Exhibit 2.1

 

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

 

In re:		Chapter 11
PIONEER ENERGY SERVICES CORP., et al.,		Case No. 20-_____ (___)
Debtors.

DISCLOSURE STATEMENT FOR

JOINT PREPACKAGED CHAPTER 11 PLAN OF REORGANIZATION OF

PIONEER ENERGY SERVICES CORP. AND ITS AFFILIATED DEBTORS

 

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Brian S. Hermann Elizabeth R. McColm 1285 Avenue of the Americas New York, New York 10019 Telephone: (212) 373-3000 Facsimile: (212) 757-3990		NORTON ROSE FULBRIGHT US LLP   William R. Greendyke Jason L. Boland Bob Bruner 1301 McKinney Street, Suite 5100 Houston, Texas 77010 Telephone: (713) 651-5151 Facsimile: (713) 651-5246
Proposed Counsel for Debtors and Debtors in Possession		Proposed Counsel for Debtors and Debtors in Possession
Dated:February 28, 2020

THIS SOLICITATION OF VOTES (THE “SOLICITATION”) IS BEING CONDUCTED TO OBTAIN SUFFICIENT VOTES TO ACCEPT THE PREPACKAGED PLAN (AS DEFINED HEREIN) BEFORE THE FILING OF VOLUNTARY REORGANIZATION CASES UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”). BECAUSE THE CHAPTER 11 CASES HAVE NOT YET BEEN COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(a) OF THE BANKRUPTCY CODE. FOLLOWING THE COMMENCEMENT OF THE CHAPTER 11 CASES, THE DEBTORS EXPECT TO PROMPTLY SEEK ORDERS OF THE BANKRUPTCY COURT (i) APPROVING THIS DISCLOSURE STATEMENT AS CONTAINING ADEQUATE INFORMATION, (ii) APPROVING THE SOLICITATION OF VOTES AS BEING IN COMPLIANCE WITH SECTIONS 1125 AND 1126(b) OF THE BANKRUPTCY CODE, AND (iii) CONFIRMING THE PREPACKAGED PLAN.

DISCLOSURE STATEMENT, DATED FEBRUARY 28, 2020

Solicitation of Votes on the

Prepackaged Plan of Reorganization of

PIONEER ENERGY SERVICES CORP., et al.¹

from the Holders of outstanding

NOTES CLAIMS

PIONEER INTERESTS

ONLY HOLDERS OF NOTES CLAIMS (CLASS 5) AND PIONEER INTERESTS (CLASS 10) ARE ENTITLED TO VOTE ON THE PREPACKAGED PLAN. ONLY CERTAIN HOLDERS OF NOTES CLAIMS (CLASS 5) ARE BEING SOLICITED UNDER THIS DISCLOSURE STATEMENT.

HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS WILL NOT BE IMPAIRED BY THE PREPACKAGED PLAN AND, AS A RESULT, THE RIGHT TO RECEIVE PAYMENT IN FULL ON ACCOUNT OF THOSE EXISTING OBLIGATIONS IS NOT ALTERED BY THE PREPACKAGED PLAN. DURING THE CHAPTER 11 CASES, THE DEBTORS INTEND TO OPERATE THEIR BUSINESSES IN THE ORDINARY COURSE.

 

1

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, if applicable, are as follows: Pioneer Energy Services Corp. (8619); Pioneer Coiled Tubing Services, LLC (6232); Pioneer Drilling Services, Ltd. (2497); Pioneer Fishing & Rental Services, LLC (4399); Pioneer Global Holdings, Inc. (4707); Pioneer Production Services, Inc. (1361); Pioneer Services Holdings, LLC (4706); Pioneer Well Services, LLC (7572); Pioneer Wireline Services Holdings, Inc. (6455); and Pioneer Wireline Services, LLC (2205). The headquarters for the above-captioned Debtors is 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209.

 

 

ii

THE DEBTORS ARE PROVIDING THE INFORMATION IN THIS DISCLOSURE STATEMENT TO HOLDERS OF CLAIMS AND INTERESTS FOR THE PURPOSE OF SOLICITING VOTES TO ACCEPT OR REJECT THE PREPACKAGED PLAN. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE RELIED UPON OR USED BY ANY ENTITY FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PREPACKAGED PLAN. BEFORE DECIDING WHETHER TO VOTE FOR OR AGAINST THE PREPACKAGED PLAN, EACH HOLDER ENTITLED TO VOTE SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS DISCLOSURE STATEMENT, INCLUDING ALL ATTACHED EXHIBITS AND DOCUMENTS INCORPORATED INTO THIS DISCLOSURE STATEMENT, AS WELL AS THE RISK FACTORS DESCRIBED IN ARTICLE IX OF THIS DISCLOSURE STATEMENT.

THE SOLICITATION OF VOTES ON THE PLAN WITH RESPECT TO NOTES CLAIMS IS BEING MADE ONLY WITH RESPECT TO HOLDERS OF SUCH CLAIMS THAT ARE ELIGIBLE HOLDERS OF NOTES CLAIMS (I.E., ACCREDITED INVESTORS AS DEFINED IN RULE 501 UNDER THE SECURITIES ACT); PROVIDED, HOWEVER, THAT ALL HOLDERS OF ALLOWED PREPETITION NOTES CLAIMS WILL BE ENTITLED TO RECEIVE DISTRIBUTIONS UNDER THE PLAN.

THE RIGHTS OFFERING WILL BE CONDUCTED PURSUANT TO SEPARATE RIGHTS OFFERING AND RIGHTS OFFERING PROCEDURES. ANY DISCLOSURE CONTAINED HEREIN CONCERNING THE RIGHTS OFFERING IS SOLELY FOR INFORMATION PURPOSES.

UPON CONFIRMATION OF THE PREPACKAGED PLAN, THE NEW EQUITY DESCRIBED IN THIS DISCLOSURE STATEMENT WILL BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, TOGETHER WITH THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “SECURITIES ACT”), OR SIMILAR U.S. FEDERAL, STATE OR LOCAL LAWS TO PERSONS RESIDENT OR OTHERWISE LOCATED IN THE UNITED STATES IN RELIANCE ON THE EXEMPTION SET FORTH IN SECTION 1145 OF THE BANKRUPTCY CODE. THE MANAGEMENT COMMITMENT CONVERTIBLE BONDS, RIGHTS OFFERING CONVERTIBLE BONDS, THE PREMIUM CONVERTIBLE BONDS, THE MANAGEMENT COMMITMENT STAPLED SPECIAL VOTING STOCK, THE RIGHTS OFFERING STAPLED SPECIAL VOTING STOCK, THE PREMIUM STAPLED SPECIAL VOTING STOCK AND THE NEW SECURED BONDS WILL BE OFFERED AND SOLD PURSUANT TO SECTION 4(a)(2) AND REGULATION D OF THE SECURITIES ACT AND U.S. AND APPLICABLE STATE AND LOCAL SECURITIES LAWS AND THE LAWS OF FOREIGN JURISDICTIONS, AS APPLICABLE. TO THE EXTENT EXEMPTIONS FROM REGISTRATION UNDER SECTION 1145 OF THE BANKRUPTCY CODE DO NOT APPLY, THOSE SECURITIES MAY NOT BE OFFERED OR ISSUED TO PERSONS RESIDENT OR OTHERWISE LOCATED IN THE UNITED STATES EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT OR (B) AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

 

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NO SECURITIES TO BE ISSUED PURSUANT TO THE PREPACKAGED PLAN HAVE BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY AUTHORITY WHETHER IN THE UNITED STATES OR ELSEWHERE. THIS DISCLOSURE STATEMENT HAS NOT BEEN FILED FOR APPROVAL WITH THE SEC OR ANY STATE AUTHORITY AND NEITHER THE SEC NOR ANY STATE AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PREPACKAGED PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE IN THE UNITED STATES. NEITHER THIS SOLICITATION NOR THIS DISCLOSURE STATEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.

THIS DISCLOSURE STATEMENT CONTAINS “FORWARD-LOOKING STATEMENTS.” SUCH STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD LOOKING TERMINOLOGY SUCH AS “MAY,” “EXPECT,” “ANTICIPATE,” “ESTIMATE” OR “CONTINUE” OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE DEBTORS CONSIDER ALL STATEMENTS REGARDING ANTICIPATED OR FUTURE MATTERS TO BE FORWARD-LOOKING STATEMENTS.

Forward-looking statements may include statements about:

 

•

general economic and business conditions and industry trends;

 

•

levels and volatility of oil and gas prices;

 

•

the continued demand for drilling services or production services in the geographic areas where the Company operates;

 

•

decisions about exploration and development projects to be made by oil and gas exploration and production companies;

 

•

the highly competitive nature of the Company’s business;

 

•

technological advancements and trends in the Company’s industry, and improvements in the Company’s competitors’ equipment;

 

•

the loss of one or more of the Company’s major clients or a decrease in their demand for the Company’s services;

 

•

future compliance with covenants under the Exit Facilities (as defined below);

 

iv

•

operating hazards inherent in the Company’s operations;

 

•

the supply of marketable drilling rigs, well servicing rigs, coiled tubing units and wireline units within the industry;

 

•

the continued availability of new components for drilling rigs, well servicing rigs, coiled tubing units and wireline units;

 

•

the continued availability of qualified personnel;

 

•

the success or failure of the Company’s acquisition strategy;

 

•

the occurrence of cybersecurity incidents;

 

•

the political, economic, regulatory and other uncertainties encountered by the Company’s operations,

 

•

changes in, or the Company’s failure or inability to comply with, governmental regulations, including those relating to the environment;

 

•

changes in tax laws or tax rates;

 

•

complaints or litigation against us;

 

•

trade restrictions or embargoes by the United States and other countries;

 

•

the Company’s cash flows and liquidity;

 

•

the Company’s business strategy and prospect for growth;

 

•

the implementation of the Restructuring; and

 

•

the factors as set out in Article IX – “Certain Risk Factors To Be Considered,” and other factors that are not known to us at this time.

STATEMENTS CONCERNING THESE AND OTHER MATTERS ARE NOT GUARANTEES OF THE REORGANIZED DEBTORS’ FUTURE PERFORMANCE. THERE ARE RISKS, UNCERTAINTIES, AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE REORGANIZED DEBTORS’ ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE DIFFERENT FROM THOSE THEY MAY PROJECT, AND THE DEBTORS UNDERTAKE NO OBLIGATION TO UPDATE THE PROJECTIONS MADE HEREIN, EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW. THE READER IS CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE PRESENTED IN SUCH FORWARD-LOOKING STATEMENTS. THE LIQUIDATION ANALYSIS, PROJECTIONS AND OTHER

 

v

INFORMATION CONTAINED HEREIN AND ATTACHED HERETO ARE ESTIMATES ONLY, AND THE VALUE OF THE PROPERTY DISTRIBUTED TO HOLDERS OF ALLOWED CLAIMS OR INTERESTS MAY BE AFFECTED BY MANY FACTORS THAT CANNOT BE PREDICTED. THEREFORE, ANY ANALYSES, ESTIMATES OR RECOVERY PROJECTIONS MAY OR MAY NOT TURN OUT TO BE ACCURATE. FOR MORE INFORMATION REGARDING THE FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE PRESENTED IN THE FORWARD-LOOKING STATEMENTS, PLEASE REFER TO ARTICLE IX – CERTAIN RISK FACTORS TO BE CONSIDERED OF THIS DISCLOSURE STATEMENT AND “PRINCIPAL RISKS AND UNCERTAINTIES” OF THE ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2018, A COPY OF WHICH IS FILED ON PIONEER’S WEBSITE AND INCORPORATED BY REFERENCE IN THIS DISCLOSURE STATEMENT.

HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS WILL NOT BE IMPAIRED BY THE PREPACKAGED PLAN AND, AS A RESULT, THE RIGHT TO RECEIVE PAYMENT IN FULL ON ACCOUNT OF SUCH OBLIGATIONS IS NOT ALTERED BY THE PREPACKAGED PLAN.

THIS DISCLOSURE STATEMENT HAS BEEN PREPARED PURSUANT TO SECTIONS 1125 AND 1126 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 3016 AND IS NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER SIMILAR LAWS.

THE DEBTORS BELIEVE THAT THE SOLICITATION OF VOTES ON THE PREPACKAGED PLAN MADE BY THIS DISCLOSURE STATEMENT AFTER THE PETITION DATE, AND THE OFFER OF CERTAIN NEW SECURITIES THAT MAY BE DEEMED TO BE MADE PURSUANT TO THE SOLICITATION, ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND RELATED STATE STATUTES BY REASON OF THE EXEMPTION PROVIDED BY SECTION 1145(a)(1) OF THE BANKRUPTCY CODE AND THAT CERTAIN OTHER NEW SECURITIES ARE EXEMPT PURSUANT TO SECTION 4(a)(2) OF THE SECURITIES ACT AND REGULATION D PROMULGATED THEREUNDER, AND EXPECT THAT THE OFFER AND ISSUANCE OF THE SECURITIES UNDER THE PREPACKAGED PLAN WILL BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND RELATED STATE STATUTES BY REASON OF THE APPLICABILITY OF SECTION 1145(a)(1) OF THE BANKRUPTCY CODE AND SECTION 4(a)(2) OF THE SECURITIES ACT.

ALL SECURITIES DESCRIBED HEREIN ARE EXPECTED TO BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAWS (“BLUE SKY LAWS”) AND IT IS EXPECTED THAT THE OFFER AND ISSUANCE OF THE NEW EQUITY WILL BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND BLUE SKY LAWS BY REASON OF THE APPLICABILITY OF SECTION 1145(a)(1) OF THE BANKRUPTCY CODE.

 

vi

TO THE EXTENT THAT THE DEBTORS RELY ON A PRIVATE PLACEMENT EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR THE OFFER AND ISSUANCE OF ANY SECURITIES OR FOR SECURITIES PURCHASED UNDER THE RIGHTS OFFERING, THOSE SECURITIES WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT AND MAY ONLY BE RESOLD OR OTHERWISE TRANSFERRED PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT OR (B) AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF ANY NEW EQUITY OR STAPLED SPECIAL VOTING STOCK PURSUANT TO THE CHAPTER 11 CASES CONSULT THEIR OWN LEGAL COUNSEL CONCERNING THE SECURITIES LAWS GOVERNING THE TRANSFERABILITY OF ANY SUCH NEW EQUITY.

NEITHER THE SOLICITATION NOR THIS DISCLOSURE STATEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.

NO LEGAL OR TAX ADVICE IS PROVIDED TO YOU BY THIS DISCLOSURE STATEMENT. THE DEBTORS URGE EACH HOLDER OF A CLAIM OR INTEREST TO CONSULT WITH ITS OWN ADVISORS WITH RESPECT TO ANY LEGAL, FINANCIAL, SECURITIES, TAX OR BUSINESS ADVICE IN REVIEWING THIS DISCLOSURE STATEMENT, THE PREPACKAGED PLAN AND EACH OF THE PROPOSED TRANSACTIONS CONTEMPLATED THEREBY. FURTHER, THE COURT’S APPROVAL OF THE ADEQUACY OF DISCLOSURES CONTAINED IN THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE THE COURT’S APPROVAL OF THE MERITS OF THE PREPACKAGED PLAN OR A GUARANTEE BY THE COURT OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.

