.39
|
|
2009:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
8.90
|
|
|
$
|
3.20
|
|
Second quarter
|
|
|
10.47
|
|
|
|
5.13
|
|
Third quarter
|
|
|
9.77
|
|
|
|
6.38
|
|
Fourth quarter
|
|
|
10.19
|
|
|
|
6.24
|
|
2010:
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
9.65
|
|
|
$
|
7.57
|
|
Second quarter
|
|
|
9.52
|
|
|
|
6.32
|
|
Third quarter
|
|
|
11.81
|
|
|
|
6.12
|
|
Fourth quarter (through November 5, 2010)
|
|
|
16.16
|
|
|
|
11.00
|
|
|
|
On November 5, 2010, the last sales price of our common
stock as reported on the NASDAQ Global Select Market was $15.69
per share.
As of November 5, 2010, there were approximately 60 holders
of records of our common stock.
Dividend
policy
We have not paid any cash dividends on our common stock. We do
not expect to pay any cash or other dividends in the foreseeable
future on our common stock, as we intend to reinvest cash flow
generated by operations in our business. Our revolving credit
facility currently restricts our ability to pay cash dividends
on our common stock, and we may also enter into credit
agreements or other borrowing arrangements in the future that
restrict or limit our ability to pay cash dividends on our
common stock.
S-16
Certain United
States federal tax considerations for
non-United
States holders
The following is a summary of the material United States federal
income and, to a limited extent, estate tax consequences
relating to the purchase, ownership and disposition of our
common stock as of the date hereof. Except where noted, this
summary deals only with common stock that is held as a
capital asset (generally, property held for
investment) by a
non-U.S. holder
(as defined below).
A
non-U.S. holder
means a beneficial owner of common stock (other than a
partnership or entity treated as a partnership for United States
federal income tax purposes) that is not for United States
federal income tax purposes any of the following:
|
|
|
an individual citizen or resident of the United States,
including an alien individual who is a lawful permanent resident
of the United States or who meets the substantial
presence test under Section 7701(b) of the Internal
Revenue Code of 1986, as amended, or the Code;
|
|
|
a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
|
|
|
an estate, the income of which is subject to United States
federal income taxation regardless of its source; or
|
|
|
a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
|
This summary is based upon provisions of the Code and Treasury
regulations, administrative rulings and judicial decisions, all
as of the date hereof. Those authorities may be changed, perhaps
retroactively, so as to result in United States federal income
and estate tax consequences different from those summarized
below. This summary does not address all aspects of United
States federal income and estate taxation and does not deal with
foreign, state, local, alternative minimum tax or other tax
considerations that may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, this
summary does not address tax considerations applicable to
investors that may be subject to special treatment under the
United States federal income tax laws such as (without
limitation):
|
|
|
certain United States expatriates;
|
|
|
stockholders that hold our common stock as part of a straddle,
appreciated financial position, synthetic security, hedge,
conversion transaction or other integrated investment or risk
reduction transaction;
|
|
|
stockholders that hold our common stock as a result of a
constructive sale;
|
|
|
stockholders that acquired our common stock through the exercise
of employee stock options or otherwise as compensation or
through a tax-qualified retirement plan;
|
|
|
stockholders that are partnerships or entities treated as
partnerships for United States federal income tax purposes, or
other pass-through entities, or owners thereof;
|
S-17
|
|
|
financial institutions;
|
|
|
insurance companies;
|
|
|
tax-exempt entities;
|
|
|
dealers in securities or foreign currencies; and
|
|
|
traders in securities that use the
mark-to-market
method of accounting for United States federal income tax
purposes.
|
If a partnership (including an entity treated as a partnership
for United States federal income tax purposes) holds our common
stock, the tax treatment of a partner generally will depend upon
the status of the partner and the activities of the partnership.
If you are a partner of a partnership (including an entity
treated as a partnership for United States federal income tax
purposes) holding our common stock, you should consult your tax
advisor.
We have not sought any ruling from the Internal Revenue Service
(the IRS) with respect to the statements made and
the conclusions reached in the following summary, and there can
be no assurance that the IRS will agree with such statements and
conclusions. INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Dividends
No dividends have been declared or paid on our common stock to
date. Our revolving credit facility currently restricts our
ability to pay cash dividends on our common stock. Accordingly,
we do not expect to declare or pay any dividends on our common
stock for the foreseeable future. However, if we do make
distributions on our common stock, such distributions will
constitute dividends for United States federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under United States federal
income tax principles. Distributions in excess of earnings and
profits will constitute a return of capital that is applied
against and reduces the
non-U.S. holders
adjusted tax basis in our common stock. Any remaining excess
will be treated as gain realized on the sale or other
disposition of our common stock and will be treated as described
under Gain on disposition of common stock below. Any
dividend paid to a
non-U.S. holder
of our common stock ordinarily will be subject to withholding of
United States federal income tax at a rate of 30%, or such lower
rate as may be specified under an applicable income tax treaty.
In order to receive a reduced treaty rate, a
non-U.S. holder
must provide us with IRS
Form W-8BEN
properly certifying eligibility for the reduced rate.
Dividends paid to a
non-U.S. holder
that are effectively connected with the conduct of a trade or
business by the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, are attributable to a United States permanent
establishment or fixed base of the
non-U.S. holder)
generally will be exempt from the withholding tax described
above and instead will be subject to United States federal
income tax on a net income basis at the regular graduated United
States federal income tax rates in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. In such
case, we will not have to withhold United States federal income
tax if the
non-U.S. holder
complies with applicable
S-18
certification and disclosure requirements. In order to obtain
this exemption from withholding tax, a
non-U.S. holder
must provide us with an IRS
Form W-8ECI
properly certifying eligibility for such exemption. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a rate of 30% or such lower rate as may be
specified by an applicable income tax treaty.
Gain on
disposition of common stock
Any gain realized on the disposition of our common stock by a
non-U.S. holder
generally will not be subject to United States federal income
tax unless:
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the gain is effectively connected with the conduct of a trade or
business by the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment or fixed base of the
non-U.S. holder);
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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 that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation, or USRPHC, for United States federal income
tax purposes.
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A
non-U.S. holder
who has gain that is described in the first bullet point
immediately above will be subject to tax on the net gain derived
from the disposition under regular graduated United States
federal income tax rates in the same manner as if it were a
United States person as defined under the Code. In addition, a
non-U.S. holder
described in the first bullet point immediately above that is a
foreign corporation may be subject to the branch profits tax
equal to 30% of its effectively connected earnings and profits
or at such lower rate as may be specified by an applicable
income tax treaty.
A
non-U.S. holder
who meets the requirements described in the second bullet point
immediately above will be subject to a flat 30% tax on the gain
derived from the disposition, which may be offset by United
States source capital losses, even though the individual is not
considered a resident of the United States.
With respect to our status as a USRPHC, we believe that we
currently are, and expect to remain for the foreseeable future,
a USRPHC for United States federal income tax purposes. However,
so long as our common stock continues to be regularly
traded on an established securities market, a
non-U.S. holder
will be taxable on gain recognized on the disposition of our
common stock only if the
non-U.S. holder
actually or constructively holds or held more than 5% of such
common stock at any time during the five-year period ending on
the date of disposition or, if shorter, the
non-U.S. holders
holding period for our common stock. If our common stock were
not considered to be regularly traded on an established
securities market, all
non-U.S. holders
would be subject to United States federal income tax on a
disposition of our common stock.
Non-U.S. holders
should consult their tax advisors with respect to the
application of the foregoing rules to their ownership and
disposition of our common stock.
Federal estate
tax
If you are an individual, common stock owned or treated as being
owned by you at the time of your death will be included in your
gross estate for United States federal estate tax purposes
S-19
and may be subject to United States federal estate tax, unless
an applicable estate tax treaty provides otherwise.
Information
reporting and backup withholding
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is furnished to the IRS.
Recent
legislative developments
Recently enacted legislation, effective for amounts paid after
December 31, 2012, generally will impose a withholding tax
of 30 percent on any dividends on our common stock paid to
a foreign financial institution, unless such institution enters
into an agreement with the U.S. government 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 foreign entities with
U.S. owners). The legislation also generally will impose a
withholding tax of 30 percent on any dividends on our
common stock paid to a non-financial foreign entity unless such
entity provides the withholding agent with either certification
that such entity does not have any substantial United States
owners or identification of the direct and indirect
U.S. owners of the entity. Finally, withholding of
30 percent also generally will apply to the gross proceeds
of a disposition of our common stock paid to a foreign financial
institution or to a non-financial foreign entity unless the
reporting and certification requirements described above have
been met. Under certain circumstances, a
non-U.S. holder
of our common stock might be eligible for refunds or credits of
such taxes. Investors are encouraged to consult with their tax
advisors regarding the possible implications of this legislation
on their investment in our common stock.
Certain ERISA
considerations
The common stock may be purchased and held by an employee
benefit plan, an individual retirement account or other plan (a
Plan) subject to Title I of the Employee
Retirement Income
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Security Act of 1974, as amended (ERISA),
Section 4975 of the Code
and/or other
similar laws. A fiduciary of a Plan subject to ERISA,
Section 4975 of the Code
and/or such
other laws must determine that the purchase and holding of the
common stock is consistent with its fiduciary duties. The
fiduciary of a Plan subject to ERISA, as well as any other
prospective investor subject to Section 4975 of the Code or
any similar law, must also determine that its purchase and
holding of the common stock does not result in a non-exempt
prohibited transaction as provided under Sections 406 and
408 of ERISA or Section 4975 of the Code or similar law.
Each purchaser and transferee of the common stock who is subject
to ERISA, Section 4975 of the Code
and/or a
similar law will be deemed to have represented by its
acquisition and holding of the common stock that such
acquisition and holding does not constitute or give rise to a
non-exempt prohibited transaction under ERISA, Section 4975
of the Code or any similar law.
S-21
Underwriting
We are offering the shares of common stock described in this
prospectus supplement through the underwriters named below.
J.P. Morgan Securities LLC is acting as sole book-running
manager and representative of the several underwriters. We have
entered into an underwriting agreement with the underwriters.
Subject to the terms and conditions of the underwriting
agreement, we have agreed to sell to the underwriters, and each
underwriter has severally agreed to purchase, at the public
offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus supplement, the
number of shares of common stock listed next to its name in the
following table:
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Name
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Number of shares
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J.P. Morgan Securities LLC
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KeyBanc Capital Markets Inc.
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Canaccord Genuity Inc.
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RBC Capital Markets LLC
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Total
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5,000,000
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The underwriters are committed to purchase all the common shares
offered by us if they purchase any shares. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may also be
increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to
the public at the public offering price set forth on the cover
page of this prospectus supplement and to selected dealers which
may include the underwriters, at such offering price less a
selling concession not in excess of
$ per share. After the public
offering of the shares, the offering price and other selling
terms may be changed by the underwriters.
The underwriters have an option to buy up to 750,000 additional
shares of common stock from us. The underwriters have
30 days from the date of this prospectus supplement to
exercise this option. If any shares are purchased with this
option, the underwriters will purchase shares in approximately
the same proportion as shown in the table above. If any
additional shares of common stock are purchased, the
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per
share of common stock less the amount paid by the underwriters
to us per share of common stock. The underwriting fee is
$ per share. The following table
shows the per share and total underwriting discounts and
commissions to be paid to the underwriters assuming both no
exercise and full exercise of the underwriters option to
purchase additional shares.
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Without exercise of
option
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With exercise of
option
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Per share
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$
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$
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Total
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$
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$
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We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately
$250,000.
S-22
A prospectus in electronic format may be made available on the
web sites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
Our directors and executive officers and certain stockholders
have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with limited exceptions, will not, during the period
ending 90 days after the date of this prospectus
supplement, without the prior written consent of
J.P. Morgan Securities LLC, (i) offer, pledge,
announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock (including,
without limitation, common stock or such other securities which
may be deemed to be beneficially owned by such directors,
executive officers and stockholders in accordance with the rules
and regulations of the SEC and securities which may be issued
upon exercise of a stock option or warrant) or (ii) enter
into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock or such other securities, whether any such
transaction described in clause (i) or (ii) above is
to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or (iii) make any demand
for or exercise any right with respect to the registration of
any shares of our common stock or any security convertible into
or exercisable or exchangeable for our common stock. These
restrictions do not apply to (A) the transfer of shares of our
common stock as a bona fide gift; (B) the distribution of shares
of our common stock to members, partners or stockholders of such
persons or entities; (C) the transfer of shares of our common
stock to any trust or family limited partnership for the direct
or indirect benefit of such persons or entities or the immediate
family of such persons or entities, provided that any such
transfer shall not involve a disposition for value; (D) the
transfer of shares of our common stock issued upon the
cashless exercise of options to purchase our common
stock for any withholding taxes on the exercise price thereof or
to pay the exercise price thereof pursuant to our existing stock
incentive plan; and (E) the transfer of shares of our common
stock withheld by us upon the vesting of stock awards under our
existing stock incentive plan.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters option to purchase additional shares
referred to above, or may be naked shorts, which are
short positions in excess of that amount. The underwriters may
close out any covered short position either by exercising their
option to purchase additional shares, in whole or in part, or by
purchasing shares in the open market. In making this
determination, the underwriters will
S-23
consider, among other things, the price of shares available for
purchase in the open market compared to the price at which the
underwriters may purchase shares through the option to purchase
additional shares. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open
market that could adversely affect investors who purchase in
this offering. To the extent that the underwriters create a
naked short position, they will purchase shares in the open
market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of the common stock, including the imposition of
penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them. The underwriters may carry out these
transactions on the NASDAQ Global Select Market, in the
over-the-counter
market or otherwise.
These activities may have the effect of raising or maintaining
the market price of the common stock or preventing or retarding
a decline in the market price of the common stock, and, as a
result, the price of the common stock may be higher than the
price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the NASDAQ Global Select Market, in the
over-the-counter
market or otherwise.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus supplement in any
jurisdiction where action for that purpose is required. The
securities offered by this prospectus supplement may not be
offered or sold, directly or indirectly, nor may this prospectus
supplement or any other offering material or advertisements in
connection with the offer and sale of any such securities be
distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose
possession this prospectus supplement comes are advised to
inform themselves about and to observe any restrictions relating
to the offering and the distribution of this prospectus
supplement. This prospectus supplement does not constitute an
offer to sell or a solicitation of an offer to buy any
securities offered by this prospectus supplement in any
jurisdiction in which such an offer or a solicitation is
unlawful.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the Relevant Implementation
Date) it has not made and will not make an offer of common
shares to the public in that Relevant Member State prior to the
publication of a prospectus supplement in relation to the common
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
common shares to the public in that Relevant Member State at any
time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
Each underwriter has represented and agreed that:
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it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000 (FSMA)) received by it in connection with the
issue or sale of the common shares in circumstances in which
Section 21(1) of the FSMA would not, if the Issuer was not
an authorized person, apply to the Issuer; and
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it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
the common shares in, from or otherwise involving the United
Kingdom.
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Conflicts of
interest
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. In addition, from time to time, certain of the
underwriters and their affiliates may effect transactions for
their own account or the account of customers, and hold on
behalf of themselves or their customers, long or short positions
in our debt or equity securities or loans, and may do so in the
future.
Specifically, JPMorgan Chase Bank, N.A., an affiliate of
J.P. Morgan Securities LLC, serves as syndication agent and
a lender under our revolving credit facility and KeyBank
National Association, an affiliate of KeyBanc Capital Markets
Inc., serves as documentation agent and a lender under our
revolving credit facility. Accordingly, affiliates of
J.P. Morgan Securities LLC and KeyBanc Capital Markets Inc.
will receive their respective share of any repayment by us of
amounts outstanding under our revolving credit facility from the
proceeds of this offering. Because more than five percent of the
net proceeds of this offering may be paid to affiliates of
members of the Financial Industry Regulatory Authority, Inc.
participating in this offering, the offering will be conducted
in accordance with NASD Conduct Rule 2720. However, no
qualified independent underwriter is needed for this offering
because there is a bona fide public market for our
common units, as defined in NASD Conduct Rule 2720(f)(3).
Additionally an affiliate of J.P. Morgan Securities LLC
owns on a fiduciary basis approximately 5.6% of our outstanding
common stock as of November 5, 2010 (which percentage will
decrease to approximately 4.6% giving effect to the offering
made hereby).
S-25
Legal
matters
Certain legal matters in connection with the securities will be
passed upon by Thompson & Knight LLP, Dallas, Texas,
as our counsel. Certain legal matters will be passed upon for
the underwriters by Vinson & Elkins L.L.P., Houston,
Texas.
Experts
The (i) consolidated financial statements of Approach
Resources Inc. and subsidiaries incorporated herein by reference
to our Annual Report on
Form 10-K
for the year ended December 31, 2009, and (ii) the
effectiveness of internal control over financial reporting
incorporated herein by reference to our Annual Report on
Form 10-K
for the year ended December 31, 2009, have been audited by
Hein & Associates LLP, independent registered public
accountants, as stated in their reports appearing in our Annual
Report on
Form 10-K
for the year ended December 31, 2009, and have been so
included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
Certain estimates of our oil and natural gas reserves and
related information included in or incorporated herein by
reference have been derived from reports prepared by DeGolyer
and MacNaughton. All such information has been so included or
incorporated by reference in reliance upon the authority of
DeGolyer and MacNaughton as experts in these matters.
S-26
PROSPECTUS
APPROACH RESOURCES
INC.
$150,000,000
Common Stock
Preferred Stock
Depositary Shares
Warrants
Rights
Units
Debt Securities
Guarantee of Debt Securities of Approach Resources Inc.
by:
Approach Resources I, LP
Approach Oil & Gas Inc.
Approach Operating, LLC
Approach Delaware, LLC
Approach Services, LLC
We may offer and sell the securities listed above from time to
time in one or more transactions. Any non-convertible debt
securities we issue under this prospectus may be guaranteed by
one or more of our domestic subsidiaries.
The aggregate initial offering price of all securities sold
under this prospectus will not exceed $150,000,000. We will
offer the securities in amounts, at prices and on terms to be
determined at the time of the offering.
We will provide the specific terms of the offering in a
prospectus supplement and attach it to this prospectus. The
prospectus supplement will contain more specific information
about the offering and the terms of the securities being
offered, including any guarantees by our domestic subsidiaries.
A prospectus supplement may also add, update or change
information contained in this prospectus. This prospectus may
not be used to offer or sell securities without a prospectus
supplement describing the method and terms of the offering.
We may sell these securities directly or through agents,
underwriters or dealers or through a combination of these
methods. See Plan of Distribution. The prospectus
supplement will list any agents, underwriters or dealers that
may be involved and the compensation they will receive. The
prospectus supplement will also show you the net proceeds that
we expect to receive from selling the securities being offered.
You should carefully read this prospectus and any accompanying
prospectus supplement, together with the documents we
incorporate by reference, before you invest in any of our
securities.
Investing in any of our securities involves risk. Please read
carefully the information included and incorporated by reference
in this prospectus and in any applicable prospectus supplement
for a discussion of the factors you should consider before
deciding to purchase our securities. See Risk
Factors beginning on page 5 of this prospectus.
Our common stock is traded on the NASDAQ Global Select Market
under the symbol AREX.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus is dated February 1, 2010.
TABLE OF
CONTENTS
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27
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27
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You should rely only on the information contained in this
prospectus, any prospectus supplement and the documents we have
incorporated by reference. We have not authorized anyone to
provide you with different information. We are not making an
offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained
in this prospectus or any prospectus supplement, as well as
information we previously filed with the Securities and Exchange
Commission that is incorporated by reference herein, is accurate
as of any date other than its respective date.
i
PROSPECTUS
SUMMARY
This prospectus is a part of a registration statement that we
filed with the Securities and Exchange Commission, which we
refer to as the SEC, utilizing a shelf registration
process. Under this shelf registration process, we may sell any
combination of the securities described in this prospectus in
one or more offerings up to a maximum aggregate offering price
of $150,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell
securities under this shelf registration, we will provide a
prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may
also add, update or change information contained in this
prospectus. Any statement that we make in this prospectus will
be modified or superseded by any inconsistent statement made by
us in a prospectus supplement. You should read both this
prospectus and any prospectus supplement together with
additional information described under the heading Where
You Can Find More Information before making an investment
in our securities.
You should not assume that the information in this prospectus,
any accompanying prospectus supplement or any document
incorporated herein by reference is accurate as of any date
other than the date of such document.
In this prospectus, the Company, we,
us, our or ours refer to
Approach Resources Inc. and its subsidiaries, unless we state
otherwise or the context indicates otherwise.
APPROACH
RESOURCES INC.
Approach Resources Inc. is an independent energy company engaged
in the exploration, development, production and acquisition of
natural gas and oil properties. We operate in Texas, Kentucky
and New Mexico and have non-operated interests in British
Columbia. The Company was incorporated in Delaware in 2002. Our
principal executive offices are located at One Ridgmar Centre,
6500 West Freeway, Suite 800, Fort Worth, Texas
76116, and our telephone number is
(817) 989-9000.
THE
SUBSIDIARY GUARANTORS
Certain of our domestic subsidiaries, which we refer to as the
Subsidiary Guarantors in this prospectus, may fully and
unconditionally guarantee our payment obligations under any
series of debt securities offered by this prospectus. Financial
information concerning our Subsidiary Guarantors and any
non-guarantor subsidiaries will be included in our consolidated
financial statements filed as part of our periodic reports filed
pursuant to the Securities Exchange Act of 1934, as amended,
which we refer to as the Exchange Act, to the extent required by
the rules and regulations of the SEC.
Additional information concerning our subsidiaries and us is
included in reports and other documents incorporated by
reference in this prospectus. See Where You Can Find More
Information.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other
information with the SEC (File
No. 001-33801)
pursuant to the Exchange Act. You may read and copy any
documents that are filed at the SECs public reference room
at 100 F Street, N.E., Washington, D.C. 20549.
You may also obtain copies of these documents at prescribed
rates from the public reference section of the SEC at its
Washington address. Please call the SEC at
1-800-SEC-0330
for further information.
Our filings are also available to the public through the
SECs website at
http://www.sec.gov.