THIS DISCLOSURE STATEMENT CONTAINS, AMONG OTHER THINGS, A SUMMARY OF THE PREPACKAGED PLAN, CERTAIN EVENTS LEADING UP TO AND EXPECTED TO OCCUR IN THE DEBTORS’ CHAPTER 11 CASES, AND CERTAIN DOCUMENTS RELATED TO THE PREPACKAGED PLAN THAT ARE ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE OR THAT MAY BE FILED LATER WITH THE PLAN SUPPLEMENT. ALTHOUGH THE DEBTORS BELIEVE THAT THESE SUMMARIES ARE FAIR AND ACCURATE, THESE SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY TO THE EXTENT THAT THE SUMMARIES DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS OR EVERY DETAIL OF SUCH EVENTS, BY REFERENCE TO SUCH DOCUMENT OR STATUTORY PROVISIONS. IN THE EVENT OF ANY CONFLICT, INCONSISTENCY OR DISCREPANCY BETWEEN A DESCRIPTION IN THIS DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS OF THE PREPACKAGED PLAN OR ANY OTHER DOCUMENTS, THE PREPACKAGED PLAN OR SUCH OTHER DOCUMENTS WILL GOVERN AND CONTROL FOR ALL PURPOSES. EXCEPT AS OTHERWISE SPECIFICALLY

 

vii

NOTED, FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN PROVIDED BY THE DEBTORS’ MANAGEMENT. THE DEBTORS DO NOT REPRESENT OR WARRANT THAT THE INFORMATION CONTAINED HEREIN OR ATTACHED HERETO IS WITHOUT ANY MATERIAL INACCURACY OR OMISSION.

IN PREPARING THIS DISCLOSURE STATEMENT, THE DEBTORS RELIED ON FINANCIAL DATA DERIVED FROM THE DEBTORS’ BOOKS AND RECORDS AND ON VARIOUS ASSUMPTIONS REGARDING THE DEBTORS’ BUSINESS. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. THE DEBTORS’ MANAGEMENT HAS REVIEWED THE FINANCIAL INFORMATION PROVIDED IN THIS DISCLOSURE STATEMENT. ALTHOUGH THE DEBTORS HAVE USED THEIR REASONABLE BUSINESS JUDGMENT TO ENSURE THE ACCURACY OF THIS FINANCIAL INFORMATION AND THE LIQUIDATION ANALYSIS, THE FINANCIAL INFORMATION AND LIQUIDATION ANALYSIS CONTAINED IN, OR INCORPORATED BY REFERENCE INTO, THIS DISCLOSURE STATEMENT HAS NOT BEEN AUDITED (UNLESS OTHERWISE EXPRESSLY PROVIDED HEREIN) AND NO REPRESENTATIONS OR WARRANTIES ARE MADE AS TO THE ACCURACY OF THE FINANCIAL INFORMATION CONTAINED HEREIN OR ASSUMPTIONS REGARDING THE DEBTORS’ BUSINESS AND ITS FUTURE RESULTS AND OPERATIONS. THE DEBTORS EXPRESSLY CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.

NEITHER THIS DISCLOSURE STATEMENT, THE PREPACKAGED PLAN, THE CONFIRMATION ORDER NOR THE PLAN SUPPLEMENT WAIVE ANY RIGHTS OF THE DEBTORS WITH RESPECT TO THE HOLDERS OF CLAIMS OR INTERESTS PRIOR TO THE EFFECTIVE DATE. RATHER, THIS DISCLOSURE STATEMENT SHALL CONSTITUTE A STATEMENT MADE IN SETTLEMENT NEGOTIATIONS RELATED TO POTENTIAL CONTESTED MATTERS, POTENTIAL ADVERSARY PROCEEDINGS AND OTHER PENDING OR THREATENED LITIGATION OR ACTIONS.

NO RELIANCE SHOULD BE PLACED ON THE FACT THAT A PARTICULAR LITIGATION CLAIM OR PROJECTED OBJECTION TO A PARTICULAR CLAIM IS OR IS NOT IDENTIFIED IN THIS DISCLOSURE STATEMENT. EXCEPT AS PROVIDED UNDER THE PREPACKAGED PLAN, THE DEBTORS OR THE REORGANIZED DEBTORS MAY SEEK TO INVESTIGATE, FILE AND PROSECUTE CLAIMS AND CAUSES OF ACTION AND MAY OBJECT TO CLAIMS AFTER CONFIRMATION OR THE EFFECTIVE DATE OF THE PREPACKAGED PLAN IRRESPECTIVE OF WHETHER THIS DISCLOSURE STATEMENT IDENTIFIES ANY SUCH CLAIMS OR OBJECTIONS TO CLAIMS ON THE TERMS SPECIFIED IN THE PREPACKAGED PLAN.

 

viii

THE DEBTORS ARE GENERALLY MAKING THE STATEMENTS AND PROVIDING THE FINANCIAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT AS OF THE DATE HEREOF WHERE FEASIBLE, UNLESS OTHERWISE SPECIFICALLY NOTED. ALTHOUGH THE DEBTORS MAY SUBSEQUENTLY UPDATE THE INFORMATION IN THIS DISCLOSURE STATEMENT, THE DEBTORS HAVE NO AFFIRMATIVE DUTY TO DO SO. HOLDERS OF CLAIMS OR INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER THAT, AT THE TIME OF THEIR REVIEW, THE FACTS SET FORTH HEREIN HAVE NOT CHANGED SINCE THIS DISCLOSURE STATEMENT WAS SENT. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION, MODIFICATION, OR AMENDMENT. THE DEBTORS RESERVE THE RIGHT TO FILE AN AMENDED OR MODIFIED PREPACKAGED PLAN AND RELATED DISCLOSURE STATEMENT FROM TIME TO TIME, SUBJECT TO THE TERMS OF THE RESTRUCTURING SUPPORT AGREEMENT.

THE DEBTORS HAVE NOT AUTHORIZED ANY ENTITY TO GIVE ANY INFORMATION ABOUT OR CONCERNING THE PREPACKAGED PLAN OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. THE DEBTORS HAVE NOT AUTHORIZED ANY REPRESENTATIONS CONCERNING THE DEBTORS OR THE VALUE OF THEIR PROPERTY OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT.

HOLDERS OF CLAIMS OR INTERESTS ENTITLED TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN MUST RELY ON THEIR OWN EVALUATION OF THE COMPANY AND THEIR OWN ANALYSES OF THE TERMS OF THE PREPACKAGED PLAN IN DECIDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN. IMPORTANTLY, PRIOR TO DECIDING WHETHER AND HOW TO VOTE ON THE PREPACKAGED PLAN, EACH HOLDER OF A CLAIM OR INTEREST IN A VOTING CLASS SHOULD REVIEW THE PREPACKAGED PLAN IN ITS ENTIRETY AND CONSIDER CAREFULLY ALL OF THE INFORMATION IN THIS DISCLOSURE STATEMENT AND ANY EXHIBITS HERETO.

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

NOTWITHSTANDING ANY RIGHTS OF APPROVAL PURSUANT TO THE RESTRUCTURING SUPPORT AGREEMENT OR OTHERWISE AS TO THE FORM OR SUBSTANCE OF THIS DISCLOSURE STATEMENT, THE PREPACKAGED PLAN OR ANY OTHER DOCUMENT RELATING TO THE TRANSACTIONS CONTEMPLATED THEREUNDER, NONE OF THE PARTIES WHO HAVE EXECUTED THE RESTRUCTURING SUPPORT AGREEMENT, OR THEIR RESPECTIVE REPRESENTATIVES, MEMBERS, FINANCIAL OR LEGAL ADVISORS OR AGENTS,

 

ix

HAS INDEPENDENTLY VERIFIED THE INFORMATION CONTAINED HEREIN OR TAKES ANY RESPONSIBILITY THEREFOR AND NONE OF THE FOREGOING ENTITIES OR PERSONS MAKES ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER CONCERNING THE INFORMATION CONTAINED HEREIN.

THE CONFIRMATION AND EFFECTIVENESS OF THE PREPACKAGED PLAN ARE SUBJECT TO CERTAIN MATERIAL CONDITIONS PRECEDENT DESCRIBED HEREIN AND SET FORTH IN ARTICLE IX OF THE PREPACKAGED PLAN. THERE IS NO ASSURANCE THAT THE PREPACKAGED PLAN WILL BE CONFIRMED, OR IF CONFIRMED, THAT THE CONDITIONS REQUIRED TO BE SATISFIED FOR THE PREPACKAGED PLAN TO BECOME EFFECTIVE WILL BE SATISFIED (OR WAIVED).

ALL EXHIBITS TO THIS DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.

 

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TABLE OF CONTENTS

 

				Page
ARTICLE I. INTRODUCTION					1
ARTICLE II. OVERVIEW OF THE COMPANY’S OPERATIONS					7
A.		Overview of the Debtors’ Businesses			7
B.		Pioneer’s Drilling Services and Production Services			8
C.		The Debtors’ Organizational Structure			10
D.		Directors and Officers			10
E.		The Debtors’ Capital Structure			11
F.		Legal Proceedings			14
ARTICLE III. KEY EVENTS LEADING TO COMMENCEMENT OF CHAPTER 11 CASES					14
A.		Recent Industry Trends			14
B.		Prepetition Efforts to Combat Market Downturn			15
C.		Prepetition Negotiations with Creditors			16
D.		Restructuring Support Agreement			17
E.		Milestones			19
ARTICLE IV. ANTICIPATED EVENTS DURING CHAPTER 11 CASES					20
A.		Commencement of the Chapter 11 Cases and First Day Motions			20
B.		Proposed Use of Cash Collateral / Debtor in Possession Financing			22
C.		Other Procedural Motions and Retention of Professionals			23
D.		Confirmation Hearing			23
E.		Timetable for the Chapter 11 Cases			23
ARTICLE V. SUMMARY OF PREPACKAGED PLAN					23
A.		Chapter 11 Prepackaged Plan			23

 

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ARTICLE VI. VALUATION OF THE DEBTORS					57
ARTICLE VII. TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES LAWS					57
A.		1145 Securities			57
B.		Rights to Purchase New Convertible Bonds in the Rights Offering			59
C.		Private Placement Securities			59
D.		Listing			62
ARTICLE VIII. CERTAIN U.S. FEDRAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN					62
A.		U.S. Federal Income Tax Consequences to the Debtors			63
B.		U.S. Holders of Certain Claims and Interests			66
C.		Non-U.S. Holders of Certain Claims and Interests			73
D.		FATCA			75
E.		Backup Withholding and Information Reporting			76
ARTICLE IX. CERTAIN RISK FACTORS TO BE CONSIDERED					77
A.		Certain Bankruptcy Law Considerations			77
B.		Risks Relating to the Company’s Business			84
C.		Factors Relating to Securities to Be Issued Under the Prepackaged Plan Generally			94
D.		Additional Factors			98
ARTICLE X. VOTING PROCEDURES AND REQUIREMENTS					98
A.		Voting Instructions and Voting Deadline			99
B.		Voting Procedures			99
C.		Parties Entitled to Vote			100
D.		Miscellaneous			100
E.		Fiduciaries and Other Representatives			101

 

xii

F.		Agreements Upon Furnishing Ballots			101
G.		Change of Vote			102
H.		Waivers of Defects, Irregularities, etc.			102
I.		Miscellaneous			102
ARTICLE XI. CONFIRMATION OF THE PREPACKAGED PLAN					103
A.		Confirmation Hearing			103
B.		Objections to Confirmation			103
C.		Requirements for Confirmation of the Prepackaged Plan			105
ARTICLE XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED PLAN					110
A.		Alternative Plan of Reorganization			110
B.		Sale Under Section 363 of the Bankruptcy Code			110
C.		Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law			110
ARTICLE XIII. MISCELLANEOUS PROVISIONS					111
A.		Immediate Binding Effect			111
B.		Additional Documents			111
C.		Reservation of Rights			111
D.		Successors and Assigns			111
E.		Term of Injunctions or Stays			112
F.		Entire Agreement			112
G.		Exhibits			112
H.		Consent Rights of Required Consenting Stakeholders, Required Backstop Parties and Required DIP Lenders			112
I.		Nonseverability of Prepackaged Plan Provisions			113
J.		Votes Solicited in Good Faith			113
K.		Request for Expedited Determination of Taxes			113
L.		Closing of Chapter 11 Cases			113
ARTICLE XIV. CONCLUSION AND RECOMMENDATION					114

 

xiii

EXHIBITS

 

EXHIBIT A:		Joint Prepackaged Chapter 11 Plan of Reorganization of Pioneer Energy Services Corp. and Its Affiliated Debtors
EXHIBIT B:		Restructuring Support Agreement
EXHIBIT C:		Corporate Structure Chart
EXHIBIT D:		Valuation Analysis
EXHIBIT E:		Liquidation Analysis
EXHIBIT F:		Financial Projections

 

 

xiv

ARTICLE I.

INTRODUCTION

The Debtors submit this Disclosure Statement in connection with the Solicitation of votes on the Joint Prepackaged Chapter 11 Plan of Pioneer Energy Services Corp. and its Affiliated Debtors, dated February 28, 2020 (the “Prepackaged Plan”) attached hereto as Exhibit A.² The Debtors under the Prepackaged Plan are Pioneer and certain of its affiliates, substantially all of which are issuers, borrowers, guarantors and/or grantors under the Prepetition ABL Credit Agreement, Prepetition Term Loan Credit Agreement and the Indenture (each as defined below). Following approval of the Board of Directors of Pioneer (the “Board”), the Debtors anticipate filing voluntary petitions for relief under chapter 11 in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) on or about March 1, 2020, which is during the solicitation period.

The Debtors are commencing this Solicitation after extensive good faith, arms’-length discussions among the Debtors and certain key creditor constituencies. As a result of these negotiations, the Debtors, the Consenting Term Lenders and the Consenting Noteholders have reached a global consensus on the terms of a Restructuring (as defined below) and related restructuring support agreement (the “Restructuring Support Agreement”), a copy of which is annexed hereto as Exhibit B. Under the terms of the Restructuring Support Agreement, which has been signed by the vast preponderance of the Debtors’ major stakeholders whose claims are impacted under the Prepackaged Plan, the Consenting Term Lenders and Consenting Noteholders agree, subject to the terms and conditions of the Restructuring Support Agreement, to support a value-maximizing financial restructuring of the Debtors (the “Restructuring”), that leaves the Debtors’ trade and other general unsecured creditors unaffected. The Restructuring shall be effectuated through the Prepackaged Plan.