1
The SEC allows us to incorporate by reference
information that we file with it, which means that we can
disclose important information to you by referring you to
documents previously filed with the SEC. The information
incorporated by reference is an important part of this
prospectus, and the information that we later file with the SEC
will automatically update and supersede this information. The
following documents we have filed with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
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our Annual Report on
Form 10-K
for the year ended December 31, 2008;
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our Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009,
Form 10-Q/A
for the three months ended March 31, 2009 filed with the
SEC on September 29, 2009 and the
Form 10-Q/A
for the three months ended March 31, 2009 filed with the
SEC on November 18, 2009;
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our Quarterly Report on
Form 10-Q
for the three months ended June 30, 2009;
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our Quarterly Report on
Form 10-Q
for the three months ended September 30, 2009;
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our Current Reports on
Form 8-K
filed on March 31, 2009, April 16, 2009, July 14,
2009, October 20, 2009, November 3, 2009 and
November 12, 2009 and
Form 8-K/A
on April 2, 2009; and
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the description of our common stock contained in our
registration statement on
Form 8-A12B
filed on November 5, 2007, including any amendment to that
form that we may file in the future for the purpose of updating
the description of our common stock.
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These reports contain important information about us, our
financial condition and our results of operations.
All future documents filed pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act (excluding any
information furnished pursuant to Item 2.02 or
Item 7.01 on any Current Report on
Form 8-K)
before the termination of each offering under this prospectus
shall be deemed to be incorporated in this prospectus by
reference and to be a part hereof from the date of filing of
such documents. Any statement contained herein, or in a document
incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein, modifies or supersedes
such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
You may request a copy of these filings at no cost by writing or
telephoning us at the following address or telephone number:
Approach
Resources Inc.
One Ridgmar Centre
6500 West Freeway, Suite 800
Fort Worth, Texas 76116
Attention: Executive Vice President and General Counsel
(817) 989-9000
We also maintain a website at
http://www.approachresources.com.
The information on our website is not part of this prospectus.
2
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this prospectus, any prospectus
supplement and in the documents incorporated herein by
reference, including those that express a belief, expectation or
intention, as well as those that are not statements of
historical fact, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, which
we refer to as the Securities Act, and Section 21E of the
Exchange Act. The forward-looking statements may include
projections and estimates concerning the timing and success of
specific projects and our future reserves, production, revenues,
income and capital spending. When we use the words
will, believe, intend,
expect, may, should,
anticipate, could, estimate,
plan, predict, project or
their negatives, other similar expressions or the statements
that include those words, it usually is a forward-looking
statement.
These forward-looking statements are largely based on our
expectations, which reflect estimates and assumptions made by
our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other
factors. Although we believe such estimates and assumptions to
be reasonable, they are inherently uncertain and involve a
number of risks and uncertainties that are beyond our control.
In addition, managements assumptions about future events
may prove to be inaccurate. We caution all readers that the
forward-looking statements contained in this prospectus are not
guarantees of future performance, and we cannot assure any
reader that such statements will be realized or the
forward-looking events and circumstances will occur. Actual
results may differ materially from those anticipated or implied
in the forward-looking statements due to the factors detailed
below and discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2008, our Quarterly Reports
on
Form 10-Q
for the periods ending March 31, 2009, June 30, 2009
and September 30, 2009 and our subsequent SEC filings. All
forward-looking statements contained in this prospectus speak
only as of the date of this prospectus, and all forward-looking
statements incorporated by reference into this prospectus speak
only as of the dates such statements were issued. We expressly
disclaim all responsibility to publicly update or revise any
forward-looking statements as a result of new information,
future events or otherwise. These cautionary statements qualify
all forward-looking statements attributable to us, or persons
acting on our behalf. The risks, contingencies and uncertainties
relate to, among other matters, the following:
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global economic and financial market conditions;
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our business strategy;
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estimated quantities of oil and natural gas reserves;
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uncertainty of commodity prices in oil and natural gas;
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disruption of credit and capital markets;
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our financial position;
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our cash flow and liquidity;
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replacing our oil and natural gas reserves;
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our inability to retain and attract key personnel;
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uncertainty regarding our future operating results;
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uncertainties in exploring for and producing oil and natural gas;
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high costs, shortages, delivery delays or unavailability of
drilling rigs, equipment, labor or other services;
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disruptions to, capacity constraints in or other limitations on
the pipeline systems that deliver our gas and other processing
and transportation considerations;
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our inability to obtain additional financing necessary to fund
our operations and capital expenditures and to meet our other
obligations;
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competition in the oil and natural gas industry;
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marketing of oil, natural gas and natural gas liquids;
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exploitation of our current asset base or property acquisitions;
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the effects of government regulation and permitting and other
legal requirements;
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plans, objectives, expectations and intentions contained in this
report that are not historical; and
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the other risks described in this prospectus, any prospectus
supplement and the documents we incorporate herein by reference.
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4
RISK
FACTORS
You should carefully consider the risk factors set forth under
the heading Risk Factors in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as well as in
any of our filings with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act incorporated herein by
reference, and those risk factors that may be included in any
applicable prospectus supplement, together with all of the other
information included in this prospectus, any prospectus
supplement and the documents we incorporate by reference, before
investing in our securities. If any of the risks discussed in
the foregoing documents were to occur, our business, financial
condition, results of operations and cash flows could be
materially adversely affected.
RATIOS OF
EARNINGS TO FIXED CHARGES
The following table contains our consolidated ratio of earnings
to fixed charges for the periods indicated. You should read
these ratios of earnings to fixed charges in connection with our
consolidated financial statements, including the notes to those
statements, incorporated by reference into this prospectus.
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Nine Months
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Ended
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September 30,
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Years Ended December 31,
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2009
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2008
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2007
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2006
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2005
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2004
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Ratio of (loss) earnings to fixed charges(1)
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(2)
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27.89
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1.47
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x
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9.73
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x
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16.89
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(2)
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(1) |
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The ratio has been computed by dividing (loss) earnings by fixed
charges. For purposes of computing the ratio, (i) (loss)
earnings consist of (loss) income before income taxes, and
(ii) fixed charges consist of interest expense and a
portion of rentals representative of an implicit interest factor
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Due to our net loss for the nine months ended September 30,
2009, and the year ended December 31, 2004, the coverage
ratios for these periods were less than 1:1. To achieve a
coverage ratio of 1:1, we would have needed additional earnings
of approximately $3.3 million for the nine months ended
September 30, 2009, and $0.3 million for the year
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We did not have any preferred stock outstanding and there were
no preferred stock dividends paid or accrued during the periods
presented above.
USE OF
PROCEEDS
Except as may be stated in the applicable prospectus supplement,
we intend to use the net proceeds from any sales of securities
by us under this prospectus and any applicable prospectus
supplement for general corporate purposes. These purposes may
include repayment or refinancing of borrowings, working capital,
capital expenditures, investments and acquisitions. Pending any
specific application, we may initially invest funds in
short-term marketable securities.
DESCRIPTION
OF CAPITAL STOCK
The following description is based on relevant provisions of the
Delaware General Corporation Law, which we refer to as the DGCL,
our restated certificate of incorporation, which we refer to as
our certificate of incorporation, and our amended and restated
bylaws, which we refer to as our bylaws. This summary does not
purport to be complete and is qualified in its entirety by
reference to the provisions of DGCL and to our certificate of
incorporation and bylaws.
Our authorized capital stock consists of 90,000,000 shares
of common stock, $0.01 par value per share, and
10,000,000 shares of preferred stock, $0.01 par value
per share. Under the DGCL, our stockholders shall not be
personally liable for our debts or obligations except as they
may be liable by reason of their own conduct or acts.
5
Common
Stock
As of December 31, 2009, we had a total of
20,959,285 shares of common stock issued and outstanding,
including 225,880 shares of restricted stock. The shares of
restricted stock have voting rights, rights to receive dividends
and are subject to certain forfeiture restrictions.
Additionally, options to purchase 409,327 shares of common
stock are currently outstanding and have been granted to certain
members of our management and employees. We have reserved 10% of
our outstanding shares of common stock for grant of awards under
our 2007 Stock Incentive Plan (which may be adjusted each year
to remain at 10% of the outstanding shares of our common stock),
plus all shares of common stock that remain available for grant
of awards under a prior plan, plus shares of common stock
subject to outstanding awards under the prior plan that later
cease to be subject to those awards for any reason other than
those awards having been exercised.
Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders.
Because holders of common stock do not have cumulative voting
rights, the holders of a majority of the shares of common stock
can elect all of the members of the board of directors standing
for election.
Holders of our common stock are entitled to receive dividends if
and when such dividends are declared by our board of directors
out of assets legally available therefor after payment of
dividends required to be paid on shares of preferred stock, if
any. Upon our dissolution, liquidation or winding up, and
subject to any prior rights of outstanding preferred stock, the
holders of our common stock will be entitled to share pro rata
in the distribution of all our assets available for distribution
to our stockholders after satisfaction of our debts and other
liabilities and the payment of the liquidation preference of any
preferred stock that may be outstanding. There are no redemption
or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and
nonassessable. The holders of our common stock have no
preemptive, conversion, redemption or other subscription rights.
The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the
rights of holders of shares of any series of preferred stock
that we may designate and issue in the future.
Our common stock is listed on the NASDAQ Global Select Market
under the symbol AREX. As of December 31, 2009,
there were 34 holders of record of our common stock.
Preferred
Stock
Subject to the provisions of our certificate of incorporation
and limitations prescribed by law, our board of directors is
authorized, without further stockholder approval, to establish
and to issue from time to time one or more classes or series of
preferred stock, par value $0.01 per share, covering up to an
aggregate of 10,000,000 shares of preferred stock. Each
class or series of preferred stock will cover the number of
shares and will have preferences, voting powers, qualifications
and special or relative rights or privileges as is determined by
the board of directors, which may include, among others,
dividend rights, liquidation preferences, voting rights,
conversion rights, preemptive rights and redemption rights.
The rights of the holders of common stock will be subject to the
rights of holders of any preferred stock issued in the future.
The issuance of preferred stock could adversely affect the
voting power of holders of common stock and reduce the
likelihood that common stockholders will receive dividend
payments and payments upon liquidation. The issuance of
preferred stock could also have the effect of decreasing the
market price of the common stock and could delay, deter or
prevent a change in control of our company.
The existence of authorized but unissued shares of preferred
stock could have anti-takeover effects because we could issue
preferred stock with special dividend or voting rights that
could discourage potential bidders. For example, a business
combination could be impeded by the issuance of a series of
preferred stock containing class voting rights that would enable
the holder or holders of such series to block any such
transaction. Alternatively, a business combination could be
facilitated by the issuance of a series of preferred stock
having sufficient voting rights to provide a required percentage
vote of our stockholders. In addition, under some circumstances,
the issuance of preferred stock could adversely affect the
voting power and other rights of the holders of common stock and
could also affect the likelihood that holders of our common
stock
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will receive dividend payments and payments on liquidation.
Although prior to issuing any series of preferred stock our
board of directors will be required to make a determination as
to whether the issuance is in the best interest of our
stockholders, our board of directors could act in a manner that
would discourage an acquisition attempt or other transaction
that some, or a majority, of our stockholders might believe to
be in their best interests or in which our stockholders might
receive a premium for their stock over prevailing market prices
of such stock. Our board of directors does not at present intend
to seek stockholder approval prior to any issuance of currently
authorized preferred stock, unless otherwise required by law or
applicable stock exchange requirements.
It is not possible to state the actual effect of the issuance of
any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the
specific rights of the holders of the preferred stock. We
currently have no shares of preferred stock outstanding.