The votes for acceptance of the Prepackaged Plan are being solicited from Holders in Class 5 (Notes Claims) and Class 10 (Pioneer Interests).

Further below is a short summary of the treatment of various Holders of Claims and Interests under the Prepackaged Plan. Greater detail on such treatment is provided later on in this Disclosure Statement.

The Debtors believe that the Prepackaged Plan provides the best available path forward for the Company, one that eliminates significant financial burdens, provides the Debtors with an expeditious and cost-effective road to emergence, positions the Company for success in the years to come, and is in the best interests of all of the Company’s stakeholders. Taken as a whole, the Restructuring achieves:

 

 

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Capitalized terms used but not otherwise defined in this Disclosure Statement will have the meaning ascribed to such terms in the Prepackaged Plan. The summary of the Prepackaged Plan provided herein is qualified in its entirety by reference to the Prepackaged Plan. In the case of any inconsistency between this Disclosure Statement and the Prepackaged Plan, the Prepackaged Plan will govern.

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a 100% recovery to Allowed General Unsecured Claims and all other creditors who are Unimpaired under the Prepackaged Plan; and

 

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deleveraging the Company’s balance sheet by (i) equitizing approximately $300 million of prepetition Notes Claims with the consent of an overwhelming amount of the Notes Claims, and (ii) refinancing of $175 million of Prepetition Term Loan Claims with the proceeds of the New Secured Bonds and Rights Offering.

In addition, the Prepackaged Plan provides for a substantial capital infusion into the Company through a new money Rights Offering to raise up to $125 million through the issuance of the Rights Offering Convertible Bonds (the “Rights Offering Amount”) and Management Commitment Convertible Bonds. In accordance with the Rights Offering Procedures and the Backstop Commitment Agreement, each Eligible Holder (as defined in the Rights Offering Procedures) of Eligible Claims or Eligible Interests shall receive Subscription Rights with respect to such Eligible Claims or Eligible Interests to acquire its respective share of Rights Offering Convertible Bonds pursuant to the terms set forth in the Prepackaged Plan and the Rights Offering Procedures.

Lastly, the Company will seek to issue New Secured Bonds in the amount of $78.125 million consistent with the terms set forth in the New Secured Bond Term Sheet and otherwise to be determined. The proceeds of the New Secured Bonds will be used to refinance the Prepetition Term Loan Facility (as defined below).

Through the restructuring, the Debtors expect to create a sustainable capital structure that will position the Company for success in the energy exploration, production and development industry.

In addition, the Company believes that the Restructuring will maximize the value of its businesses and preserve the integrity of the Company’s diverse business lines. Moreover, the Restructuring provides a framework for the long-term sustainability of the Company’s businesses for the benefit of its employees and customers, whose Claims are not Impaired under the Prepackaged Plan, and positions it well from a liquidity perspective.

WHO IS ENTITLED TO VOTE: Under the Bankruptcy Code, only Holders of claims or interests in “impaired” classes are entitled to vote on a plan of reorganization (unless, for reasons discussed in more detail below, such Holders are deemed to reject the plan pursuant to section 1126(g) of the Bankruptcy Code). Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless: (i) the plan leaves unaltered the legal, equitable, and contractual rights of the Holder of such claim or interest; or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan, among other things, cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.

There are two (2) groups entitled to vote on the Prepackaged Plan whose acceptances of the Prepackaged Plan are being solicited: (i) Holders of Notes Claims (Class 5) and (ii) Holders of Pioneer Interests (Class 10).

 

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THE PREPACKAGED PLAN PROVIDES THAT HOLDERS OF IMPAIRED CLAIMS AND INTERESTS WHO DO NOT SUBMIT A BALLOT TO ACCEPT OR REJECT THE PREPACKAGED PLAN OR WHO REJECT THE PREPACKAGED PLAN BUT DO NOT OPT OUT OF THE RELEASE PROVISIONS OF THE PREPACKAGED PLAN ARE DEEMED TO HAVE GRANTED THE RELEASES THEREIN.

The following table summarizes: (i) the treatment of Claims and Interests under the Prepackaged Plan; (ii) which Classes are impaired by the Prepackaged Plan; (iii) which Classes are entitled to vote on the Prepackaged Plan; and (iv) the estimated recoveries for Holders of Claims and Interests.³ The table is qualified in its entirety by reference to the full text of the Prepackaged Plan. A more detailed summary of the terms and provisions of the Prepackaged Plan is provided in the Summary of the Prepackaged Plan set forth in ARTICLE V of this Disclosure Statement. A detailed discussion of the analysis underlying the estimated recoveries, including the assumptions underlying such analysis, is provided in the Valuation Analysis set forth in ARTICLE VI and Exhibit D hereof.

 

 

Class		Claim or Interest		Treatment		Impaired or Unimpaired		Entitlement to Vote		Approx. Percentage Recovery
1		Other Priority Claims		Except to the extent that a Holder of an Allowed Other Priority Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed Other Priority Claim, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Required Consenting Noteholders, (i) payment in full, in Cash, of the unpaid portion of its Allowed Other Priority Claim on the Effective Date or as soon thereafter as reasonably practicable (or, if payment is not then due, such Allowed Other Priority Claim shall be paid in accordance with its terms), or (ii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code pursuant to such other terms as may be agreed to by the Holder of an Allowed Other Priority Claim and the Debtors.		Unimpaired		No (Presumed to Accept)		100%

 

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Any Class of Claims against or Interests in a Debtor that is considered vacant under Article III.G of the Prepackaged Plan shall be deemed eliminated from the Prepackaged Plan of such Debtor for purposes of voting to accept or reject the Prepackaged Plan. Further, any holder of a Claim or Interest in a Class that is considered vacant under Article III.G of the Prepackaged Plan will receive no distribution under the Prepackaged Plan.

 

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Class		Claim or Interest		Treatment		Impaired or Unimpaired		Entitlement to Vote		Approx. Percentage Recovery
2		Other Secured Claims		On the Effective Date, except to the extent that a Holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed Other Secured Claim, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Requisite Consenting Noteholders: (i) payment in full in Cash of the unpaid portion of its Allowed Other Secured Claim on the Effective Date or as soon thereafter as reasonably practicable (or if payment is not then due, then such Allowed Other Secured Claim shall be paid in accordance with its terms), (ii) Reinstatement of its Claims or (iii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code.		Unimpaired		No (Presumed to Accept)		100%
3		ABL Claims		On the Effective Date, except to the extent that a Holder of an Allowed ABL Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed ABL Claim, to the extent such Claims have not been repaid with the proceeds of the DIP Facility, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Required Consenting Noteholders, (i) payment in full, in Cash, of the unpaid portion of its Allowed ABL Claim on the Effective Date or as soon thereafter as reasonably practicable (or, if payment is not then due, such Allowed ABL Claim shall be paid in accordance with its terms), or (ii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code.		Unimpaired		No (Presumed to Accept)		100%

 

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Class		Claim or Interest		Treatment		Impaired or Unimpaired		Entitlement to Vote		Approx. Percentage Recovery
4		Prepetition Term Loan Claims		On the Effective Date or as soon thereafter as reasonably practicable, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Prepetition Term Loan Claim, each Holder of an Allowed Prepetition Term Loan Claim shall receive payment in full in Cash of each such Allowed Prepetition Term Loan Claim.		Unimpaired		No (Presumed to Accept)		100%
5		Notes Claims		On the Effective Date or as soon thereafter as reasonably practicable, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Notes Claim, each Holder of an Allowed Notes Claim shall receive its Pro Rata share of (i) 94.25% of the New Equity (and, if Class 10 does not vote to accept the Plan, such percentage will increase to 100%), subject to dilution by the New Equity issued upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds) and the Employee Incentive Plan and (ii) Subscription Rights to acquire its Pro Rata share of $116,121,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures.		Impaired		Yes		4-32%

 

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Class		Claim or Interest		Treatment		Impaired or Unimpaired		Entitlement to Vote		Approx. Percentage Recovery
6		General Unsecured Claims		Each Holder of a General Unsecured Claim will be paid in full in Cash (together with interest if provided for under the governing agreement) in the ordinary course of the Debtors’ business, in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing or other documents relating to such transactions, or Reinstated, subject to all claims, defenses, or disputes the Debtors or the Reorganized Debtors may have with respect to such General Unsecured Claims.		Unimpaired		No (Presumed to Accept)		100%
7		Intercompany Claims		On the Effective Date, all Intercompany Claims shall be, with the reasonable consent of the Required Consenting Noteholders, adjusted, Reinstated, or discharged to the extent determined to be appropriate by the Debtors or Reorganized Debtors, as applicable.		Unimpaired		No (Deemed to Accept)		N/A
8		Subordinated Claims		On the Effective Date, all Allowed Subordinated Claims, if any, shall be discharged, cancelled, released, and extinguished, and will be of no further force or effect. No Holder of Allowed Subordinated Claims will receive any distribution or recovery on account of such Allowed Subordinated Claims.		Impaired		No (Deemed to Reject)		N/A
9		Intercompany Interests		On the Effective Date, each Intercompany Interest shall be Reinstated or cancelled at the option of the Debtors (with the consent of the Required Consenting Noteholders).		Unimpaired		No (Deemed to Accept)		N/A
10		Pioneer Interests		On the Effective Date or as soon thereafter as reasonably practicable, all Pioneer Interests shall be cancelled and discharged and shall be of no further force and effect, whether surrendered for cancellation or otherwise, and each Holder of an Allowed Pioneer Interest shall receive:		Impaired		Yes		$700,000-$6 million

 

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Class		Claim or Interest		Treatment		Impaired or Unimpaired		Entitlement to Vote		Approx. Percentage Recovery
				If Class 10 votes to accept the Prepackaged Plan, its Pro Rata share of (i) 5.75% of the New Equity, subject to dilution by the New Equity issued upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds) and the Employee Incentive Plan and (ii) Subscription Rights to acquire its Pro Rata share of $7,084,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures.   If Class 10 does not vote to accept the Prepackaged Plan, its Pro Rata share of Subscription Rights to acquire its Pro Rata share of $7,084,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures.

ARTICLE II.

OVERVIEW OF THE COMPANY’S OPERATIONS

A. Overview of the Debtors’ Businesses

Pioneer and its affiliated Debtors and non-Debtor subsidiaries (collectively, the “Company”) operate together to provide land-based drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia. By offering both drilling and production services, Pioneer helps its customers in the oil and gas industry establish and maintain the flow of oil and natural gas throughout the productive life of a well. Pioneer has over fifty-one (51) years of experience assisting its customers with streamlining all aspects of their oilfield operations, from providing services prior to initial production through production, maintenance and eventual well abandonment.

Pioneer was incorporated under the laws of the state of Texas in 1979 as the successor to a business that had been operating since 1968. At that time, Pioneer had three land drilling rigs. Since then, Pioneer has expanded through a combination of organic growth and targeted acquisitions, including the 2008 acquisition of WEDGE Well Services, LLC, WEDGE Wireline Services, LLC and certain of their affiliates and the 2011 acquisition of Go Coil, LLC, which form the basis of the Company’s well servicing, wireline and coiled tubing services, respectively. As of the Petition Date, Pioneer has twenty-five (25) drilling rigs, 123 well servicing rigs, ninety-three (93) wireline services units and nine (9) coiled tubing services units.

 

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Until recently, the common stock of Pioneer Energy was traded on the New York Stock Exchange (“NYSE”) under the symbol “PES.” The NYSE, however, delisted the common stock due to its low trading price levels in September 2019.

B. Pioneer’s Drilling Services and Production Services

Pioneer’s land-based drilling services and production services span the full lifecycle of oilfield operations, from initial exploration of potential sites, through development, production, maintenance and eventual abandonment of a site. At each stage, Pioneer provides its customers with a range of services and expertise to enhance the economic value of the customers’ oil and gas assets by optimizing development costs and maximizing production. These services are organized into two business lines – drilling services and production services. The Company’s two business lines can be further broken down into five key operating segments: domestic drilling, international drilling, well servicing, wireline services and coiled tubing services.

1. Drilling Services (Domestic and International)

Through its drilling services, Pioneer provides the drilling rig, crew, supplies and most of the ancillary equipment necessary to operate a drilling rig prior to initial production. The Company’s current drilling rig fleet is 100% pad-capable, which allows a series of horizontal wells to be drilled in succession by walking or skidding a drilling rig at a single pad-site location and provides greater movement flexibility and efficiency by drilling multiple wells on a single pad during the same visit of a drilling rig. Such techniques allow Pioneer’s customers to drill increasingly longer horizontal wellbores (i.e., the holes initially drilled to form the well), which enables higher hydrocarbon production per well and reduces the overall number of wells needed to achieved desired production.

Regarding the power used in such rigs, Pioneer utilizes alternating current (“AC”) and silicon controlled rectifier (“SCR”) rigs, which generate electrical power through one or more engine generator sets and are considered more efficient, safe and precise than mechanical rigs driven by electric motors. Each of the Company’s rigs has 1,500 horsepower or greater draw-works.    The Company’s utilization of AC and SCR rigs, and its removal of older, less capable rigs from its fleet, allows it to focus on providing a pad optimal fleet focused on the horizontal drilling market. Pioneer owns seventeen (17) AC rigs in the United States and eight (8) SCR rigs in Colombia.

Pioneer’s drilling contracts for individual wells are usually completed in less than thirty (30) days; however, the Company typically enters into drilling contracts of longer duration for newly constructed rigs and/or during periods of high rig demand.

The domestic and international drilling segments generated approximately 25% and 14%, respectively, of Pioneer’s overall revenues in the year ending December 31, 2018.

 

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2. Production Services

Pioneer’s production services business segments provide a range of well, wireline and coiled tubing services, with operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states. Such services can span the life cycle of a well and include, among others, logging the characterizations of the rock and fluid mixtures penetrated by drilling, completion of well sites, perforation of the casing of the well to connect it to the reservoir, maintenance and end-of-well activities to permanently close oil and gas wells. Production services jobs are generally short-term, ranging in duration from several hours to less than thirty (30) days, and typically represent a single performance obligation (either for a particular job, series of distinct jobs or period of time during which the Company stands ready to provide services as the customer requires).

Pioneer’s production services generated approximately 61% of its overall revenues in the year ending December 31, 2018, including 16% from well servicing, 36% from wireline services and 9% from coiled tubing services.

a. Well Servicing

Through its well servicing segment, Pioneer offers optimization services to establish production in newly-drilled wells and to maintain production over the useful life of active wells. The Company’s completion services provide a mechanical method to prepare a well for production by perforating the well casing to allow oil and gas flow, stimulating and testing such zones and installing the production string and other downhole equipment. Through its well servicing fleet, the Company delivers periodic maintenance and major repairs or modifications to sustain optimal levels of oil and gas production. The Company also performs plugging and abandonment services at the end of a well’s useful life.

b. Wireline Services

Pioneer’s wireline services allow oil and gas exploration and production companies to better understand the reservoirs they are drilling or producing. The Company’s logging and perforating services are designed to establish a flow path between the reservoir and the wellbore and complete cased-holes to protect the wellbore from fluids, pressures and stability problems. Such services also include placing equipment in or retrieving equipment or debris from the wellbore, installing bridge plugs and controlling pressure.

c. Coiled Tubing Services

Through its coiled tubing services, Pioneer enables companies to continue production during service operations on wells under pressure without shutting the well down, thereby reducing the risk of formation damage. Coiled tubing services involve the use of a continuous flexible metal pipe that is spooled on a large reel and inserted into the wellbore to perform clean-outs, nitrogen jet lifts to displace fluids and reduce pressure, through-tubing fishing to remove wellbore obstructions, formation stimulation utilizing acid, chemical treatments and fracturing.