Anti-Takeover
Effects of Provisions of Delaware Law, Our Certificate of
Incorporation and Bylaws
A number of provisions in our certificate of incorporation, our
bylaws and the DGCL may make it more difficult to acquire
control of us. These provisions could deprive our stockholders
of opportunities to realize a premium on the shares of common
stock owned by them. In addition, these provisions may adversely
affect the prevailing market price of our common stock. These
provisions are intended to:
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enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies
formulated by the board of directors;
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discourage transactions which may involve an actual or
threatened change in control of us;
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discourage tactics that may be involved in proxy fights; and
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encourage persons seeking to acquire control of our company to
consult first with the board of directors to negotiate the terms
of any proposed business combination or offer.
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Written consent of stockholders. Our
certificate of incorporation and bylaws provide that any action
required or permitted to be taken by our stockholders must be
taken at a duly called meeting of stockholders and not by
written consent.
Call of special stockholder meetings. Our
bylaws provide that stockholders are not permitted to call
special meetings of stockholders. Only our board of directors,
chairman or Chief Executive Officer is permitted to call a
meeting of stockholders.
Amending the bylaws. Our certificate of
incorporation permits our board of directors to adopt, alter or
repeal any provision of the bylaws or to make new bylaws. Our
certificate of incorporation also provides that our bylaws may
be amended by the affirmative vote of at least 67% of the voting
power of the outstanding shares of our capital stock.
Classified board. Our certificate of
incorporation provides that our board of directors is divided
into three classes of directors, with the classes to be as
nearly equal in number as possible. As a result, approximately
one-third of our board of directors will be elected each year.
The classification of directors has the effect of making it more
difficult for stockholders to change the composition of our
board of directors. Our certificate of incorporation and bylaws
provide that the number of directors will be fixed from time to
time pursuant to a resolution adopted by the board of directors.
Advance notice procedures for stockholder proposals and
director nominations. Our bylaws provide that
stockholders seeking to bring business before an annual meeting
of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a
stockholders notice generally must be delivered to or
mailed and received at our principal executive offices not less
than 90 and no more than 120 calendar days before the first
anniversary of the date on which we first mailed our proxy
materials for the preceding years annual meeting of
stockholders. In addition, our bylaws specify requirements for
the form and content of a stockholders notice. These
provisions may preclude
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stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an
annual meeting of stockholders.
Filling board of directors vacancies;
removal. Our certificate of incorporation
provides that vacancies and newly created directorships
resulting from any increase in the authorized number of
directors may be filled by the affirmative vote of a majority of
our directors then in office, though less than a quorum. Each
director will hold office until his or her successor is elected
and qualified, or until the directors earlier death,
resignation, retirement or removal from office. Any director may
resign at any time upon written notice to us. Our certificate of
incorporation provides, in accordance with the DGCL, that the
stockholders may remove directors only for cause and by the
affirmative vote of at least 67% of the voting power of all of
the then-outstanding shares of our common stock. We believe that
the removal of directors by the stockholders only for cause,
together with the classification of the board of directors, will
promote continuity and stability in our management and policies
and that this continuity and stability will facilitate
long-range planning.
No cumulative voting. The DGCL provides that
stockholders are not entitled to use cumulative voting in the
election of directors unless our restated certificate of
incorporation provides otherwise. Under cumulative voting, a
majority stockholder holding a sufficient percentage of a class
of shares may be able to ensure the election of one or more
directors. Our certificate of incorporation expressly precludes
cumulative voting.
Authorized but unissued shares. Our
certificate of incorporation provides that the authorized but
unissued shares of preferred stock are available for future
issuance without stockholder approval. These additional shares
may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred
stock could discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
Delaware Business Combination Statute. We are
subject to Section 203 of the DGCL regulating corporate
takeovers. This section prevents a Delaware corporation from
engaging in a business combination that includes a merger or
sale of more than 10% of the corporations assets with a
stockholder who owns 15% or more of the corporations
outstanding voting stock, as well as affiliates and associates
of any of those persons. That prohibition extends for three
years following the date that stockholder acquired that amount
of stock unless:
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the transaction in which that stockholder acquired the stock is
approved by the board of directors prior to that date;
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upon completion of the transaction that resulted in the
acquisition of the stock, the stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding those shares owned by various
employee benefit plans or persons who are directors and also
officers; or
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on or after the date the stockholder acquired the stock, the
business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding
voting stock that is not owned by the stockholder.
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Stockholders may, by adopting an amendment to our certificate of
incorporation or our bylaws, elect for the corporation not to be
governed by Section 203 of the DGCL. Such amendment shall
not become effective until 12 months after the date it is
adopted or applies to a stockholder. Neither our certificate of
incorporation nor our bylaws exempt us from the restrictions
imposed under Section 203. It is anticipated that the
provisions of Section 203 may encourage companies
interested in acquiring us to negotiate in advance with our
board of directors. Section 203 will not apply to a
business combination between us and Yorktown Energy
Partners V, L.P., Yorktown Energy Partners VI, L.P. or
Yorktown Energy Partners VII, L.P., or collectively, Yorktown,
which are under common management, or a Yorktown affiliate
because Yorktown held more than 15% of our stock prior to the
effective date of our certificate of incorporation.
Limitation of liability of directors and officers;
indemnification. Our certificate of incorporation
provides that to the fullest extent permitted by Delaware law,
as that law may be amended and supplemented from time to time,
our
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directors shall not be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of
the directors duty of loyalty to the company or our
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct, fraud or a knowing
violation of law, (iii) the payment of dividends in
violation of Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper
personal benefit. The effect of the provision of our certificate
of incorporation is to eliminate the rights of the company and
our stockholders (through stockholders derivative suits on
our behalf) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including
breaches resulting from negligent behavior) except in the
situations described in clauses (i) through
(iv) above. Our bylaws also set forth certain
indemnification provisions and provide for the advancement of
expenses incurred by a director in defending a claim by reason
of the fact that he was one of our directors (or was serving as
a director or officer of another entity at our request),
provided that the director agrees to repay the amounts advanced
if the director is not entitled to be indemnified by us under
the provisions of the DGCL. The indemnification provisions of
our certificate of incorporation may reduce the likelihood of
derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against
directors for breaches of their fiduciary duties, even though an
action, if successful, otherwise might have benefited us and our
stockholders.
The right to indemnification and advancement of expenses are not
exclusive of any other rights to indemnification our directors
or officers may be entitled to under any agreement, vote of
stockholders or disinterested directors or otherwise. We have
entered into indemnification agreements with each of our
directors and some of our officers pursuant to which we agree to
indemnify the director or officer against expenses, judgments,
fines or amounts paid in settlement incurred by the director or
officer and arising in his capacity as a director, officer,
employee
and/or agent
of the Company or other enterprise of which he is a director,
officer, employee or agent acting at our request to the maximum
extent permitted by applicable law, subject to certain
limitations. Additionally, under Delaware law, we may purchase
and maintain insurance for the benefit and on behalf of our
directors and officers insuring against all liabilities that may
be incurred by the director or officer in or arising out of his
capacity as our director, officer, employee
and/or agent.
Business
Opportunities Renunciation
All of our non-employee directors and certain of our
stockholders may from time to time have investments in other
exploration and production companies that may compete with us.
Section 122(17) of the DGCL permits a Delaware corporation,
such as the Company, to renounce in its certificate of
incorporation or by action of its board of directors any
interest or expectancy of the corporation in certain
opportunities, effectively eliminating the ambiguity in a
Delaware corporations ability to do so in advance arising
out of prior Delaware case law. Under corporate law concepts of
fiduciary duty, officers and directors generally have a duty to
disclose to us opportunities that are related to our business
and are generally prohibited from pursuing those opportunities
unless we determine that we are not going to pursue them. Our
certificate of incorporation and our business opportunities
agreements provide that so long as any of the parties to the
business opportunities agreements, which we refer to as
designated parties, is serving as a member of our
board of directors, we renounce any interest or expectancy in
any business opportunity, transaction or other matter in and
that involves any aspect of the oil and gas exploration,
exploitation, development and production other than:
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any business opportunity that is brought to the attention of a
designated party solely in such persons capacity as a
director of the Company and with respect to which, at the time
of such presentment, no other designated party has independently
received notice or otherwise identified such opportunity; or
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any business opportunity that is identified by a designated
party solely through the disclosure of information by or on
behalf of us.
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Thus, for example, designated parties may pursue opportunities
in the oil and gas exploration and production industry for their
own account. Our certificate of incorporation provides that the
designated parties have no obligation to offer such
opportunities to us.
Pursuant to the business opportunities agreements approved by
our board of directors, each of the designated parties do not
have a duty to inform us of a business opportunity that he
becomes aware of so long
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as he did not become aware of the opportunity solely as a
consequence of serving as a member of our board of directors.
Furthermore, the designated parties each are permitted to pursue
that opportunity even if it is competitive with our business.
The business opportunities agreements do not prohibit us from
pursuing any business opportunity to which we have renounced any
interest or expectancy. The business opportunities agreements
provide the designated parties and their respective affiliates
with some certainty that opportunities that they independently
pursue will not be required to be first offered to us.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company.
DESCRIPTION
OF DEPOSITARY SHARES
We may, at our option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If
we do, we will issue to the public receipts for depositary
shares, and each of these depositary shares will represent a
fraction of a share of a particular series of preferred stock.
Description
of Depositary Shares
The shares of any series of preferred stock underlying the
depositary shares will be deposited under a deposit agreement
between us and a bank or trust company selected by us to be the
depositary. Subject to the terms of the deposit agreement, each
owner of a depositary share will be entitled, in proportion to
the applicable fractional interest in shares of preferred stock
underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary
share.
The depositary shares will be evidenced by depositary receipts
issued pursuant to the deposit agreement. Depositary receipts
will be issued to those persons who purchase the fractional
interests in the preferred stock underlying the depositary
shares, in accordance with the terms of the offering. The
following summary of the deposit agreement, the depositary
shares and the depositary receipts is not complete. You should
refer to the forms of the deposit agreement and depositary
receipts that may be filed as exhibits to the registration
statement of which this prospectus forms a part in the event we
issue depositary shares.
Dividends
and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the
record holders of depositary shares relating to that preferred
stock in proportion to the number of depositary shares owned by
those holders.
If there is a distribution other than in cash, the depositary
will distribute property received by it to the record holders of
depositary shares that are entitled to receive the distribution,
unless the depositary determines that it is not feasible to make
the distribution. If this occurs, the depositary may, with our
approval, sell the property and distribute the net proceeds from
the sale to the applicable holders.
Redemption
of Depositary Shares
If a series of preferred stock underlying the depositary shares
is subject to redemption, the depositary shares will be redeemed
from the proceeds received by the depositary resulting from the
redemption, in whole or in part, of that series of preferred
stock held by the depositary. The redemption price per
depositary share will be equal to the applicable fraction of the
redemption price per share payable with respect to that series
of the preferred stock. Whenever we redeem shares of preferred
stock that are held by the depositary, the depositary will
redeem, as of the same redemption date, the number of depositary
shares representing the shares of preferred stock so redeemed.
If fewer than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by lot or pro
rata as determined by the depositary.
After the date fixed for redemption, the depositary shares
called for redemption will no longer be outstanding, and all
rights of the holders of those depositary shares will cease,
except the right to receive any
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money, securities or other property upon surrender to the
depositary of the depositary receipts evidencing those
depositary shares.
Voting
the Preferred Stock
Upon receipt of notice of any meeting at which the holders of
preferred stock are entitled to vote, the depositary will mail
the information contained in the notice of meeting to the record
holders of the depositary shares underlying that preferred
stock. Each record holder of those depositary shares on the
record date (which will be the same date as the record date for
the preferred stock) will be entitled to instruct the depositary
as to the exercise of the voting rights pertaining to the amount
of the preferred stock underlying that holders depositary
shares. The depositary will try, as far as practicable, to vote
the number of shares of preferred stock underlying those
depositary shares in accordance with such instructions, and we
will agree to take all action which may be deemed necessary by
the depositary in order to enable the depositary to do so. The
depositary will not vote the shares of preferred stock to the
extent it does not receive specific instructions from the
holders of depositary shares underlying the preferred stock.
Amendment
and Termination of the Depositary Agreement
The form of depositary receipt evidencing the depositary shares
and any provision of the deposit agreement may be amended at any
time by agreement between us and the depositary. However, any
amendment that materially and adversely alters the rights of the
holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a
majority of the depositary shares then outstanding. The deposit
agreement may be terminated by us or by the depositary only if
(i) all outstanding depositary shares have been redeemed,
or (ii) there has been a final distribution of the
underlying preferred stock in connection with our liquidation,
dissolution or winding up and the preferred stock has been
distributed to the holders of depositary receipts.
Charges
of Bank Depositary
We will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary
arrangements. We will pay charges of the bank depositary in
connection with the initial deposit of the preferred stock and
any redemption of the preferred stock. Holders of depositary
shares will pay other transfer and other taxes and governmental
charges and any other charges, including a fee for the
withdrawal of shares of preferred stock upon surrender of
depositary receipts, as are expressly provided in the depositary
agreement to be payable by such holders.
Withdrawal
of Preferred Stock
Except as may be provided otherwise in the applicable prospectus
supplement, upon surrender of depositary receipts at the
principal office of the bank depositary, subject to the terms of
the depositary agreement, the owner of the depositary shares may
demand delivery of the number of whole shares of preferred stock
and all money and other property, if any, represented by those
depositary shares. Partial shares of preferred stock will not be
issued. If the depositary receipts delivered by the holder
evidence a number of depositary shares in excess of the number
of depositary shares representing the number of whole shares of
preferred stock to be withdrawn, the bank depositary will
deliver to such holder at the same time a new depositary receipt
evidencing the excess number of depositary shares. Holders of
preferred stock thus withdrawn may not thereafter deposit those
shares under the depositary agreement or receive depositary
receipts evidencing depositary shares therefore.
Resignation
and Removal of Depositary
The depositary may resign at any time by delivering a notice to
us of its election to do so. We may remove the depositary at any
time. Any such resignation or removal will take effect upon the
appointment of a successor depositary and its acceptance of its
appointment. The successor depositary must be appointed within
60 days after delivery of the notice of resignation or
removal.
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Miscellaneous
The depositary will forward to holders of depository receipts
all reports and communications from us that we deliver to the
depositary and that we are required to furnish to the holders of
the preferred stock.
Neither we nor the depositary will be liable if either of us is
prevented or delayed by law or any circumstance beyond our
control in performing our respective obligations under the
deposit agreement. Our obligations and those of the depositary
will be limited to the performance in good faith of our
respective duties under the deposit agreement. Neither we nor
the depositary will be obligated to prosecute or defend any
legal proceeding in respect of any depositary shares or
preferred stock unless satisfactory indemnity is furnished. We
and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting
preferred stock for deposit, holders of depositary receipts or
other persons believed to be competent and on documents believed
to be genuine.
DESCRIPTION
OF WARRANTS
We may issue warrants for the purchase of our common stock.
Warrants may be issued independently or together with debt
securities, preferred stock or common stock offered by any
prospectus supplement and may be attached to or separate from
any such offered securities. Each series of warrants will be
issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent, all as
set forth in the prospectus supplement relating to the
particular issue of warrants. The warrant agent will act solely
as our agent in connection with the warrants and will not assume
any obligation or relationship of agency or trust for or with
any holders of warrants or beneficial owners of warrants. The
following summary of certain provisions of the warrants does not
purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the warrant
agreements.
You should refer to the prospectus supplement relating to a
particular issue of warrants for the terms of and information
relating to the warrants, including, where applicable:
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the number of shares of common stock purchasable upon exercise
of the warrants and the price at which such number of shares of
common stock may be purchased upon exercise of the warrants;
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the date on which the right to exercise the warrants commences
and the date on which such right expires, which we refer to as
the expiration date;
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United States federal income tax consequences applicable to the
warrants;
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the amount of the warrants outstanding as of the most recent
practicable date; and
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any other terms of the warrants.
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Warrants will be offered and exercisable for United States
dollars only. Warrants will be issued in registered form only.
Each warrant will entitle its holder to purchase such number of
shares of common stock at such exercise price as is in each case
set forth in, or calculable from, the prospectus supplement
relating to the warrants. The exercise price may be subject to
adjustment upon the occurrence of events described in such
prospectus supplement. After the close of business on the
expiration date (or such later date to which we may extend such
expiration date), unexercised warrants will become void. The
place or places where, and the manner in which, warrants may be
exercised will be specified in the prospectus supplement
relating to such warrants.
Prior to the exercise of any warrants, holders of the warrants
will not have any of the rights of holders of common stock,
including the right to receive payments of any dividends on the
common stock purchasable upon exercise of the warrants, or to
exercise any applicable right to vote.
DESCRIPTION
OF RIGHTS
We may issue rights to purchase preferred stock, common stock or
other securities that are being registered hereunder. These
rights may be issued independently or together with any other
security offered
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hereby and may or may not be transferable by the stockholder
receiving the rights in such offering. In connection with any
offering of such rights, we may enter into a standby arrangement
with one or more underwriters or other purchasers pursuant to
which the underwriters or other purchasers may be required to
purchase any securities remaining unsubscribed for after such
offering.
Each series of rights will be issued under a separate rights
agreement which we will enter into with a bank or trust company,
as rights agent, all as set forth in the applicable prospectus
supplement. The rights agent will act solely as our agent in
connection with the certificates relating to the rights and will
not assume any obligation or relationship of agency or trust
with any holders of rights certificates or beneficial owners of
rights. We will file the rights agreement and the rights
certificates relating to each series of rights with the SEC, and
incorporate them by reference as an exhibit to the registration
statement of which this prospectus is a part on or before the
time we issue a series of rights.
The applicable prospectus supplement will describe the specific
terms of any offering of rights for which this prospectus is
being delivered, including the following:
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the date of determining the stockholders entitled to the rights
distribution;
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the number of rights issued or to be issued to each stockholder;
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the exercise price payable for each share preferred stock,
common stock or other securities upon the exercise of the rights;
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the number and terms of the shares preferred stock, common stock
or other securities which may be purchased per each right;
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the extent to which the rights are transferable;
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the date on which the holders ability to exercise the
rights shall commence, and the date on which the rights shall
expire;
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the extent to which the rights may include an over-subscription
privilege with respect to unsubscribed securities;
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if applicable, the material terms of any standby underwriting or
purchase arrangement entered into by us in connection with the
offering of such rights; and
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any other terms of the rights, including the terms, procedures,
conditions and limitations relating to the exchange and exercise
of the rights.
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The description in the applicable prospectus supplement of any
rights that we may offer will not necessarily be complete and
will be qualified in its entirety by reference to the applicable
rights certificate, which will be filed with the SEC.
DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more shares of common stock or
preferred stock, warrants or any combination of such securities.
In addition, the prospectus supplement relating to units will
describe the terms of any units we issue, including as
applicable:
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the designation and terms of the units and the securities
included in the units;
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any provision for the issuance, payment, settlement, transfer or
exchange of the units;
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the date, if any, on and after which the units may be
transferable separately;
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whether we will apply to have the units traded on a securities
exchange or securities quotation system;
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any material United States federal income tax
consequences; and
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how, for United States federal income tax purposes, the purchase
price paid for the units is to be allocated among the component
securities.
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DESCRIPTION
OF DEBT SECURITIES
The debt securities will be either senior debt securities or
subordinated debt securities. The senior and subordinated debt
securities will be issued under separate indentures among us,
the subsidiary guarantors of the debt securities, if any, and a
trustee to be determined. Senior debt securities will be issued
under a senior indenture and subordinated debt
securities will be issued under a subordinated
indenture. Together, the senior indenture and the
subordinated indenture are called indentures.
The debt securities may be issued from time to time in one or
more series. The particular terms of each series that are
offered by a prospectus supplement will be described in the
prospectus supplement.
Unless the debt securities are guaranteed by our subsidiaries as
described below, the rights of the Company and our creditors,
including holders of the debt securities, to participate in the
assets of any subsidiary upon the latters liquidation or
reorganization, will be subject to the prior claims of the
subsidiarys creditors, except to the extent that we may
ourselves be a creditor with recognized claims against such
subsidiary.
We have summarized selected provisions of the indentures below.
The summary is not complete. The form of each indenture has been
filed with the SEC as an exhibit to the registration statement
of which this prospectus is a part, and you should read the
indentures for provisions that may be important to you.
General
The indentures provide that debt securities in separate series
may be issued thereunder from time to time without limitation as
to aggregate principal amount. We may specify a maximum
aggregate principal amount for the debt securities of any
series. We will determine the terms and conditions of the debt
securities, including the maturity, principal and interest, but
those terms must be consistent with the indenture. The debt
securities will be our unsecured obligations.
The subordinated debt securities will be subordinated in right
of payment to the prior payment in full of all of our senior
debt as described in this prospectus under
Subordination of Subordinated Debt
Securities and in the prospectus supplement applicable to
any subordinated debt securities. If the prospectus supplement
so indicates, the debt securities will be convertible into our
common stock.
If specified in the prospectus supplement respecting a
particular series of debt securities, certain domestic
subsidiaries of the Company, each referred to as a subsidiary
guarantor, will fully and unconditionally guarantee that series
as described in this prospectus under
Subsidiary Guarantee and in the
prospectus supplement. Each subsidiary guarantee will be an
unsecured obligation of the subsidiary guarantor. A subsidiary
guarantee of subordinated debt securities will be subordinated
to the senior debt of the subsidiary guarantor on the same basis
as the subordinated debt securities are subordinated to our
senior debt.
The applicable prospectus supplement will set forth the price or
prices at which the debt securities to be issued will be offered
for sale and will describe the following terms of such debt
securities:
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the title of the debt securities;
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whether the debt securities are senior debt securities or
subordinated debt securities and, if subordinated debt
securities, the related subordination terms;
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whether any subsidiary guarantor will provide a subsidiary
guarantee of the debt securities;
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any limit on the aggregate principal amount of the debt
securities;
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each date on which the principal of the debt securities will be
payable;
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the interest rate that the debt securities will bear and the
interest payment dates for the debt securities;
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each place where payments on the debt securities will be payable;
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any terms upon which the debt securities may be redeemed, in
whole or in part, at our option;
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any sinking fund or other provisions that would obligate us to
redeem or otherwise repurchase the debt securities;
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the portion of the principal amount, if less than all, of the
debt securities that will be payable upon declaration of
acceleration of the maturity of the debt securities;
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whether the debt securities are defeasible;
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any addition to or change in the events of default;
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whether the debt securities are convertible into our common
stock and, if so, the terms and conditions upon which conversion
will be effected, including the initial conversion price or
conversion rate and any adjustments thereto and the conversion
period;
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any addition to or change in the covenants in the indenture
applicable to the debt securities; and
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any other terms of the debt securities not inconsistent with the
provisions of the indenture.