 

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3. LiveSafe Program

Pioneer has an extensive focus on its safety program, LiveSafe, aimed at ensuring a work environment where its employees are committed to and recognize the possibility of always working without incident or injury. In 2018, the Company’s drilling business achieved record safety results and was ranked first among the top ten most active contractors. Similarly, in 2018, its well servicing segment achieved its lowest total recordable incident rate in its history. As a result of those actions, for the second year in a row, the Company achieved a consolidated total recordable incident rate below 1.0 (reflecting less than one work-related injury per 100 full-time workers during a one-year period) and lowered its lost time incident rates for the fifth consecutive year, reaching the lowest in the Company’s history. Pioneer’s excellent safety record and reputation remain critical to winning new business and expanding relationships with existing clients.

C. The Debtors’ Organizational Structure

The Debtors’ principal executive offices are located at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. A chart illustrating the Company’s organizational structure as of the Petition Date is attached hereto as Exhibit C.

D. Directors and Officers

Pioneer’s current Board is comprised of the following individuals:

 

Name		Position
Dean Burkhardt		Chairman of the Board
Wm. Stacy Locke		Director
Tamara Morytko		Director
Mike Rauh		Director
John Thompson		Director
Scott Urban		Director

Pioneer’s current senior management team is comprised of the following individuals:

 

Name		Position
Wm. Stacy Locke		President and Chief Executive Officer
Lorne E. Phillips		Chief Financial Officer
Brian L. Tucker		Chief Operating Officer
Carlos R. Peña		Executive Vice President and Chief Strategic Officer
Bryce Seki		General Counsel, Secretary and Compliance Officer
John “Skip” Locken		Vice President, Drilling Services
W. Scott Keenen		Senior Vice President, Global Human Resources

In accordance with 11 U.S.C. § 1129(a)(5), prior to the entry of the order confirming the Prepackaged Plan, the Debtors will disclose the identity and affiliations of any individual proposed to serve, after confirmation of the Prepackaged Plan, as a director or officer of each of the Reorganized Debtors.

 

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E. The Debtors’ Capital Structure

1. Overview of the Company’s Prepetition Debt Structure

As of the Petition Date, the Company had approximately $475 million in principal amount of total funded indebtedness comprised of: (i) approximately $175 million in principal amount outstanding under the Prepetition Term Loan Credit Agreement (as defined below) and (ii) approximately $300 million in principal amount outstanding of Notes (as defined below).

2. The Prepetition ABL Facility

All Debtors, other than Pioneer Services Holdings, LLC, are borrowers (the “Prepetition ABL Borrowers”) under that certain Credit Agreement, dated as of November 8, 2017 (as amended, restated, modified, supplemented, or replaced from time to time, the “Prepetition ABL Credit Agreement”) among the Prepetition ABL Borrowers, the lenders party thereto from time to time (the “Prepetition ABL Lenders”), and Wells Fargo Bank, National Association, as administrative agent (in such capacity, the “Prepetition ABL Administrative Agent” and, together with the Prepetition ABL Lenders, the “Prepetition ABL Secured Parties”). Each of the Prepetition ABL Borrowers are guarantors of the Prepetition ABL Credit Agreement pursuant to that certain Guaranty Agreement, dated as of November 8, 2017 (as amended and restated from time to time), in favor of the Prepetition ABL Agent.

The Prepetition ABL Credit Agreement provides for an asset-based revolving credit facility (the “Prepetition ABL Facility”) in a maximum aggregate principal amount of $75 million, subject to a borrowing base and including a $30 million sub-limit for letters of credit. The obligations under the Prepetition ABL Credit Agreement in respect of the Prepetition ABL Facility are secured by liens on substantially all of the Debtors’ assets, including, without limitation, 100% of the equity interests of the Prepetition ABL Borrowers (other than Pioneer Energy) (the “Prepetition Collateral”).

The Prepetition ABL Facility bears interest at the London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 2.75% to 3.25% or, at the Prepetition ABL Borrowers’ option, the Base Rate (as defined in the Prepetition ABL Credit Agreement) plus a margin ranging from 1.75% to 2.25%, in each case based on the Average Excess Availability (as defined in the Prepetition ABL Credit Agreement) of the Prepetition ABL Borrowers for the most recently completed calendar month. The applicable margin for borrowings bearing interest based on LIBOR is currently 1.75% per annum, and the applicable margin for borrowings bearing interest based on the Base Rate is currently 2.75% per annum. The Prepetition ABL Facility matures on November 8, 2022, subject to an earlier springing maturity date under certain conditions.

As of the Petition Date, the Prepetition ABL Facility remains undrawn, and the only amounts outstanding thereunder were undrawn letters of credit in the amount of $9.4 million and any accrued but unpaid indemnification obligations, fees and expenses and other obligations incurred in connection therewith.

 

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3. The Prepetition Term Loan Facility

Debtor Pioneer Energy is the borrower under that certain Term Loan Credit Agreement, dated as of November 8, 2017 (as amended, restated, modified, supplemented, or replaced from time to time, the “Prepetition Term Loan Credit Agreement”) among Pioneer, the lenders party thereto from time to time (the “Prepetition Term Lenders”, and together with the Prepetition ABL Lenders, the “Prepetition Lenders”), and Wilmington Trust, National Association, as administrative agent (in such capacity, the “Prepetition Term Loan Agent” and, together with the Prepetition Term Lenders, the “Prepetition Term Loan Secured Parties”; and the Prepetition Term Loan Secured Parties, together with the Prepetition ABL Secured Parties, the “Prepetition Secured Parties”).

The Prepetition Term Loan Credit Agreement provides for a term loan credit facility (the “Prepetition Term Loan Facility”) in an initial aggregate principal amount of $175 million. The obligations under the Prepetition Term Loan Credit Agreement in respect of the Prepetition Term Loan Facility are guaranteed by Pioneer Global Holdings, Inc., Pioneer Drilling Services, Ltd., Pioneer Production Services, Inc., Pioneer Wireline Services Holdings, Inc., Pioneer Wireline Services, LLC, Pioneer Well Services, LLC, Pioneer Fishing & Rental Services, LLC, and Pioneer Coiled Tubing Services, LLC and secured by liens on the Prepetition Collateral.

The Prepetition Term Loan Facility bears interest at LIBOR or the Base Rate (as defined in the Prepetition Term Loan Credit Agreement), at the option of Pioneer Energy, plus an applicable margin of 7.75% and 6.75% per annum, respectively. The Prepetition Term Loan Facility matures on November 8, 2022, subject to earlier springing maturity dates under certain conditions, including a maturity date in December 2021 if, at such time, the aggregate amount of Senior Notes outstanding exceeds $15 million.

As of the Petition Date, $175 million in principal amount remains outstanding under the Prepetition Term Loan Facility, plus any accrued but unpaid interest, indemnification obligations, fees and expenses and other obligations incurred in connection therewith.

4. Notes

Debtor Pioneer Energy is the issuer of 6.125% senior unsecured notes due March 15, 2022 (the “Notes” and, together with the Prepetition ABL Facility and the Prepetition Term Loan Facility, the “Prepetition Debt”) pursuant to that certain Indenture, dated as of March 18, 2014 (as amended, restated, modified, supplemented, or replaced from time to time, the “Indenture”) with Wells Fargo Bank, National Association, as trustee, and certain of the Debtors as guarantors. The Notes are unsecured obligations and are pari passu with one another.

As of the Petition Date, the total aggregate outstanding amount of the Notes is approximately $300 million.

5. Intercreditor Agreement

The respective rights and interests of the Prepetition ABL Lenders and Prepetition Term Lenders are governed by that certain Intercreditor Agreement, dated as of November 8, 2017 (as amended, restated, modified, supplemented, or replaced from time to time, the “Intercreditor Agreement”) among Pioneer Energy, the Prepetition ABL Administrative Agent, and the Prepetition Term Loan Agent.

 

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Specifically, the Intercreditor Agreement governs the respective rights and interests of the Prepetition ABL Secured Parties and the Prepetition Term Loan Secured Parties relating to, among other things, their rights and their ability to exercise remedies in connection with an ABL Event of Default or Term Event of Default (each as defined in the Intercreditor Agreement) and in the event of a bankruptcy filing, including related enforcement, standstill and turnover provisions. Pursuant to the Intercreditor Agreement, the Prepetition ABL Liens on the Prepetition Collateral consisting of ABL Priority Collateral (as defined in the Intercreditor Agreement) are first-priority and senior to the Prepetition Term Loan Liens on such ABL Priority Collateral, and the Prepetition Term Loan Liens on the Prepetition Collateral consisting of Term Priority Collateral (as defined in the Intercreditor Agreement) are first-priority and senior to the Prepetition ABL Liens on such Term Priority Collateral.

6. Equity Ownership

As discussed above, Pioneer Energy is a public company. Until recently, the common stock of Pioneer Energy was traded on the NYSE under the symbol “PES.” The NYSE, however, has suspended trading in the common stock due to its low trading price levels.

As of September 30, 2019, 200,000,000 shares of the Debtors’ $0.10 par value common stock had been authorized with 79,202,216 shares of common stock issued and outstanding.

7. Other Financing Arrangements and Indebtedness

In addition to the foregoing, certain Debtors are parties to other financing arrangements. These arrangements and facilities are described here solely to the extent they implicate one or more of the Debtors. Certain non-Debtor affiliates may be party to additional financing arrangements.⁴

a. Affiliate Financing Arrangements and Intercompany Loans

The Debtors maintain an integrated cash management system to manage the collection, transfer and disbursement of funds across the Debtors’ different legal entities, as directed and determined by the Debtors’ treasury department. This system includes a variety of routine intercompany transactions.

Certain of the Debtors also routinely engage in business with one another, generating ordinary course intercompany claims arising from, among other things, the allocation of costs due to shared services, employees and equipment. These intercompany financing arrangements are critical to the Debtors’ business. Continuation of these practices and procedures in the normal course during the pendency of these Chapter 11 Cases is essential to avoiding significant business disruptions. As such, the Debtors intend to continue these arrangements in the normal course of business, subject to the terms described in the Cash Management Motion (as defined below).

 

 

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The non-Debtor subsidiaries routinely obtain bonds for bidding on drilling contracts, performing under drilling contracts and remitting customs and importation duties. To facilitate these practices, such non-Debtor subsidiaries are party to certain bank guarantees in the aggregate amount of $70.2 million (as amended and restated from time to time, the “Bonding Obligations”); however, none of the Debtor entities are guarantors under such Bonding Obligations.

 

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b. Trade Debt

In addition to the foregoing, the Debtors had approximately $19.3 million in ordinary course trade debt owed to third parties (excluding affiliates) that was unpaid as January 21, 2020.

F. Legal Proceedings

The Debtors are named as defendants from time to time in routine litigation proceedings. In the opinion of management, the outcome of these proceedings will not have a material adverse effect on Pioneer’s financial position, results of operations, or cash flows. The Debtors, however, cannot predict with certainty the outcome or effect of pending or threatened litigation or legal proceedings, and the eventual outcome could materially differ from their current estimates.

ARTICLE III.

KEY EVENTS LEADING TO COMMENCEMENT OF CHAPTER 11 CASES

A. Recent Industry Trends

Pioneer’s performance is closely linked to market trends in the oil and gas industry and, in particular, the volatility of oil and natural gas prices. The last few years, however, have seen a significant and sustained drop in oil and gas prices. Oil and gas prices are dependent on factors beyond the Company’s control, including the supply of and demand for oil, weather conditions and political conditions, among others. As a result of this sustained market downturn, oil and gas companies around the world have dramatically curtailed capital and operating expenditures dedicated to oil and gas exploration, development and production. This, in turn, has caused a commensurate drop in demand for the products and services offered by Pioneer and its competitors. In fact, many of Pioneer’s competitors in the oilfield services space, whose businesses are also dependent on spending by oil and gas companies, have filed for bankruptcy in the last several years.

The sustained drop in oil and gas prices has impacted companies throughout the oil and gas industry including Pioneer and the majority of its customers. As spending on exploration, development and production of oil and natural gas has decreased so too has demand for Pioneer’s services. The decline in spending by oil and gas companies has had a significant effect on the Debtors’ financial health and prospects.

In addition to the issues facing the oil and gas industry generally, Pioneer operates in a highly competitive market. The oilfield services industry is saturated with competition from various companies that operate in the same sectors and the same regions of the world as Pioneer. The primary competitive factors that Pioneer faces include safety, performance, price, quality and breadth of products and services. Pioneer also faces competition from regional suppliers in some of the sectors in which it operates as these suppliers provide mobile equipment that can be moved from one market to another in response to market conditions.    This heavily competitive market has impacted the Company’s ability to maintain its market share and defend or maintain the pricing for its services. Heavy competition has also impacted the Company’s ability to negotiate favorable contract terms with its customers and suppliers, which, on occasion has resulted in the Company accepting suboptimal terms.

 

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The Company’s operations are also subject to extensive federal, international, state and local laws and regulations governing environmental quality, pollution control, remediation of contamination, preservation of natural resources, transportation, work safety and other matters. Compliance with the various requirements imposed by these laws and regulations has also resulted in increased capital expenditures as companies in these sectors have had to make significant investments to ensure compliance.

B. Prepetition Efforts to Combat Market Downturn

As with many of its peers, Pioneer has worked diligently to respond to the adverse market conditions and heavy industry competition. As described below, Pioneer has implemented broad cost-saving measures to reduce operating expenses while preserving operational capacity and revenue margins. The Company and its management team focused primarily on cutting costs, reducing capital expenditure and managing liquidity.

1. Cost-Cutting Initiatives and Operational Adjustments

Pioneer has initiated significant cost-saving measures in response to the ongoing market downturn. In doing so, Pioneer has prioritized protecting its operational capabilities so that it is well situated to respond when the market changes. Accordingly, these efforts have been highly strategic, and focused on an effort to reduce overhead and eliminate inefficiencies without jeopardizing or impairing Pioneer’s operational capabilities.

Specifically, in 2015 and 2016, Pioneer reduced its total headcount by over 50%, reduced wage rates for its operations personnel, reduced incentive compensation and eliminated certain employment benefits. In 2016, the Company closed ten field offices to reduce overhead and associated lease payments. At the same time, the Company lowered its capital expenditures by 77% to primarily routine expenditures that were necessary to maintain its equipment and deferred discretionary upgrades and additions (except those that it had previously committed to make during the 2014 market slowdown).

Pioneer has also implemented key operational initiatives to maximize revenue by deploying its products and services in new ways that better serve the demands of its customers. By way of example, with increased industry activity and pricing during 2017 and 2018, Pioneer resumed efforts to build value in its core businesses by redeploying assets to areas with improving demand, selectively upgrading its fleets and executing limited strategic growth. Specifically, Pioneer has positioned itself as a leading provider in domestic shale regions as not all of its competitors’ rigs are capable of working in unconventional shale producing regions. The Company’s domestic drilling and production services fleets are, however, highly capable and designed for operation in shale’s long lateral, pad-oriented environment.

 

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In the first quarter of 2019, the Company continued its cost-reduction initiatives and operational adjustments by expanding the roles and related responsibilities of several of its executive leaders to further leverage their existing talents to the entire organization. Specifically, the Company appointed a Chief Operating Officer to centralize operational and sales leadership for all business segments and a Chief Strategy Officer to lead a team designed to identify market opportunities, execute strategic initiatives and enhance the Company’s fleet performance across all business units. More recently, in January and February of 2020, Pioneer realized Selling, General & Administrative (SG&A) cost savings by further reducing its employee headcount.

Despite implementing these initiatives, the Company continued to face declining revenue and cash flow, as well as significant market challenges. Moreover, as discussed above, the highly competitive market in which the Company operates posed challenges for the Company in winning bids from new customers, resulting in further decreased revenue.

2. Strategic Divestitures

As part of the Company’s overall operational adjustments, Pioneer’s management team conducted a detailed review of all of the Company’s assets, the ability to invest in growth, and the overall role of the assets in the Company’s long-term strategy. Management and the board determined that there were assets that could be sold, which would increase liquidity and concentrate the Company’s focus on its key product lines and services.

Since the beginning of 2015 through the end of 2018, the Company has liquidated nonstrategic or non-core assets. Specifically, Pioneer has sold thirty-nine (39) non-AC domestic drill rigs, thirty-three (33) older wireline units, seven (7) smaller diameter coiled tubing units and various other drilling and coiled tubing equipment for aggregate net proceeds of over $75 million. As of September 30, 2019, the Company reported another $6.2 million in assets remaining held for sale, including the fair value of buildings and yards for one domestic drilling yard and two closed wireline locations, one domestic SCR drilling rig, two coiled tubing units and spare support equipment.

3. Efforts to Improve Liquidity

In conjunction with management’s efforts to institute its cost-cutting and operational adjustment initiatives, it became apparent that the Company’s revenue and cash flow generating capacity would be insufficient to service its outstanding debt on a long-term basis and to maintain the liquidity necessary to operate its business and maximize long-term enterprise value. In December 2016, the Company sold 12.1 million shares of its common stock in a public offering and applied the net proceeds to reduce its outstanding debt under its then-revolving credit facility.

In November 2017, the Company entered into the Prepetition ABL Facility and Prepetition Term Loan Facility, the proceeds of which were used to pay and extinguish its prior revolving credit facility which was set to mature in 2019.

C. Prepetition Negotiations with Creditors

Despite these efforts, performance and liquidity further deteriorated as the overall industry downturn continued. By the spring of 2019, management determined that – notwithstanding its ongoing cost-cutting efforts, strategic divestitures, and other efforts to improve liquidity – further steps needed to be taken to enable the Debtors to successfully weather the ongoing downturn and avoid eventual default. Although the Company’s Prepetition Term Loan Facility does not mature

 

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until December 2021, in May 2019, management retained Lazard Frères & Co (“Lazard”), as investment banker, and Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul, Weiss), as counsel, to begin proactively exploring various strategic and other alternatives to address the uncertainties related to its ability to refinance its outstanding debts as their maturities approached, including the incurrence of new indebtedness and other potential M&A transactions. Management, however, concluded that these alternatives to restructuring were not feasible or commercially practicable, and that it was in the Company’s best interests to pursue financial restructuring proactively.

Management, aided by its advisors and the Company’s existing counsel at Norton Rose Fulbright, soon began discussions with the Company’s stakeholders. In June 2019, management commenced negotiations with an ad hoc committee of holders of the Company’s Notes (the “Ad Hoc Noteholder Group”), represented by Davis Polk & Wardwell LLP (“Davis Polk”). During an eight-month negotiation period, the Company’s financial condition worsened, and its common stock declined. On August 14, 2019, the NYSE suspended trading in the Company’s common stock due to low-trading price levels, and delisted the Company on September 9, 2019.

In October 2019, to maximize the Company’s flexibility in terms of implementing a potential transaction, the Company also retained Alvarez & Marsal North America, LLC (“A&M”) to assist it in preparing for possible in-court restructuring proceedings. After extensive good faith and arms’ length negotiations, the parties reached a final agreement in February 2020, which, in the opinion of management, reflected terms that were in the best interest of the Company.

D. Restructuring Support Agreement.

On February 28, 2020, the Company entered into a restructuring support agreement (the “Restructuring Support Agreement” or “RSA”) which, among other things, outlines the terms of a comprehensive financial restructuring with (i) Prepetition Term Lenders holding over 99% in the aggregate amount outstanding under the Prepetition Term Loan Facility, and (ii) members of the Ad Hoc Noteholder Group holding approximately 75.9% in the aggregate of the principal amount outstanding under the Notes. This represents an overwhelming level of support, and will play a meaningful role in ensuring the success of these prepackaged cases. The RSA envisions a balance sheet restructuring of the Company’s funded indebtedness and an infusion of up to $125 million in new money through a partially backstopped rights offering and management commitment. The specific terms of the proposed transaction are detailed in a comprehensive term sheet (as amended from time to time, the “Term Sheet”) attached as an exhibit to the Restructuring Support Agreement, a copy of which is attached hereto as Exhibit B and provide for, among other things:

 

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The repayment in full in Cash of the Prepetition Term Loan Claims with the proceeds of the New Secured Bonds and Rights Offering. The New Secured Bonds will mature five (5) years from issuance and bear cash interest at a rate of LIBOR plus 9.5%.

 

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The exchange of the existing Notes Claims for (a) 94.25% of the New Equity (subject to dilution from the conversion of the New Convertible Bonds and the Employee Incentive Plan) and (b) the right to participate in the Rights Offering on a pro rata basis for the purchase of 94.25% of the New Convertible Bonds to be issued by Reorganized Pioneer pursuant to the Rights Offering.

 

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•

To the extent holders of Pioneer Interests vote to accept the Prepackaged Plan, holders of Pioneer Interests will receive (a) 5.75% of the New Equity (subject to dilution from the conversion of the New Convertible Bonds and the Employee Incentive Plan) and (b) the right to participate in the Rights Offering on a pro rata basis for the purchase of 5.75% of the New Convertible Bonds to be issued pursuant to the Rights Offering, even though the valuation of the Debtors set forth in this Disclosure Statement does not merit any distribution to holders of Pioneer Interests.

 

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The Rights Offering will be partially backstopped by the Consenting Noteholders pursuant to the Backstop Commitment Agreement.

 

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Certain members of the Company’s senior management will purchase approximately $1.795 million of New Convertible Bonds pursuant to the Backstop Commitment Agreement.

 

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The total outstanding principal amount of New Convertible Bonds upon issuance will be up to $135 million, inclusive of the Backstop Commitment Premium (as defined below) and the New Convertible Bonds will mature in 5 years and 6 months from issuance and bear payable-in-kind interest at 5%.

In connection with execution of the RSA and agreement on the foregoing restructuring terms, the Company and its advisors also reached agreement with PNC Bank, National Association (“PNC”) regarding the financing that would be necessary to fund the Chapter 11 Cases. Specifically, in parallel with reaching agreement on the Term Sheet, PNC committed to provide the Debtors with a $75 million asset-based revolving loan debtor-in-possession financing facility (the “DIP Financing”). The DIP Financing will be used to fund these Chapter 11 Cases. The DIP Financing has a 5-month term and standard covenants and terms. Amounts outstanding under the DIP Financing will bear interest, at the Debtors’ option, (i) at the Base Rate plus 1% or (ii) at LIBOR plus 2%. The DIP Financing also provides for certain fees, including an annual unused facility fee of 0.50% and standard letter of credit fees. Upon emergence from these Chapter 11 Cases, the DIP Financing shall be automatically convertible dollar for dollar into an exit financing facility.

The Prepetition Term Lenders have also consented to the Debtors’ use of their prepetition cash collateral for the pendency of the Chapter 11 Cases.

Pioneer negotiated with the Management Commitment Parties to ensure that the Management Commitment Convertible Bonds would be fully committed. The Management Commitment Parties will receive a commitment premium of 8% of the total commitment amount (the “Management Commitment Premium”), payable in New Convertible Bonds issued as of the effective date of the Prepackaged Plan; in the event the Prepackaged Plan is not consummated because the Company has determined to pursue an alternative transaction that it determines is superior, the commitment parties shall be paid this commitment premium in cash.

 

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Finally, as part of this comprehensive negotiation, Pioneer negotiated with the Ad Hoc Noteholder Group to ensure that substantially all of the Rights Offering would be backstopped.⁵ The Ad Hoc Noteholder Group was the only constituency willing to backstop the Noteholder Rights Offering and negotiated the terms of the Rights Offering and the Backstop Commitment Agreement extensively with the Debtors. The backstop parties will receive a commitment premium of 8% of the total committed amount of the rights offering (the “Backstop Commitment Premium”), payable in New Convertible Bonds issued as of the effective date of the Prepackaged Plan; in the event the Prepackaged Plan is not consummated because the Company has determined to pursue an alternative transaction that it determines is superior, the backstop parties shall be paid this commitment premium in cash.

The RSA documents the parties’ commitment to the restructuring transaction described above. As such, it is an essential component of the Debtors’ restructuring efforts, and provides the Debtors with significant assurances regarding the ultimate success of its Chapter 11 Cases. In particular, by signing the RSA, the signing parties have agreed to support the restructuring process on the terms set forth in the Term Sheet and in the RSA. This includes an agreement by these parties to take any steps and actions that are reasonably necessary to implement the restructuring transaction, including voting in favor of the Prepackaged Plan subject to receipt of appropriate solicitation materials, including the Debtors’ Prepackaged Plan and Disclosure Statement. In exchange, the Company has agreed, among other things, that the key documents necessary to implement the transaction must be reasonably acceptable to a majority of the supporting stakeholders.

E. Milestones

To minimize costs and the potential disruptions to the business that could result from the chapter 11 filings, the Debtors and their key constituencies made it a priority to minimize the duration of the Chapter 11 Cases. As a result, the RSA obligates the parties to work expeditiously to consummate the restructuring described in the Term Sheet and establishes a number of milestones (the “Milestones”) to govern that process, including the following:

 

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filing the Prepackaged Plan, Disclosure Statement and the DIP Motion one (1) calendar day after the Petition Date that are consistent with the Term Sheet and the RSA;

 

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obtaining an order approving the Disclosure Statement no later than forty-five (45) calendar days after the Petition Date;

 

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confirming the Prepackaged Plan no later than forty-five (45) calendar days after the Petition Date (the “Confirmation Date”); and

 

 

5	Pursuant to the Prepackaged Plan, as of and subject to the occurrence of the effective date of the Prepackaged Plan and the payment of any applicable cure claims, any backstop commitment agreement shall be deemed assumed.

 

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•

consummating the restructuring pursuant to the Chapter 11 Plan no later than fourteen (14) calendar days after the Confirmation Date.6

Accordingly, the Debtors are seeking authority to schedule a combined hearing to (i) approve the Disclosure Statement and (ii) consider confirmation of the Prepackaged Plan on or around April 8, 2020.

To abide by this schedule, the Debtors spent considerable time and effort in the period leading up to the Petition Date drafting and negotiating all of the material documents necessary to implement the agreed restructuring. This includes, among many other documents, the Chapter 11 Plan, which was filed contemporaneously herewith, and all of the related documents, including the Disclosure Statement and various exhibits thereto – all of which were substantially finalized prior to the Petition Date. Given this level of preparation and support from the Consenting Stakeholders under the RSA, the Debtors in fact were able to commence the solicitation process for their Chapter 11 Plan prior to the Petition Date. Accordingly, on February 28, 2020, the Debtors commenced the solicitation process.

ARTICLE IV.

ANTICIPATED EVENTS DURING CHAPTER 11 CASES

In accordance with the Restructuring Support Agreement, the Debtors anticipate filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code on or about March 1, 2020. The filing of the petitions will commence the Chapter 11 Cases, at which time the Debtors will be afforded the benefits and become subject to the limitations of the Bankruptcy Code.

The Debtors intend to continue to operate their businesses in the ordinary course during the pendency of the Chapter 11 Cases as they have been doing before the Petition Date. To facilitate the efficient and expeditious implementation of the Prepackaged Plan through the Chapter 11 Cases, and to minimize disruptions to the Debtors’ operations on the Petition Date, the Debtors intend to seek to have the Chapter 11 Cases assigned to the same bankruptcy judge and administered jointly and to file various motions seeking important and urgent relief from the Bankruptcy Court. Such relief, if granted, will assist in the administration of the Chapter 11 Cases; however, there can be no assurance that the requested relief will be granted by the Bankruptcy Court.

A. Commencement of the Chapter 11 Cases and First Day Motions

On the Petition Date, the Debtors intend to file multiple motions seeking various relief from the Bankruptcy Court and authorizing the Debtors to maintain their operations in the ordinary course. Such relief is designed to ensure a seamless transition between the Debtors’ prepetition and postpetition business operations, facilitate a smooth reorganization through the Chapter 11 Cases, and minimize any disruptions to the Debtors’ operations. The following is a brief overview of the relief the Debtors intend to seek on the Petition Date to maintain their operations in the ordinary course.

 

 

6	The RSA also imposes certain requirements affecting the DIP Financing, specifying that an interim order approving the DIP Financing must be entered within five (5) calendar days of the Petition Date and a final order within forty-five (45) days of the Petition Date.

 

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1. Cash Management. The Debtors maintain a centralized cash management system designed to receive, monitor, aggregate, and distribute cash among the various Debtors and non-Debtor affiliates. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to, among other things, continue the use of their existing cash management system, bank accounts and related business forms, transition into a new cash management system, as well as to continue their intercompany arrangements to avoid disruption in the Debtors’ operations and facilitate the efficient administration of the Chapter 11 Cases.

2. Corporate Credit Cards. As part of its cash management system, the Debtors maintain a corporate credit card program through which its employees can incur necessary business expenses in the ordinary course of their duties. On the Petition Date, the Debtors intend to seek limited emergency authority from the Bankruptcy Court to continue the use of the corporate credit card program to avoid disruption in the Debtors’ operations. Such emergency authority would not include any authority to pay any prepetition amounts outstanding under the corporate credit card program and would remain subject to entry of interim and final relief by the Bankruptcy Court with respect to the Debtors’ cash management system.