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Debt securities, including any debt securities that provide for
an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity
thereof, or original issue discount securities, may
be sold at a substantial discount below their principal amount.
Special United States federal income tax considerations
applicable to debt securities sold at an original issue discount
may be described in the applicable prospectus supplement. In
addition, special United States federal income tax or other
considerations applicable to any debt securities that are
denominated in a currency or currency unit other than United
States dollars may be described in the applicable prospectus
supplement.
Subordination
of Subordinated Debt Securities
The indebtedness evidenced by the subordinated debt securities
will, to the extent set forth in the subordinated indenture with
respect to each series of subordinated debt securities, be
subordinated in right of payment to the prior payment in full of
all of our senior debt, including the senior debt securities,
and it may also be senior in right of payment to all of our
subordinated debt. The prospectus supplement relating to any
subordinated debt securities will summarize the subordination
provisions of the subordinated indenture applicable to that
series including:
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the applicability and effect of such provisions upon any payment
or distribution respecting that series following any
liquidation, dissolution or other
winding-up,
or any assignment for the benefit of creditors or other
marshalling of assets or any bankruptcy, insolvency or similar
proceedings;
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the applicability and effect of such provisions in the event of
specified defaults with respect to any senior debt, including
the circumstances under which and the periods during which we
will be prohibited from making payments on the subordinated debt
securities; and
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the definition of senior debt applicable to the subordinated
debt securities of that series and, if the series is issued on a
senior subordinated basis, the definition of subordinated debt
applicable to that series.
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The prospectus supplement will also describe as of a recent date
the approximate amount of senior debt to which the subordinated
debt securities of that series will be subordinated.
The failure to make any payment on any of the subordinated debt
securities by reason of the subordination provisions of the
subordinated indenture described in the prospectus supplement
will not be construed as preventing the occurrence of an event
of default with respect to the subordinated debt securities
arising from any such failure to make payment.
The subordination provisions described above will not be
applicable to payments in respect of the subordinated debt
securities from a defeasance trust established in connection
with any legal defeasance or covenant defeasance of the
subordinated debt securities as described in this prospectus
under Legal Defeasance and Covenant
Defeasance.
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Subsidiary
Guarantee
Our payment obligations under any series of the debt securities
may be jointly and severally guaranteed by one or more of our
domestic subsidiaries. If a series of debt securities is so
guaranteed by any of our subsidiaries, such subsidiaries will
execute a supplemental indenture or notation of guarantee as
further evidence of their guarantee. Unless otherwise indicated
in the prospectus supplement, the following provisions will
apply to the subsidiary guarantee of the subsidiary guarantors.
Subject to the limitations described below and in the prospectus
supplement, one or more of the subsidiary guarantors will
jointly and severally, fully and unconditionally guarantee the
punctual payment when due, whether at maturity, by acceleration
or otherwise, of all our payment obligations under the
indentures and the debt securities of a series, whether for
principal of, premium, if any, or interest on the debt
securities or otherwise (all such obligations guaranteed by a
subsidiary guarantor being herein called the guaranteed
obligations). The subsidiary guarantors will also pay all
expenses (including reasonable counsel fees and expenses)
incurred by the trustee in enforcing any rights under a
subsidiary guarantee with respect to a subsidiary guarantor.
In the case of subordinated debt securities, a subsidiary
guarantors subsidiary guarantee will be subordinated in
right of payment to the senior debt of such subsidiary guarantor
on the same basis as the subordinated debt securities are
subordinated to our senior debt. No payment will be made by any
subsidiary guarantor under its subsidiary guarantee during any
period in which payments by us on the subordinated debt
securities are suspended by the subordination provisions of the
subordinated indenture.
Each subsidiary guarantee will be limited in amount to an amount
not to exceed the maximum amount that can be guaranteed by the
relevant subsidiary guarantor without rendering such subsidiary
guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Each subsidiary guarantee will be a continuing guarantee and
will:
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remain in full force and effect until either (i) payment in
full of all the applicable debt securities (or such debt
securities are otherwise satisfied and discharged in accordance
with the provisions of the applicable indenture), or
(ii) released as described in the following paragraph;
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be binding upon each subsidiary guarantor; and
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inure to the benefit of and be enforceable by the trustee, the
debt securities holders and their successors, transferees and
assigns.
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In the event that (i) a subsidiary guarantor ceases to be a
subsidiary, (ii) either legal defeasance or covenant
defeasance occurs with respect to the series or (iii) all
or substantially all of the assets or all of the capital stock
of such subsidiary guarantor is sold, including by way of sale,
merger, consolidation or otherwise, such subsidiary guarantor
will be released and discharged of its obligations under its
subsidiary guarantee without any further action required on the
part of the trustee or any debt securities holder, and no other
person acquiring or owning the assets or capital stock of such
subsidiary guarantor will be required to enter into a subsidiary
guarantee. In addition, the prospectus supplement may specify
additional circumstances under which a subsidiary guarantor can
be released from its subsidiary guarantee.
Form,
Exchange and Transfer
The debt securities of each series will be issuable only in
fully registered form, without coupons, and, unless otherwise
specified in the applicable prospectus supplement, only in
denominations of $1,000 and integral multiples thereof.
At the option of the debt securities holder, subject to the
terms of the applicable indenture and the limitations applicable
to global securities, debt securities of each series will be
exchangeable for other debt securities of the same series of any
authorized denomination and of a like tenor and aggregate
principal amount.
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Subject to the terms of the applicable indenture and the
limitations applicable to global securities, debt securities may
be presented for exchange as provided above or for registration
of transfer (duly endorsed or with the form of transfer endorsed
thereon duly executed) at the office of the security registrar
or at the office of any transfer agent designated by us for such
purpose. No service charge will be made for any registration of
transfer or exchange of debt securities, but we may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in that connection. Such transfer or
exchange will be effected upon the security registrar or such
transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the
request. The security registrar and any other transfer agent
initially designated by us for any debt securities will be named
in the applicable prospectus supplement. We may at any time
designate additional transfer agents or rescind the designation
of any transfer agent or approve a change in the office through
which any transfer agent acts, except that we will be required
to maintain a transfer agent in each place of payment for the
debt securities of each series.
If the debt securities of any series (or of any series and
specified tenor) are to be redeemed in part, we will not be
required to (i) issue, register the transfer of or exchange
any debt security of that series (or of that series and
specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of
mailing of a notice of redemption of any such debt security that
may be selected for redemption and ending at the close of
business on the day of such mailing, or (ii) register the
transfer of or exchange any debt security so selected for
redemption, in whole or in part, except the unredeemed portion
of any such debt security being redeemed in part.
Global
Securities
Some or all of the debt securities of any series may be
represented, in whole or in part, by one or more global
securities that will have an aggregate principal amount equal to
that of the debt securities they represent. Each global security
will be registered in the name of a depositary or its nominee
identified in the applicable prospectus supplement, will be
deposited with such depositary or nominee or its custodian and
will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the applicable
indenture.
Notwithstanding any provision of the indentures or any debt
security described in this prospectus, no global security may be
exchanged in whole or in part for debt securities registered,
and no transfer of a global security in whole or in part may be
registered, in the name of any person other than the depositary
for such global security or any nominee of such depositary
unless:
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the depositary has notified us that it is unwilling or unable to
continue as depositary for such global security or has ceased to
be qualified to act as such as required by the applicable
indenture, and in either case we fail to appoint a successor
depositary within 90 days;
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an event of default with respect to the debt securities
represented by such global security has occurred and is
continuing and the trustee has received a written request from
the depositary to issue certificated debt securities;
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subject to the rules of the depositary, we shall have elected to
terminate the book-entry system through the depositary; or
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other circumstances exist, in addition to or in lieu of those
described above, as may be described in the applicable
prospectus supplement.
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All certificated debt securities issued in exchange for a global
security or any portion thereof will be registered in such names
as the depositary may direct.
As long as the depositary, or its nominee, is the registered
holder of a global security, the depositary or such nominee, as
the case may be, will be considered the sole owner and debt
securities holder of such global security and the debt
securities that it represents for all purposes under the debt
securities and the applicable indenture. Except in the limited
circumstances referred to above, owners of beneficial interests
in a global security will not be entitled to have such global
security or any debt securities that it represents registered in
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their names, will not receive or be entitled to receive physical
delivery of certificated debt securities in exchange for those
interests and will not be considered to be the owners or holders
of such global security or any debt securities that it
represents for any purpose under the debt securities or the
applicable indenture. All payments on a global security will be
made to the depositary or its nominee, as the case may be, as
the holder of the security. The laws of some jurisdictions may
require that some purchasers of debt securities take physical
delivery of such debt securities in certificated form. These
laws may impair the ability to transfer beneficial interests in
a global security.
Ownership of beneficial interests in a global security will be
limited to institutions that have accounts with the depositary
or its nominee, or participants, and to persons that
may hold beneficial interests through participants. In
connection with the issuance of any global security, the
depositary will credit, on its book-entry registration and
transfer system, the respective principal amounts of debt
securities represented by the global security to the accounts of
its participants. Ownership of beneficial interests in a global
security will be shown only on, and the transfer of those
ownership interests will be effected only through, records
maintained by the depositary (with respect to participants
interests) or any such participant (with respect to interests of
persons held by such participants on their behalf). Payments,
transfers, exchanges and other matters relating to beneficial
interests in a global security may be subject to various
policies and procedures adopted by the depositary from time to
time. None of us, the subsidiary guarantors, the trustees or the
agents of us, the subsidiary guarantors or the trustees will
have any responsibility or liability for any aspect of the
depositarys or any participants records relating to,
or for payments made on account of, beneficial interests in a
global security, or for maintaining, supervising or reviewing
any records relating to such beneficial interests.
Payment
and Paying Agents
Unless otherwise indicated in the applicable prospectus
supplement, payment of interest on a debt security on any
interest payment date will be made to the person in whose name
such debt security (or one or more predecessor securities) is
registered at the close of business on the record date for such
interest.
Unless otherwise indicated in the applicable prospectus
supplement, principal of and any premium and interest on the
debt securities of a particular series will be payable at the
office of such paying agent or agents as we may designate for
such purpose from time to time, except that at our option
payment of any interest on debt securities in certificated form
may be made by check mailed to the address of the person
entitled thereto as such address appears in the security
register. Unless otherwise indicated in the applicable
prospectus supplement, the corporate trust office of the trustee
under the senior indenture in the City of New York will be
designated as sole paying agent for payments with respect to
senior debt securities of each series, and the corporate trust
office of the trustee under the subordinated indenture in the
City of New York will be designated as the sole paying agent for
payment with respect to subordinated debt securities of each
series. Any other paying agents initially designated by us for
the debt securities of a particular series will be named in the
applicable prospectus supplement. We may at any time designate
additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any
paying agent acts, except that we will be required to maintain a
paying agent in each place of payment for the debt securities of
a particular series.
All money paid by us to a paying agent for the payment of the
principal of or any premium or interest on any debt security
which remains unclaimed at the end of two years after such
principal, premium or interest has become due and payable will
be repaid to us, and the holder of such debt security thereafter
may look only to us for payment.