3. Trade Creditors. The Debtors incur numerous fixed, liquidated, and undisputed payment obligations to their trade creditors in the ordinary course of business. The trade creditors provide the Debtors with goods and services that are essential to the Debtors’ corporate and well-site operations, including, among other things, specialized equipment and technical services specific to the Debtors’ operations, as well as information technology services, financial services, leases of property and equipment, utility services, maintenance and repair services, legal services, human resources services, and other basic business necessities for the operation of the Debtors’ businesses. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to pay in the ordinary course of business all allowed prepetition claims of the trade creditors.

4. Wages. The Debtors’ businesses are labor intensive and rely upon employees in various locations within the United States. It is essential the smooth operation of the business that the Debtors’ workforce continues to perform in the normal course. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to (i) pay prepetition wages, salaries, other compensation, and reimbursable expenses and (ii) continue employee benefits programs in the ordinary course of business, including payment of certain prepetition obligations related thereto.

5. Customer Contracts. The Debtors’ businesses depend on third-party contracts with a limited number of key vendors, suppliers, customers and other critical counterparties, the loss of any one or more of which could have a material adverse effect on the Company’s operations during chapter 11 proceeding. On the Petition Date, the Debtors intend to seek an order from the Bankruptcy Court confirming the Debtors’ ability to continue performing under such contracts during the pendency of the Chapter 11 Cases, thereby alleviating concerns that could otherwise disrupt the Debtors’ operations.

 

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6. Taxes. In the ordinary course of business, the Debtors incur various taxes, fees and similar charges in the United States and South America. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to pay all taxes, fees, and similar charges and assessments, whether arising pre- or postpetition, to the appropriate taxing, regulatory, or other governmental authority in the ordinary course of the Debtors’ businesses.

7. Insurance. In the ordinary course of business, the Debtors maintain a variety of insurance policies and programs under multiple different policies. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to (i) continue their prepetition insurance coverage and satisfy prepetition obligations related thereto and (ii) renew, supplement, or enter into new insurance coverage in the ordinary course of business on a postpetition basis.

8. Utilities. In the ordinary course of business, the Debtors incur certain expenses related to essential utility services including, among others, water, electricity, natural gas, waste disposal, and telecommunication services. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to (i) prohibit utility companies from altering, refusing, or discontinuing utility services, (ii) deem utility companies adequately assured of future performance, and (iii) establish procedures for determining adequate assurance of payment for their utility companies.

9. Equity Trading Procedures. The Debtors have certain federal net operating loss carryovers and other tax attributes (together, the “Tax Attributes”) that provide for potential material future tax savings or other tax structuring possibilities in these Chapter 11 Cases. On the Petition Date, the Debtors intend to seek authority from the Bankruptcy Court to establish procedures to protect the Tax Attributes, including stock trading restrictions.

B. Proposed Use of Cash Collateral / Debtor in Possession Financing

A critical goal of the Debtors’ business stabilization efforts has been to ensure that the Debtors maintain sufficient liquidity to operate their business over the long term. To this end, the Debtors have sought and obtained the agreement of the super-majority of Prepetition Term Lenders pursuant to the Restructuring Support Agreement to support the Debtors’ use of cash collateral and to obtain the DIP Facility during the course of the Chapter 11 Cases. The Debtors’ access to cash collateral and funding under the DIP Facility will provide the Debtors with adequate liquidity in order to fund operations and administer the contemplated Chapter 11 Cases.

The DIP Facility will be provided by PNC and will be secured by a priming, senior first lien security interest on substantially all of the Debtors’ assets. The borrowing availability under the DIP Facility will be up to $75 million, most of which will be available as working capital for the Debtors.

On the Petition Date, the Debtors intend to file a motion seeking approval of agreed forms of interim and final orders authorizing the Debtors’ access to cash collateral and funding under the DIP Facility.

 

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These agreements will allow the Debtors to, among other things: (a) continue to operate their business in an orderly manner; (b) maintain their valuable relationships with vendors, shippers, suppliers, customers and employees; (c) pay various administrative professionals’ fees to be incurred in the Chapter 11 Cases; and (d) support the Debtors’ working capital, general corporate and overall operational needs – all of which are necessary to preserve and maintain the going concern value of the Debtors’ business and, ultimately, help ensure a successful reorganization under the Prepackaged Plan.

C. Other Procedural Motions and Retention of Professionals

The Debtors intend to file various motions that are common to chapter 11 proceedings of similar size and complexity as the Chapter 11 Cases, including applications to retain various professionals to assist the Debtors in the Chapter 11 Cases.

D. Confirmation Hearing

Contemporaneously with the filing of the Petitions, the Debtors will seek an order of the Bankruptcy Court scheduling the Confirmation Hearing to consider (i) the adequacy of this Disclosure Statement and the Solicitation in connection herewith and (ii) confirmation of the Prepackaged Plan. The Debtors anticipate that notice of these hearings will be published and mailed to all known Holders of Claims and Interests at least twenty-eight (28) days before the date by which objections must be filed with the Bankruptcy Court.

E. Timetable for the Chapter 11 Cases

In accordance with the Restructuring Support Agreement, the Debtors have agreed to proceed with the implementation of the Prepackaged Plan through the Chapter 11 Cases. Among other things, the Restructuring Support Agreement requires that the Court enter the order approving this Disclosure Statement and the solicitation procedures and confirming the Prepackaged Plan no later than forty-five (45) days after the Petition Date. The Restructuring Support Agreement also requires that the Effective Date occur no later than fourteen (14) days after entry of the Confirmation Order. Although the Debtors will request that the Court approve the timetable set forth in the Restructuring Support Agreement, there can be no assurance that the Court will grant such relief or that the Effective Date will occur on such timetable. Satisfying the requirements of the Restructuring Support Agreement is crucial to Debtors’ successful reorganization.

ARTICLE V.

SUMMARY OF PREPACKAGED PLAN

This section of this Disclosure Statement summarizes the Prepackaged Plan. This summary is qualified in its entirety by reference to the Prepackaged Plan.

A. Chapter 11 Prepackaged Plan

 

 

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1. Classification and Treatment of Administrative Claims, Claims and Interests Under the Prepackaged Plan

a. General. Only administrative expenses, claims and equity interests that are “allowed” may receive distributions under a chapter 11 plan. An “allowed” administrative expense, claim or equity interest simply means that the debtors agree, or in the event of a dispute, that the Court determines, that the administrative expense, claim or equity interest, including the amount thereof, is in fact a valid obligation of, or equity interest in, the Debtors.

The Bankruptcy Code also requires that, for purposes of treatment and voting, a chapter 11 plan divide the different claims against, and equity interests in, the Debtors into separate classes based upon their legal nature. Claims of a substantially similar legal nature are usually classified together, as are equity interests of a substantially similar legal nature. Because an entity may hold multiple claims and/or equity interests which give rise to different legal rights, the Holders of such claims and/or equity interests may find themselves as members of multiple classes of claims and/or equity interests.

Under a chapter 11 plan, the separate classes of claims and equity interests must be designated either as “impaired” (altered by the plan in any way) or “unimpaired” (unaltered by the plan). If a class of claims or interests is “impaired,” the Bankruptcy Code affords certain rights to the Holders of such claims or interests, such as the right to vote on the plan (unless the plan provides for no distribution to the Holder, in which case, the Holder is deemed to reject the plan), and the right to receive an amount under the chapter 11 plan that is not less than the value that the Holder would receive if the debtor were liquidated under chapter 7.

Under section 1124 of the Bankruptcy Code, a class of claims or interests is “impaired” unless, with respect to each claim or interest of such class, the plan (i) does not alter the legal, equitable or contractual rights of the Holders of such claims or interests or (ii) notwithstanding the Holders’ right to receive accelerated payment of such claims or interests after the occurrence of a default, cures all defaults (other than those arising from, among other things, the debtor’s insolvency or the commencement of a bankruptcy case), reinstates the maturity of the claims or interests in the class, compensates the Holders of such claims or interests for any damages incurred as a result of their reasonable reliance upon any acceleration rights and does not otherwise alter their legal, equitable or contractual rights. Typically, this means that the Holder of an unimpaired claim will receive on the later of the effective date of the plan of reorganization or the date on which amounts owing are due and payable, payment in full, in cash, with post-petition interest to the extent permitted and provided under the governing agreement between the parties (or, if there is no agreement, under applicable non-bankruptcy law), and the remainder of the debtor’s obligations, if any, will be performed as they come due in accordance with their terms.

Pursuant to sections 1122 and 1123 of the Bankruptcy Code, the following designates the Classes of Claims and Interests in the Prepackaged Plan. A Claim or Interest is in a particular Class for purposes of voting on, and of receiving distributions pursuant to, the Prepackaged Plan only to the extent that such Claim or Interest is an Allowed Claim or Interest in that Class and such Claim or Interest has not been paid, released or otherwise settled prior to the Effective Date. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class, and is classified in a different Class to the extent that any remainder of such Claim or Interest qualifies within the description of such different Class.

 

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In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims (which include DIP Facility Claims and Accrued Professional Compensation Claims), Priority Tax Claims and Statutory Fees have not been classified, although the treatment for such Claims is set forth below.

2. Unclassified Claims. All Claims and Interests, except Administrative Claims, DIP Facility Claims, and Priority Tax Claims, are classified in the Classes set forth below. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims, Statutory Fees and Priority Tax Claims have not been classified and, thus, are excluded from the Classes of Claims and Interests set forth in Article III of the Prepackaged Plan.

a. Administrative Claims. Except with respect to Administrative Claims that are Accrued Professional Compensation Claims, Administrative Claims will be paid in full in Cash in the ordinary course of the Debtors’ business, in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing or other documents relating to such transactions. Accordingly, no request for payment of such Claim need be Filed in these Chapter 11 Cases, and no bar date for such Claims will be set.

b. Accrued Professional Compensation Claims. All final requests for payment of Accrued Professional Compensation Claims incurred during the period from the Petition Date through the Effective Date shall be Filed no later than thirty (30) calendar days after the Effective Date. After notice and a hearing in accordance with the procedures established by the Bankruptcy Code, Bankruptcy Rules and prior Court orders, the Allowed amounts of such Accrued Professional Compensation Claims shall be determined by the Court. The amount of Accrued Professional Compensation Claims owing to the Professionals shall be paid in Cash to such Professionals when such Claims are Allowed by a Final Order from the Professional Fee Escrow in the case of the Debtors’ Professionals and by the Reorganized Debtors in the case of all other Professionals.

To the extent that funds held in the Professional Fee Escrow are unable to satisfy the amount of Accrued Professional Compensation Claims owing to the Debtors’ Professionals, such Professionals shall have an Allowed Administrative Claim for any such deficiency, which shall be satisfied by the Reorganized Debtors in accordance with Article II.A of the Prepackaged Plan. After all Accrued Professional Compensation Claims of the Debtors have been paid in full, the Final Order allowing such Accrued Professional Compensation Claims shall direct the escrow agent of the Professional Fee Escrow to return any excess amounts to the Reorganized Debtors.

c. DIP Facility Claims. Except to the extent that a Holder of a DIP Facility Claim agrees to a less favorable treatment, each Holder of a DIP Facility Claim will be either (i) indefeasibly paid and satisfied in full in Cash on the Effective Date or (ii) receive its Pro Rata share of revolving loans and letter of credit participations under the Exit ABL Facility, in full satisfaction, settlement, discharge and release of, and in exchange for, such DIP Facility Claim. The DIP Facility Claims shall be Allowed in an aggregate principal amount with respect to drawn amounts under the DIP Facility (plus any unpaid accrued interest and unpaid fees, expenses and

 

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other obligations under the DIP Facility Loan Agreement as of the Effective Date). Except as otherwise expressly provided in the DIP Credit Agreement or the DIP Orders, upon the indefeasible payment or satisfaction in full in Cash of the DIP Facility Claims (other than any DIP Facility Claims based on the Debtors’ contingent obligations under the DIP Credit Agreement for which no claim has been made) or distribution of the Pro Rata share of the Exit ABL Facility in accordance with the terms of the Prepackaged Plan, on the Effective Date all Liens and security interests granted to secure such DIP Facility Claims shall be terminated and of no further force and effect, and the DIP Agent will promptly execute and deliver to the Reorganized Debtors, at the Reorganized Debtors’ sole cost and expense, such instruments of termination, release, satisfaction and/or assignment (in recordable form) as may be reasonably requested by the Reorganized Debtors to effectuate the foregoing. Notwithstanding the foregoing, the DIP Credit Agreement shall continue in effect solely for the purpose of preserving the DIP Agent’s and the DIP Lenders’ rights to any contingent or indemnification obligation of the Debtors pursuant and subject to the terms of the DIP Credit Agreement or DIP Orders.

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

e. Statutory Fees. All Statutory Fees due and payable prior to the Effective Date shall be paid by the Debtors. On and after the Effective Date, the Reorganized Debtors shall pay all Statutory Fees when due and payable, and shall file with the Court quarterly reports in a form reasonably acceptable to the U.S. Trustee. Each Debtor shall remain obligated to pay quarterly fees to the U.S. Trustee and file quarterly reports until the earliest of that particular Debtor’s case being closed, dismissed or converted to a case under chapter 7 of the Bankruptcy Code.

3. Classified Claims and Interests. The treatment and voting rights provided to each Class for distribution purposes is set forth below.

a. Class 1 – Other Priority Claims. Except to the extent that a Holder of an Allowed Other Priority Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed Other Priority Claim, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Required Consenting Noteholders, (i) payment in full, in Cash, of the unpaid portion of its Allowed Other Priority Claim on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Other Priority Claim becomes an Allowed Other Priority Claim, in each case (or, if payment is not then due, shall be paid in accordance with its terms), or (ii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code pursuant to such other terms as may be agreed to by the Holder of an Allowed Other Priority Claim and the Debtors.

 

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

b. Class 2 – Other Secured Claims. On the Effective Date, except to the extent that a Holder of an Allowed Other Secured Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed Other Secured Claim, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Required Consenting Noteholders: (i) payment in full in Cash of the unpaid portion of its Allowed Other Secured Claim on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Other Secured Claim becomes an Allowed Other Secured Claim, in each case (or if payment is not then due, then such Allowed Other Secured Claim shall be paid in accordance with its terms), (ii) Reinstatement of its Claims or (iii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code.

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

c. Class 3 – ABL Claims. Except to the extent that a Holder of an Allowed ABL Claim agrees to a less favorable treatment, in full and final satisfaction, compromise, settlement, release and discharge of and in exchange for each Allowed ABL Claim, to the extent such Claims have not been refinanced with the proceeds of the DIP Facility, each such Holder shall receive, at the option of the applicable Debtor or Reorganized Debtor, with the consent of the Required Consenting Noteholders, (i) payment in full, in Cash, of the unpaid portion of its Allowed ABL Claim on the Effective Date or as soon thereafter as reasonably practicable (or, if payment is not then due, such Allowed ABL Claim shall be paid in accordance with its terms), or (ii) such other recovery necessary to satisfy section 1129 of the Bankruptcy Code.