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Consolidation,
Merger and Sale of Assets
Unless otherwise specified in the prospectus supplement, we may
not consolidate with or merge into, or transfer, lease or
otherwise dispose of all or substantially all of our assets to,
any person, referred to as a successor person, and
may not permit any person to consolidate with or merge into us,
unless:
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the successor person (if not us) is a corporation, partnership,
trust or other entity organized and validly existing under the
laws of any domestic jurisdiction and assumes our obligations on
the debt securities and under the indentures;
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immediately before and after giving pro forma effect to the
transaction, no event of default, and no event which, after
notice or lapse of time or both, would become an event of
default, has occurred and is continuing; and
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several other conditions, including any additional conditions
with respect to any particular debt securities specified in the
applicable prospectus supplement, are met.
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The successor person (if not us) will be substituted for us
under the applicable indenture with the same effect as if it had
been an original party to such indenture, and, except in the
case of a lease, we will be relieved from any further
obligations under such indenture and the debt securities.
Events of
Default
Unless otherwise specified in the prospectus supplement, each of
the following will constitute an event of default under the
applicable indenture with respect to debt securities of any
series:
1. failure to pay principal of or any premium on any debt
security of that series when due, whether or not, in the case of
subordinated debt securities, such payment is prohibited by the
subordination provisions of the subordinated indenture;
2. failure to pay any interest on any debt securities of
that series when due, continued for 30 days, whether or
not, in the case of subordinated debt securities, such payment
is prohibited by the subordination provisions of the
subordinated indenture;
3. failure to deposit any sinking fund payment, when due,
in respect of any debt security of that series, whether or not,
in the case of subordinated debt securities, such deposit is
prohibited by the subordination provisions of the subordinated
indenture;
4. failure to perform or comply with the provisions
described in this prospectus under
Consolidation, Merger and Sale of Assets;
5. failure to perform any of our other covenants in such
indenture (other than a covenant included in such indenture
solely for the benefit of a series other than that series),
continued for 60 days after written notice has been given
by the trustee, or the holders of at least 25% in principal
amount of the outstanding debt securities of that series, as
provided in such indenture;
6. any debt of ourselves, any significant subsidiary or, if
a subsidiary guarantor has guaranteed the series, such
subsidiary guarantor, is not paid within any applicable grace
period after final maturity or is accelerated by its holders
because of a default and the total amount of such debt unpaid or
accelerated exceeds $20 million;
7. any judgment or decree for the payment of money in
excess of $20 million is entered against us, any
significant subsidiary or, if a subsidiary guarantor has
guaranteed the series, such subsidiary guarantor, remains
outstanding for a period of 60 consecutive days following entry
of such judgment and is not discharged, waived or stayed;
8. certain events of bankruptcy, insolvency or
reorganization affecting us, any significant subsidiary or, if a
subsidiary guarantor has guaranteed the series, such subsidiary
guarantor; and
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9. if any subsidiary guarantor has guaranteed such series,
the subsidiary guarantee of any such subsidiary guarantor is
held by a final non-appealable order or judgment of a court of
competent jurisdiction to be unenforceable or invalid or ceases
for any reason to be in full force and effect (other than in
accordance with the terms of the applicable indenture) or any
subsidiary guarantor or any person acting on behalf of any
subsidiary guarantor denies or disaffirms such subsidiary
guarantors obligations under its subsidiary guarantee
(other than by reason of a release of such subsidiary guarantor
from its subsidiary guarantee in accordance with the terms of
the applicable indenture).
If an event of default (other than an event of default with
respect to Approach Resources Inc. described in clause (8)
above) with respect to the debt securities of any series at the
time outstanding occurs and is continuing, either the trustee or
the holders of at least 25% in principal amount of the
outstanding debt securities of that series by notice as provided
in the indenture may declare the principal amount of the debt
securities of that series (or, in the case of any debt security
that is an original issue discount debt security, such portion
of the principal amount of such debt security as may be
specified in the terms of such debt security) to be due and
payable immediately, together with any accrued and unpaid
interest thereon. If an event of default with respect to
Approach Resources Inc. described in clause (8) above with
respect to the debt securities of any series at the time
outstanding occurs, the principal amount of all the debt
securities of that series (or, in the case of any such original
issue discount security, such specified amount) will
automatically, and without any action by the trustee or any
holder, become immediately due and payable, together with any
accrued and unpaid interest thereon. After any such acceleration
and its consequences, but before a judgment or decree based on
acceleration, the holders of a majority in principal amount of
the outstanding debt securities of that series may, under
certain circumstances, rescind and annul such acceleration if
all events of default with respect to that series, other than
the non-payment of accelerated principal (or other specified
amount), have been cured or waived as provided in the applicable
indenture. For information as to waiver of defaults, see
Modification and Waiver below.
Subject to the provisions of the indentures relating to the
duties of the trustees in case an event of default has occurred
and is continuing, no trustee will be under any obligation to
exercise any of its rights or powers under the applicable
indenture at the request or direction of any of the holders,
unless such holders have offered to such trustee reasonable
security or indemnity. Subject to such provisions for the
indemnification of the trustees, the holders of a majority in
principal amount of the outstanding debt securities of any
series will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
No holder of a debt security of any series will have any right
to institute any proceeding with respect to the applicable
indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless:
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such holder has previously given to the trustee under the
applicable indenture written notice of a continuing event of
default with respect to the debt securities of that series;
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the holders of at least 25% in principal amount of the
outstanding debt securities of that series have made written
request, and such holder or holders have offered reasonable
security or indemnity, to the trustee to institute such
proceeding as trustee; and
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the trustee has failed to institute such proceeding, and has not
received from the holders of a majority in principal amount of
the outstanding debt securities of that series a direction
inconsistent with such request, within 60 days after such
notice, request and offer.
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However, such limitations do not apply to a suit instituted by a
holder of a debt security for the enforcement of payment of the
principal of or any premium or interest on such debt security on
or after the applicable due date specified in such debt security
or, if applicable, to convert such debt security.
We will be required to furnish to each trustee annually a
statement by certain of our officers as to whether or not we, to
their knowledge, are in default in the performance or observance
of any of the terms, provisions and conditions of the applicable
indenture and, if so, specifying all such known defaults.
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Modification
and Waiver
We may modify or amend an indenture without the consent of any
holders of the debt securities in certain circumstances,
including:
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to evidence the succession under the indenture of another person
to us or any subsidiary guarantor and to provide for its
assumption of our or such subsidiary guarantors
obligations to holders of debt securities;
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to make any changes that would add any additional covenants of
us or the subsidiary guarantors for the benefit of the holders
of debt securities or that do not adversely affect the rights
under the indenture of the holders of debt securities in any
material respect;
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to add any additional events of default;
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to provide for uncertificated notes in addition to or in place
of certificated notes;
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to secure the debt securities;
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to establish the form or terms of any series of debt securities;
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to evidence and provide for the acceptance of appointment under
the indenture of a successor trustee;
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to cure any ambiguity, defect or inconsistency;
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to add subsidiary guarantors; or
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in the case of any subordinated debt security, to make any
change in the subordination provisions that limits or terminates
the benefits applicable to any holder of senior debt.
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Other modifications and amendments of an indenture may be made
by us, the subsidiary guarantors, if applicable, and the
applicable trustee with the consent of the holders of not less
than a majority in principal amount of the outstanding debt
securities of each series affected by such modification or
amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each
outstanding debt security affected thereby:
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change the stated maturity of the principal of, or any
installment of principal of or interest on, any debt security;
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reduce the principal amount of, or any premium or interest on,
any debt security;
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reduce the amount of principal of an original issue discount
security or any other debt security payable upon acceleration of
the maturity thereof;
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change the place or currency of payment of principal of, or any
premium or interest on, any debt security;
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impair the right to institute suit for the enforcement of any
payment due on or any conversion right with respect to any debt
security;
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modify the subordination provisions in the case of subordinated
debt securities, or modify any conversion provisions, in either
case in a manner adverse to the holders of the subordinated debt
securities;
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except as provided in the applicable indenture, release the
subsidiary guarantee of a subsidiary guarantor;
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reduce the percentage in principal amount of outstanding debt
securities of any series, the consent of whose holders is
required for modification or amendment of the indenture;
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reduce the percentage in principal amount of outstanding debt
securities of any series necessary for waiver of compliance with
certain provisions of the indenture or for waiver of certain
defaults;
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modify such provisions with respect to modification, amendment
or waiver; or
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following the making of an offer to purchase debt securities
from any holder that has been made pursuant to a covenant in
such indenture, modify such covenant in a manner adverse to such
holder.
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The holders of not less than a majority in principal amount of
the outstanding debt securities of any series may waive
compliance by us with certain restrictive provisions of the
applicable indenture. The holders of not less than a majority in
principal amount of the outstanding debt securities of any
series may waive any past default under the applicable
indenture, except a default in the payment of principal, premium
or interest and certain covenants and provisions of the
indenture which cannot be amended without the consent of the
holder of each outstanding debt security of such series.
Each of the indentures provides that in determining whether the
holders of the requisite principal amount of the outstanding
debt securities have given or taken any direction, notice,
consent, waiver or other action under such indenture as of any
date:
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the principal amount of an original issue discount security that
will be deemed to be outstanding will be the amount of the
principal that would be due and payable as of such date upon
acceleration of maturity to such date;
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if, as of such date, the principal amount payable at the stated
maturity of a debt security is not determinable (for example,
because it is based on an index), the principal amount of such
debt security deemed to be outstanding as of such date will be
an amount determined in the manner prescribed for such debt
security;
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the principal amount of a debt security denominated in one or
more foreign currencies or currency units that will be deemed to
be outstanding will be the United States-dollar equivalent,
determined as of such date in the manner prescribed for such
debt security, of the principal amount of such debt security
(or, in the case of a debt security described in clause (1)
or (2) above, of the amount described in such
clause); and
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certain debt securities, including those owned by us, any
subsidiary guarantor or any of our other affiliates, will not be
deemed to be outstanding.
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Except in certain limited circumstances, we will be entitled to
set any day as a record date for the purpose of determining the
holders of outstanding debt securities of any series entitled to
give or take any direction, notice, consent, waiver or other
action under the indenture, in the manner and subject to the
limitations provided in the indenture. In certain limited
circumstances, the trustee will be entitled to set a record date
for action by holders. If a record date is set for any action to
be taken by holders of a particular series, only persons who are
holders of outstanding debt securities of that series on the
record date may take such action. To be effective, such action
must be taken by holders of the requisite principal amount of
such debt securities within a specified period following the
record date. For any particular record date, this period will be
180 days or such other period as may be specified by us (or
the trustee, if it set the record date), and may be shortened or
lengthened (but not beyond 180 days) from time to time.
Satisfaction
and Discharge
Each indenture will be discharged and will cease to be of
further effect as to all outstanding debt securities of any
series issued thereunder, when:
(i) all outstanding debt securities of that series that
have been authenticated (except lost, stolen or destroyed debt
securities that have been replaced or paid and debt securities
for whose payment money has theretofore been deposited in trust
and thereafter repaid to us) have been delivered to the trustee
for cancellation; or
(ii) all outstanding debt securities of that series that
have been not delivered to the trustee for cancellation have
become due and payable or will become due and payable at their
stated maturity within
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one year or are to be called for redemption within one year
under arrangements satisfactory to the trustee and in any case
we have irrevocably deposited with the trustee as trust funds
money in an amount sufficient, without consideration of any
reinvestment of interest, to pay the entire indebtedness of such
debt securities not delivered to the trustee for cancellation,
for principal, premium, if any, and accrued interest to the
stated maturity or redemption date;
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we have paid or caused to be paid all other sums payable by us
under the indenture with respect to the debt securities of that
series; and
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we have delivered an officers certificate and an opinion
of counsel to the trustee stating that all conditions precedent
to satisfaction and discharge of the indenture with respect to
the debt securities of that series have been satisfied.