Class 3 is Unimpaired under this Plan. Each Holder of an Allowed ABL Claim will be conclusively presumed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, each Holder of an Allowed ABL Claim is not entitled to vote to accept or reject this Plan.

d. Class 4 – Prepetition Term Loan Claims. The Prepetition Term Loan Claims shall be Allowed in the aggregate principal amount of $175,000,000, plus any accrued and unpaid interest at the default rate under the Prepetition Term Loan Agreement whether before or after the Petition Date, plus all other unpaid and outstanding fees, costs, expenses and other amounts and Obligations (as defined in the Prepetition Term Loan Agreement) and including, without limitation and solely for the avoidance of doubt, the “Applicable Premium” (as defined in the Prepetition Term Loan Agreement), as applicable, and shall not be subject to disallowance, setoff, recoupment, subordination, recharacterization, or reduction of any kind, including pursuant to section 502(d) of the Bankruptcy Code.

 

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On the Effective Date or as soon thereafter as reasonably practicable, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Prepetition Term Loan Claim, each Holder of an Allowed Prepetition Term Loan Claim shall receive payment in full in Cash of each such Allowed Prepetition Term Loan Claim.

Class 4 is Unimpaired under this Plan. Each Holder of an Allowed Prepetition Term Loan Claim will be conclusively presumed to have accepted this Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, each Holder of an Allowed Prepetition Term Loan Claim is not entitled to vote to accept or reject this Plan.

e. Class 5 – Notes Claims. The Notes Claims shall be Allowed in the aggregate principal amount of $300,000,000, plus any accrued and unpaid interest under the Indenture as of the Petition Date and shall not be subject to disallowance, setoff, recoupment, subordination, recharacterization, or reduction of any kind, including pursuant to section 502(d) of the Bankruptcy Code.

On the Effective Date or as soon thereafter as reasonably practicable, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Notes Claim, each Holder of an Allowed Notes Claim shall receive its Pro Rata share of (i) 94.25% of the New Equity (and, if Class 10 does not vote to accept the Plan, such percentage will increase to 100%), subject to dilution by the New Equity issued upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds) and the Employee Incentive Plan and (ii) Subscription Rights to acquire $116,121,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures.

f. Class 6 – General Unsecured Claims. General Unsecured Claims shall be paid in full in Cash (together with interest if provided for under the governing agreement) in the ordinary course of the Debtors’ business, in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing or other documents relating to such transactions, or Reinstated, subject to all claims, defenses, or disputes the Debtors or the Reorganized Debtors may have with respect to such General Unsecured Claims. Accordingly, no request for payment of a General Unsecured Claim need be Filed in these Chapter 11 Cases, and no bar date for such General Unsecured Claims will be set. Each Holder of an Allowed General Unsecured Claim is conclusively deemed to have accepted the Prepackaged Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, no Holder of a General Unsecured Claim is entitled to vote to accept or reject the Prepackaged Plan.

g. Class 7 – Intercompany Claims. On the Effective Date, all Intercompany Claims shall be, with the reasonable consent of the Required Consenting Noteholders, adjusted, Reinstated, or discharged to the extent determined to be appropriate by the Debtors or Reorganized Debtors, as applicable. Class 7 is Unimpaired. Each Holder of an Intercompany Claim is therefore conclusively presumed to have accepted the Prepackaged Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, no Holder of an Intercompany Claim is entitled to vote to accept or reject the Prepackaged Plan.

 

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h. Class 8 – Subordinated Claims. On the Effective Date, all Allowed Subordinated Claims, if any, shall be discharged, cancelled, released, and extinguished, and will be of no further force or effect. No Holder of Allowed Subordinated Claims will receive any distribution or recovery on account of such Allowed Subordinated Claims. Class 8 is Impaired under this Plan. Each Holder of an Allowed Subordinated Claim is conclusively deemed to have rejected the Prepackaged Plan pursuant to section 1126(g) of the Bankruptcy Code. Therefore, each Holder of an Allowed Subordinated Claim is not entitled to vote to accept or reject this Plan.

f. Class 9 – Intercompany Interests. On the Effective Date, each Intercompany Interest shall be Reinstated or cancelled at the option of the Debtors (with the consent of the Required Consenting Noteholders). Class 9 is Unimpaired under this Plan. Each Holder of an Intercompany Interest is conclusively presumed to have accepted this Plan pursuant to section 1126 of the Bankruptcy Code. Therefore, each Holder of an Intercompany Interest is not entitled to vote to accept or reject this Plan.

h. Class 10 – Pioneer Interests. On the Effective Date or as soon thereafter as reasonably practicable, all Pioneer Interests shall be cancelled and discharged and shall be of no further force and effect, whether surrendered for cancellation or otherwise, and each Holder of an Allowed Pioneer Interest shall receive: (A) if Class 10 votes to accept the Prepackaged Plan, its Pro Rata share of (i) 5.75% of the New Equity, subject to dilution by the New Equity issued upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds) and the Employee Incentive Plan and (ii) Subscription Rights to acquire $7,084,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures; or (B) if Class 10 does not vote to accept the Prepackaged Plan, its Pro Rata Share of Subscription Rights to acquire $7,084,000 in New Convertible Bonds (and the corresponding Stapled Special Voting Stock) in accordance with the Rights Offering Procedures.

Class 10 is Impaired under the Prepackaged Plan. Each Holder of a Pioneer Interest is entitled to vote to accept or reject the Prepackaged Plan.

4. No Substantive Consolidation. Although the Prepackaged Plan is presented as a joint plan of reorganization, the Prepackaged Plan does not provide for the substantive consolidation of the Debtors’ Estates, and on the Effective Date, the Debtors’ Estates shall not be deemed to be substantively consolidated for any reason. Nothing in the Prepackaged Plan or the Disclosure Statement shall constitute or be deemed to constitute a representation that any one or all of the Debtors is subject to or liable for any Claims against any other Debtor. A Claim against multiple Debtors will be treated as a separate Claim against each applicable Debtor’s Estate for all purposes, including voting and distribution; provided, however, that no Claim will receive value in excess of one hundred percent (100.0%) of the Allowed amount of such Claim under the Prepackaged Plan for each Debtor.

 

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5. General Settlement of Claims and Interests. Pursuant to sections 363 and 1123 of the Bankruptcy Code and Bankruptcy Rule 9019, and in consideration for the classification, distributions, releases, and other benefits provided under the Prepackaged Plan, upon the Effective Date, the provisions of the Prepackaged Plan shall constitute a good faith compromise and settlement of all Claims and Interests and controversies resolved pursuant to the Prepackaged Plan. The entry of the Confirmation Order shall constitute the Court’s approval of the compromise and settlement of all such Claims, Interests, and controversies, as well as a finding by the Court that such compromise and settlement is in the best interests of the Debtors, their Estates, and Holders of Claims and Interests and is fair, equitable, and is within the range of reasonableness. All distributions made to Holders of Allowed Claims and Allowed Interests in any Class are intended to be and shall be final.

6. Restructuring Transactions. Prior to, or on the Effective Date or thereafter, the Debtors or the Reorganized Debtors may take all actions as may be necessary or appropriate to effect any transaction described in, approved by, contemplated by, or necessary to effectuate the Prepackaged Plan (the “Restructuring Transactions”), in each case subject to the consent rights set forth in the Restructuring Support Agreement, including (a) the execution, adoption, amendment and/or delivery of appropriate instruments of transfer, assignment, assumption or delegation of any asset, property, interest, right, liability, debt or obligation on terms consistent with the terms of the Prepackaged Plan and having other terms for which the applicable parties agree, including, without limitation, Reorganized Pioneer’s issuance of New Equity, Stapled Special Voting Stock and the New Secured Bonds; (c) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion or dissolution pursuant to applicable law; (d) the execution, adoption, amendment and/or delivery of the applicable documents included in the Plan Supplement, to the extent required by the Debtors, including, but not limited to, the Restructuring Documents where relevant; and (e) all other actions that the applicable Entities determine to be necessary or appropriate, in the most tax efficient manner to the extent commercially reasonable, including making filings or recordings that may be required by applicable law and the payment in full and in Cash of any and all Allowed Prepetition Term Loan Claims pursuant to Article III(B)(4) of the Plan.

For purposes of effecting the Prepackaged Plan, none of the transactions contemplated in Article IV of the Prepackaged Plan shall constitute a change of control under any agreement, contract, or document of the Debtors.

Each officer, member of the board of directors, or manager of the Debtors is (and each officer, member of the board of directors, or manager of the Reorganized Debtors shall be) authorized and directed to issue, execute, deliver, file, or record such contracts, securities, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement, and further evidence the terms and conditions of the Prepackaged Plan and the securities issued pursuant to the Prepackaged Plan in the name of and on behalf of the Reorganized Debtors, all of which shall be authorized and approved in all respects, in each case, without the need for any approvals, authorizations, consents, or any further actions required under applicable law, regulation, order, or rule (including, without limitation, any action by the shareholders or directors or managers of the Debtors or the Reorganized Debtors) except for those expressly required pursuant to the Prepackaged Plan.

 

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All matters provided for herein involving the corporate structure of the Debtors or Reorganized Debtors, or any corporate, limited liability company, or related action required by the Debtors or Reorganized Debtors in connection herewith shall be deemed to have occurred and shall be in effect, without any requirement of further action by the shareholders, members, directors, or managers of the Debtors or Reorganized Debtors, and with like effect as though such action had been taken unanimously by the shareholders, members, directors, or managers, as applicable, of the Debtors or Reorganized Debtors.

7. Sources of Consideration for Plan Distributions. All Cash necessary for the Debtors or the Reorganized Debtors, as applicable, to make required distributions under the Prepackaged Plan will be obtained from their respective Cash balances, including Cash from operations, the Exit ABL Facility, the Rights Offering, and the New Secured Bonds.

8. Corporate Existence. Except as otherwise provided in the Prepackaged Plan, any agreement, instrument or other document incorporated in the Prepackaged Plan or the Plan Supplement, or as a result of the Restructuring Transactions, on the Effective Date, each Debtor shall continue to exist after the Effective Date as a separate corporation or other form of entity under governing law, as the case may be, with all the powers of such corporation, limited liability company or other form of entity, as the case may be, pursuant to the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and bylaws (or other analogous formation documents) in effect before the Effective Date, except to the extent such certificate of incorporation and bylaws (or other analogous formation documents) are amended by the Prepackaged Plan or otherwise, and to the extent such documents are amended, such documents are deemed to be amended pursuant to the Prepackaged Plan and require no further action or approval (other than any requisite filings required under applicable state, provincial, federal or foreign law). For the avoidance of doubt, nothing in the Prepackaged Plan prevents, precludes or otherwise impairs the Reorganized Debtors, or any one of them, from merging, amalgamating or otherwise restructuring their legal entity form in accordance with applicable non-bankruptcy law after the Effective Date.

9. Listing of New Securities and Transfer Restrictions. Under the Registration Rights Agreement and subject to further revision by the Required Consenting Noteholders in consultation with Reorganized Pioneer, holders of a majority of shares of New Equity and Stapled Special Voting Stock can by notice require Reorganized Pioneer to use its reasonable best efforts to cause the New Equity to be listed for trading on Nasdaq or the New York Stock Exchange, in accordance with the applicable listing requirements of Nasdaq or New York Stock Exchange, with such listing to be effective as soon as practical after the delivery of such notice. Each share of New Equity will have the same rights, including with respect to voting, dividend, capital, redemption, and information rights. Each share of Stapled Special Voting Stock will have the same rights, including with respect to voting, dividend, capital, redemption, and information rights. The New Equity and the Stapled Special Voting Stock will constitute two classes of equity securities in Reorganized Pioneer on the Effective Date and, other than the New Equity issued under the Employee Incentive Plan and upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds), there will exist no other equity securities, warrants, options, or other agreements to acquire any equity interest in Reorganized Pioneer as of the Effective Date.

 

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10. Vesting of Assets in the Reorganized Debtors. Except as otherwise provided in the Prepackaged Plan, any agreement, instrument or other document incorporated in the Prepackaged Plan or the Plan Supplement, or pursuant to a Final Order of the Court, on the Effective Date, all property in each Estate, all Causes of Action and any property acquired by any of the Debtors pursuant to the Prepackaged Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, charges or other encumbrances. On and after the Effective Date, except as otherwise provided in the Prepackaged Plan or the Confirmation Order, each Reorganized Debtor may operate its business and may use, acquire or dispose of property and compromise or settle any Claims, Interests or Causes of Action without supervision or approval by the Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules. Without limiting the foregoing, the Reorganized Debtors may pay the charges that they incur on or after the Effective Date for professional fees, disbursements, expenses, or related support services without application to the Court.

11. Cancellation of Existing Securities and Agreements. Except as otherwise provided in the Prepackaged Plan or any agreement, instrument or other document incorporated in the Prepackaged Plan or the Plan Supplement, on the Effective Date: (a) the obligations of the Debtors under the Prepetition ABL Credit Agreement, Prepetition Term Loan Agreement (subject to, for the avoidance of doubt, payment in full in Cash of any and all Allowed Prepetition Term Loan Claims pursuant to Article III(B)(4)), Indenture and any other certificate, share, note, bond, indenture, purchase right, option, warrant or other instrument or document, directly or indirectly, evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors giving rise to any Claim or Interest (except such certificates, notes or other instruments or documents evidencing indebtedness or obligations of, or Interests in, the Debtors that are specifically Reinstated pursuant to the Prepackaged Plan) shall be cancelled as to the Debtors and the Reorganized Debtors shall not have any continuing obligations thereunder; (b) the obligations of the Debtors pursuant, relating or pertaining to any agreements, indentures, certificates of designation, bylaws or certificate or articles of incorporation or similar documents governing the shares, certificates, notes, bonds, purchase rights, options, warrants or other instruments or documents evidencing or creating any indebtedness or obligation of the Debtors (except such agreements, certificates, notes or other instruments evidencing indebtedness or obligations of or Interests in the Debtors that are specifically Reinstated pursuant to the Prepackaged Plan) shall be released and discharged; provided, however, that, in the cases of clauses (a) and (b) hereof, notwithstanding Confirmation or the occurrence of the Effective Date, any agreement (including the Existing Intercreditor Agreement) that governs the rights of the Prepetition ABL Agent, the Prepetition Term Loan Agent, the Indenture Trustee or any other Holder of a Claim shall continue in effect solely for purposes of (i) enabling Holders of Allowed Claims to receive distributions under the Prepackaged Plan as provided herein and for enforcing any rights thereunder against parties other than the Debtors, the Reorganized Debtors or their Representatives; (ii) allowing the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee, as applicable, in accordance with the Prepackaged Plan, to make distributions to the Holders of the ABL Claims, Prepetition Term Loan Claims and the Notes Claims, as applicable; (iii) allowing the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee to maintain any right of priority of payment, indemnification, exculpation, contribution, subrogation or any other claim or entitlement it may have under the ABL Documents, Term Loan Documents or the Indenture, as applicable (which shall survive and not be released, except as otherwise expressly provided in the Prepackaged Plan) other than against the Debtors and the Reorganized Debtors; (iv) allowing the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee to enforce any obligations owed to each of them under the Prepackaged Plan or the Confirmation Order; (v)

 

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permitting the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee to appear before the Court or any other court; (vi) permitting the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee to exercise rights and obligations relating to the interests of the Prepetition ABL Lenders, Prepetition Term Lenders and Noteholders, as applicable, to the extent consistent with the Prepackaged Plan and the Confirmation Order; and (vii) permitting the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee to perform any functions that are necessary to effectuate the foregoing; provided, further, however, that nothing in the Prepackaged Plan shall affect the discharge of Claims pursuant to the Bankruptcy Code, the Confirmation Order or the Prepackaged Plan or result in any expense or liability to the Reorganized Debtors, except to the extent set forth in or provided for under the Prepackaged Plan; provided, further, however, that nothing in the Prepackaged Plan shall effect a cancellation of any Subscription Rights, New Equity, Stapled Special Voting Stock or Intercompany Interests.