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Legal
Defeasance and Covenant Defeasance
To the extent indicated in the applicable prospectus supplement,
we may elect, at our option at any time, to have our obligations
discharged under provisions relating to defeasance and discharge
of indebtedness, which we refer to as legal
defeasance, or relating to defeasance of certain
restrictive covenants applied to the debt securities of any
series, or to any specified part of a series, which we refer to
as covenant defeasance.
Legal
Defeasance
The indentures provide that, upon our exercise of our option (if
any) to have the legal defeasance provisions applied to any
series of debt securities, we and, if applicable, each
subsidiary guarantor will be discharged from all our
obligations, and, if such debt securities are subordinated debt
securities, the provisions of the subordinated indenture
relating to subordination will cease to be effective, with
respect to such debt securities (except for certain obligations
to convert, exchange or register the transfer of debt
securities, to replace stolen, lost or mutilated debt
securities, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit in trust for the benefit of
the holders of such debt securities of money or
U.S. government obligations, or both, which, through the
payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount
sufficient (in the opinion of a nationally recognized firm of
independent public accountants) to pay the principal of and any
premium and interest on such debt securities on the respective
stated maturities in accordance with the terms of the applicable
indenture and such debt securities. Such defeasance or discharge
may occur only if, among other things:
1. we have delivered to the applicable trustee an opinion
of counsel to the effect that we have received from, or there
has been published by, the United States Internal Revenue
Service a ruling, or there has been a change in tax law, in
either case to the effect that holders of such debt securities
will not recognize gain or loss for federal income tax purposes
as a result of such deposit and legal defeasance and will be
subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such
deposit and legal defeasance were not to occur;
2. no event of default or event that with the passing of
time or the giving of notice, or both, shall constitute an event
of default shall have occurred and be continuing at the time of
such deposit or, with respect to any event of default described
in clause (8) under Events of
Default, at any time until 121 days after such
deposit;
3. such deposit and legal defeasance will not result in a
breach or violation of, or constitute a default under, any
agreement or instrument (other than the applicable indenture) to
which we are a party or by which we are bound;
4. in the case of subordinated debt securities, at the time
of such deposit, no default in the payment of all or a portion
of principal of (or premium, if any) or interest on any senior
debt shall have occurred and be continuing, no event of default
shall have resulted in the acceleration of any senior debt and
no other event of default with respect to any senior debt shall
have occurred and be continuing permitting after notice or the
lapse of time, or both, the acceleration thereof; and
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5. we have delivered to the trustee an opinion of counsel
to the effect that such deposit shall not cause the trustee or
the trust so created to be subject to the Investment Company Act
of 1940.
Covenant
Defeasance
The indentures provide that, upon our exercise of our option (if
any) to have the covenant defeasance provisions applied to any
debt securities, we may fail to comply with certain restrictive
covenants (but not with respect to conversion, if applicable),
including those that may be described in the applicable
prospectus supplement, and the occurrence of certain events of
default, which are described above in clause (5) (with respect
to such restrictive covenants) and clauses (6), (7) and
(9) under Events of Default and any that may be
described in the applicable prospectus supplement, will not be
deemed to either be or result in an event of default and, if
such debt securities are subordinated debt securities, the
provisions of the subordinated indenture relating to
subordination will cease to be effective, in each case with
respect to such debt securities. In order to exercise such
option, we must deposit, in trust for the benefit of the holders
of such debt securities, money or U.S. government
obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms,
will provide money in an amount sufficient (in the opinion of a
nationally recognized firm of independent public accountants) to
pay the principal of and any premium and interest on such debt
securities on the respective stated maturities in accordance
with the terms of the applicable indenture and such debt
securities. Such covenant defeasance may occur only if we have
delivered to the applicable trustee an opinion of counsel to the
effect that holders of such debt securities will not recognize
gain or loss for federal income tax purposes as a result of such
deposit and covenant defeasance and will be subject to federal
income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and
covenant defeasance were not to occur, and the requirements set
forth in clauses (2), (3), (4) and (5) above are
satisfied. If we exercise this option with respect to any series
of debt securities and such debt securities were declared due
and payable because of the occurrence of any event of default,
the amount of money and U.S. government obligations so
deposited in trust would be sufficient to pay amounts due on
such debt securities at the time of their respective stated
maturities but may not be sufficient to pay amounts due on such
debt securities upon any acceleration resulting from such event
of default. In such case, we would remain liable for such
payments.
If we exercise either our legal defeasance or covenant
defeasance option, any subsidiary guarantee will terminate.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator, stockholder,
member, partner or trustee of the Company or any subsidiary
guarantor, as such, shall have any liability for any obligations
of the Company or any subsidiary guarantor under the debt
securities, the indentures or any subsidiary guarantees or for
any claim based on, in respect of, or by reason of, such
obligations or their creation. By accepting a debt security,
each holder shall be deemed to have waived and released all such
liability. The waiver and release shall be a part of the
consideration for the issue of the debt securities. The waiver
may not be effective to waive liabilities under the federal
securities laws, and it is the view of the SEC that such a
waiver is against public policy.
Notices
Notices to holders of debt securities will be given by mail to
the addresses of such holders as they may appear in the security
register.
Title
We, the subsidiary guarantors, the trustees and any agent of
ours, the subsidiary guarantors or a trustee may treat the
person in whose name a debt security is registered as the
absolute owner of the debt security (whether or not such debt
security may be overdue) for the purpose of making payment and
for all other purposes.
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Governing
Law
The indentures and the debt securities will be governed by, and
construed in accordance with, the law of the State of New York.
The
Trustee
We will enter into the indentures with a trustee that is
qualified to act under the Trust Indenture Act of 1939, as
amended, and with any other trustees chosen by us and appointed
in a supplemental indenture for a particular series of debt
securities. We may maintain a banking relationship in the
ordinary course of business with our trustee and one or more of
its affiliates.
Resignation
or Removal of Trustee
If the trustee has or acquires a conflicting interest within the
meaning of the Trust Indenture Act, the trustee must either
eliminate its conflicting interest or resign, to the extent and
in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and the applicable indenture. Any
resignation will require the appointment of a successor trustee
under the applicable indenture in accordance with the terms and
conditions of such indenture.
The trustee may resign or be removed by us with respect to one
or more series of debt securities and a successor trustee may be
appointed to act with respect to any such series. The holders of
a majority in aggregate principal amount of the debt securities
of any series may remove the trustee with respect to the debt
securities of such series.
Limitations
on Trustee if it is Our Creditor
Each indenture will contain certain limitations on the right of
the trustee, in the event that it becomes our creditor, to
obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as
security or otherwise.
Certificates
and Opinions to be Furnished to Trustee
Each indenture will provide that, in addition to other
certificates or opinions that may be specifically required by
other provisions of an indenture, every application by us for
action by the trustee must be accompanied by an officers
certificate and an opinion of counsel stating that, in the
opinion of the signers, all conditions precedent to such action
have been complied with by us.
PLAN OF
DISTRIBUTION
We may sell the offered securities in and outside the United
States (i) through underwriters or dealers,
(ii) directly to purchasers, including our affiliates and
stockholders, (iii) through agents or (iv) through a
combination of any of these methods. The prospectus supplement
will include the following information:
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the terms of the offering;
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the names of any underwriters or agents;
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the name or names of any managing underwriter or underwriters;
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the purchase price of the securities;
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the estimated net proceeds to us from the sale of the securities;
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any delayed delivery arrangements;
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any underwriting discounts, commissions and other items
constituting underwriters compensation;
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any discounts or concessions allowed or reallowed or paid to
dealers; and
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any commissions paid to agents.
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Sale
Through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will
acquire the securities for their own account for resale to the
public, either on a firm commitment basis or a best efforts
basis. The underwriters may resell the securities from time to
time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Underwriters may offer
securities to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by
one or more firms acting as underwriters. Unless we inform you
otherwise in the prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to
certain conditions. The underwriters may change from time to
time any offering price and any discounts or concessions allowed
or reallowed or paid to dealers.
During and after an offering through underwriters, the
underwriters may purchase and sell the securities in the open
market. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that
selling concessions allowed to syndicate members or other
broker-dealers for the offered securities sold for their account
may be reclaimed by the syndicate if the offered securities are
repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or
otherwise affect the market price of the offered securities,
which may be higher than the price that might otherwise prevail
in the open market. If commenced, the underwriters may
discontinue these activities at any time.
If dealers are used, we will sell the securities to them as
principals. The dealers may then resell those securities to the
public at varying prices determined by the dealers at the time
of resale. We will include in the prospectus supplement the
names of the dealers and the terms of the transaction.
Direct
Sales and Sales Through Agents
We may sell the securities directly. In this case, no
underwriters or agents would be involved. We may also sell the
securities through agents designated from time to time. In the
prospectus supplement, we will name any agent involved in the
offer or sale of the offered securities, and we will describe
any commissions payable to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to
use its reasonable best efforts to solicit purchases for the
period of its appointment.
We may sell the securities directly to institutional investors
or others who may be deemed to be underwriters within the
meaning of the Securities Act with respect to any sale of
securities. We will describe the terms of any such sales in the
prospectus supplement.
Remarketing
Arrangements
Offered securities may also be offered and sold, if so indicated
in the applicable prospectus supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more remarketing firms, acting as principals for their own
accounts or as agents for us. Any remarketing firm will be
identified and the terms of its agreements, if any, with us and
its compensation will be described in the applicable prospectus
supplement. Remarketing firms may be deemed to be underwriters,
as that term is defined in the Securities Act, in connection
with the securities remarketed.
Delayed
Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize
agents, underwriters or dealers to solicit offers from certain
types of institutions to purchase securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the
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future. The contracts would be subject only to those conditions
described in the prospectus supplement. The prospectus
supplement will describe the commission payable for solicitation
of those contracts.
General
Information
We may have agreements with the agents, dealers, underwriters
and remarketing firms to indemnify them against certain civil
liabilities, including liabilities under the Securities Act, or
to contribute with respect to payments that the agents, dealers,
underwriters or remarketing firms may be required to make.
Agents, dealers, underwriters and remarketing firms may be
customers of, engage in transactions with, or perform services
for us in the ordinary course of their businesses.
LEGAL
MATTERS
Certain legal matters in connection with the securities will be
passed upon by Thompson & Knight LLP, Dallas, Texas,
as our counsel. Any underwriter or agent will be advised about
other issues relating to any offering by its own legal counsel.
EXPERTS
The (i) consolidated financial statements of Approach
Resources Inc. and subsidiaries incorporated herein by reference
to our Annual Report on
Form 10-K
for the year ended December 31, 2008, and
(ii) Companys internal control over financial
reporting incorporated herein by reference to our Annual Report
on
Form 10-K
for the year ended December 31, 2008, have been audited by
Hein & Associates LLP, independent registered public
accounting firm, as stated in their reports appearing in our
Annual Report on
Form 10-K
for the year ended December 31, 2008, and have been so
included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
Certain estimates of our oil and natural gas reserves and
related information included in this prospectus, any applicable
prospectus supplement or incorporated herein by reference have
been derived from reports prepared by DeGolyer and MacNaughton.
All such information has been so included or incorporated by
reference in reliance upon the authority of DeGolyer and
MacNaughton as experts in these matters.
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