Except as expressly provided in the Prepackaged Plan and Confirmation Order, on the Effective Date, each of the Prepetition ABL Agent, Prepetition Term Loan Agent and Indenture Trustee and their respective agents, successors and assigns shall be fully discharged of all of their duties and obligations under the Indenture and the applicable Prepetition ABL Documents and Prepetition Term Loan Documents.

12. Corporate Action. On the Effective Date, all actions contemplated by the Prepackaged Plan shall be deemed authorized and approved by the Court in all respects, including, as applicable: (a) the execution and delivery of the Restructuring Documents and any related instruments, agreements, guarantees, filings or other related documents; (b) the implementation of the Restructuring Transactions; and (c) all other actions contemplated by the Prepackaged Plan (whether to occur before, on or after the Effective Date). On the Effective Date, all matters provided for in the Prepackaged Plan involving the corporate structure of the other Reorganized Debtors, and any corporate action required by the Debtors or the Reorganized Debtors in connection with the Prepackaged Plan, shall be deemed to have occurred and shall be in effect, without any requirement of further action by the Interest Holders, directors or officers of the Debtors or the Reorganized Debtors.

On or (as applicable) before the Effective Date, the appropriate officers of the Debtors or the Reorganized Debtors shall be authorized and (as applicable) directed to issue, execute and deliver the agreements, documents, securities and instruments contemplated by the Prepackaged Plan (or necessary or desirable to effect the transactions contemplated by the Prepackaged Plan) in the name of and on behalf of the Reorganized Debtors, including, without limitation, the Restructuring Documents and any and all other agreements, documents, securities and instruments relating to the foregoing, to the extent not previously authorized by the Court. The authorizations and approvals contemplated by the Prepackaged Plan shall be effective notwithstanding any requirements under non-bankruptcy law.

13. New Organizational Documents. To the extent required under the Prepackaged Plan or applicable non-bankruptcy law, the Reorganized Debtors shall file their respective New Organizational Documents with the applicable Secretaries of State or other applicable authorities in their respective states, provinces or countries of incorporation or formation in accordance with the corporate laws of the respective states, provinces or countries of incorporation or formation. Pursuant to section 1123(a)(6) of the Bankruptcy Code, to the extent applicable to these Chapter 11 Cases, the New Organizational Documents of the Reorganized Debtors will prohibit the issuance of non-voting equity securities.

 

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14. Directors and Officers of the Reorganized Debtors. The New Boards shall be appointed by the Required Consenting Noteholders, in consultation with the Reorganized Debtors’ management, and the identities of directors on the New Board shall be set forth in the Plan Supplement, to the extent known at the time of filing; provided, however that the Reorganized Debtors’ chief executive officer shall be a member of the New Board and the remainder of the New Board shall be appointed in compliance with section 1129(a)(5) of the Bankruptcy Code.

15. Effectuating Documents; Further Transactions. On and after the Effective Date, the Reorganized Debtors, and the officers and members of the New Boards thereof, are authorized to and may issue, execute, deliver, file or record such contracts, Securities, instruments, releases and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement and further evidence the terms and conditions of the Prepackaged Plan, the Securities issued pursuant to the Prepackaged Plan, including the Restructuring Documents, in the name of and on behalf of the Reorganized Debtors, without the need for any approvals, authorization or consents, except those expressly required pursuant to the Prepackaged Plan.

16. Exemption from Certain Taxes and Fees. Pursuant to section 1146(a) of the Bankruptcy Code, any transfers of property pursuant to the Prepackaged Plan (including under any of the Restructuring Documents and related documents) shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, sale or use tax, mortgage recording tax or other similar tax or governmental assessment, and upon entry of the Confirmation Order, the appropriate state or local governmental officials or agents shall forgo the collection of any such tax or governmental assessment and accept for filing and recordation any of the foregoing instruments or other documents pursuant to such transfers of property without the payment of any such tax, recordation fee or governmental assessment. Such exemption under section 1146(a) of the Bankruptcy Code specifically applies, without limitation, to: (1) the creation and recording of any mortgage, deed of trust, Lien or other security interest; (2) the making or assignment of any lease or sublease; (3) any Restructuring Transaction; (4) the issuance, distribution and/or sale of any Securities of the Debtors or the Reorganized Debtors; and (5) the making or delivery of any deed or other instrument of transfer under, in furtherance of or in connection with the Prepackaged Plan, including (a) any merger agreements, (b) agreements of consolidation, restructuring, disposition, liquidation or dissolution, (c) deeds, (d) bills of sale, or (e) assignments executed in connection with any Restructuring Transaction occurring under the Prepackaged Plan.

17. Preservation of Causes of Action. In accordance with section 1123(b) of the Bankruptcy Code, but subject in all respects to Article VIII of the Prepackaged Plan, unless expressly stated otherwise in the Prepackaged Plan, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Petition Date, and such rights to commence, prosecute or settle such Causes of Action shall be preserved notwithstanding the occurrence of the Effective Date. The Reorganized Debtors may pursue such Causes of Action in accordance with the best interests of the Reorganized Debtors. No Entity may rely on the absence of a specific reference in the Prepackaged Plan, the Plan Supplement or the Disclosure Statement to any Causes of Action

 

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against it as any indication that the Debtors or the Reorganized Debtors will not pursue any and all available Causes of Action against it. The Debtors or the Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except as otherwise expressly provided in the Prepackaged Plan. Unless any Causes of Action against an Entity are expressly waived, relinquished, exculpated, released, compromised or settled in the Prepackaged Plan or a Court order, the Debtors or Reorganized Debtors, as applicable, expressly reserve all Causes of Action, for later adjudication, and, therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or laches, shall apply to such Causes of Action upon, after or as a consequence of the Confirmation or Consummation of the Prepackaged Plan.

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

18. Director and Officer Liability Insurance. The Debtors’ D&O Liability Insurance Policies shall be Reinstated under the Prepackaged Plan to the fullest extent possible under applicable law. Notwithstanding anything in the Prepackaged Plan to the contrary, effective as of the Effective Date, the Reorganized Debtors shall be deemed to have assumed all D&O Liability Insurance Policies with respect to the Debtors’ directors, managers, officers and employees serving on or prior to the Effective Date pursuant to section 365(a) of the Bankruptcy Code. Entry of the Confirmation Order will constitute the Court’s approval of the Reorganized Debtors’ assumption of each of the D&O Liability Insurance Policies. Notwithstanding anything to the contrary contained in the Prepackaged Plan, Confirmation of the Prepackaged Plan shall not discharge, impair or otherwise modify any indemnity obligations assumed by the foregoing assumption of the D&O Liability Insurance Policies, and each such indemnity obligation will be deemed and treated as an Executory Contract that has been assumed by the Reorganized Debtors under the Prepackaged Plan and no Proof of Claim, Administrative Claim or objection to Cure Claim need be Filed with respect thereto. For the avoidance of doubt, the D&O Liability Insurance Policies will continue to apply with respect to actions, or failures to act, that occurred on or prior to the Effective Date, subject to the terms and conditions of the D&O Liability Insurance Policies.

19. Employee Incentive Plan. On the Effective Date, Reorganized Pioneer shall adopt the Employee Incentive Plan. All awards issued under the Employee Incentive Plan, including restricted shares, restricted stock units, New Equity or other rights exercisable, exchangeable or convertible into New Equity, will be dilutive of all other New Equity, including the New Equity to be issued upon conversion of the New Convertible Bonds (inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds). The Employee Incentive Plan shall reserve 10% of the New Equity on a fully diluted basis (for the avoidance of doubt, after giving effect to the conversion of New Convertible Bonds, inclusive of the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds and the Premium Convertible Bonds), to be available for issuance pursuant to equity or equity-based incentive awards to management and other key employees of the

 

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Reorganized Debtors. The key terms and conditions of the Employee Incentive Plan, including the terms of certain awards to be granted on or as soon as practicable following the Effective Date, shall be consistent with the terms set forth in the EIP Term Sheet. The Employee Incentive Plan shall be included in the Plan Supplement.

20. Employee Matters and Retiree Benefits. Unless otherwise set forth in the Schedule of Rejected Executory Contracts and Unexpired Leases included in the Plan Supplement, on the Effective Date or the Confirmation Order, the Employment Arrangements, except for the KESP, shall be assumed by the Reorganized Debtors and shall remain in place after the Effective Date, as may be amended by agreement between the beneficiaries of such Employment Arrangements, plans, or arrangements, on the one hand, and the Debtors, on the other hand, or, after the Effective Date, by agreement with the Reorganized Debtors, and the Reorganized Debtors will continue to honor such Employment Arrangements.

On the Effective Date, Reorganized Pioneer shall adopt the Post-Filing Severance Plan, which shall be included in the Plan Supplement and be consistent with the terms set forth on Appendix A to the EIP Term Sheet.

Nothing in this Plan shall limit, diminish or otherwise alter the Reorganized Debtors’ defenses, Claims, Causes of Action or other rights with respect to any such contracts, agreements, policies, programs and plans. Pursuant to section 1129(a)(13) of the Bankruptcy Code, on and after the Effective Date, all retiree benefits (as that term is defined in section 1114 of the Bankruptcy Code), if any, shall continue to be paid in accordance with applicable law.

21. Restructuring Expenses

The Restructuring Expenses incurred, or estimated to be incurred, up to and including the Effective Date shall be paid in full in Cash on the Effective Date (to the extent not previously paid during the course of the Chapter 11 Cases on the dates on which such amounts would be required to be paid under the DIP Credit Agreement, the DIP Orders, the Prepetition ABL Credit Agreement, the Prepetition Term Loan Documents, the Indenture or the Restructuring Support Agreement) without the requirement to file a fee application with the Court and without any requirement for Court review or approval. All Restructuring Expenses to be paid on the Effective Date shall be estimated prior to and as of the Effective Date and such estimates shall be delivered to the Debtors at least five (5) Business Days before the anticipated Effective Date; provided, that such estimates shall not be considered to be admissions or limitations with respect to such Restructuring Expenses. On the Effective Date, final invoices for all Restructuring Expenses incurred prior to and as of the Effective Date shall be submitted to the Debtors. In addition, the Debtors and Reorganized Debtors (as applicable) shall continue to pay post-Effective Date, when due and payable in the ordinary course, Restructuring Expenses related to implementation, consummation and defense of the Prepackaged Plan.

22. Claims Administration Responsibilities. Except as otherwise specifically provided in the Prepackaged Plan, after the Effective Date, the Reorganized Debtors shall have the sole authority: (1) to File, withdraw or litigate to judgment objections to or disputes regarding Claims; and (2) to settle or compromise any Claim without any further notice to or action, order or approval by the Court.

 

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23. Treatment of Executory Contracts and Unexpired Leases.

a. Assumption and Rejection of Executory Contracts and Unexpired Leases. As of and subject to the occurrence of the Effective Date and the payment of any applicable Cure Claims, all Executory Contracts and Unexpired Leases to which any of the Debtors are a party, including, without limitation, the Backstop Commitment Agreement, and which have not expired by their own terms on or prior to the Confirmation Date, shall be deemed assumed except for any Executory Contract or Unexpired Lease that, with the consent of the Required Consenting Noteholders (not to be unreasonably withheld), (1) is identified on the Schedule of Rejected Executory Contracts and Unexpired Leases; (2) those that have been previously rejected by a Final Order; (3) those that are the subject of a motion to reject Executory Contracts or Unexpired Leases that is pending on the Confirmation Date; or (4) those that are subject to a motion to reject an Executory Contract or Unexpired Lease pursuant to which the requested effective date of such rejection is after the Effective Date. All Executory Contracts and Unexpired Leases listed on the Schedule of Rejected Executory Contracts and Unexpired Leases will be deemed rejected as of the Effective Date.

Subject to the occurrence of the Effective Date, entry of the Confirmation Order by the Court shall constitute approval of the assumptions or rejections of Executory Contracts and Unexpired Leases provided for in the Prepackaged Plan or the Schedule of Rejected Executory Contacts and Unexpired Leases, pursuant to sections 365(a) and 1123 of the Bankruptcy Code. Unless otherwise indicated, assumptions of Executory Contracts and Unexpired Leases pursuant to the Prepackaged Plan are effective as of the Effective Date. Each Executory Contract or Unexpired Lease assumed pursuant to the Prepackaged Plan or by Court order, but not assigned to a third party before the Effective Date, shall re-vest in and be fully enforceable by the applicable contracting Reorganized Debtor in accordance with its terms, except as such terms may have been modified by the provisions of the Prepackaged Plan or any order of the Court authorizing and providing for its assumption under applicable federal law.

To the maximum extent permitted by law, to the extent any provision in any Executory Contract or Unexpired Lease assumed pursuant to the Prepackaged Plan restricts or prevents, or purports to restrict or prevent, or is breached or deemed breached by, the assumption of such Executory Contract or Unexpired Lease (including any “change of control” provision), then such provision shall be deemed modified such that the transactions contemplated by the Prepackaged Plan shall not entitle the non-Debtor party thereto to terminate such Executory Contract or Unexpired Lease or to exercise any other default-related rights with respect thereto.

b. Claims Based on Rejection of Executory Contracts or Unexpired Leases. Counterparties to Executory Contracts or Unexpired Leases listed on the Schedule of Rejected Executory Contracts and Unexpired Leases, if any, shall be served with a notice of rejection of Executory Contracts and Unexpired Leases with the Plan Supplement. Proofs of Claim with respect to Claims arising from the rejection of Executory Contracts and Unexpired Leases, if any, must be Filed with the Court within thirty (30) days after the date of the order of the Court approving such rejection. Any Claims arising from the rejection of an Executory Contract or Unexpired Lease that are not Filed within such time will be automatically disallowed, forever barred from assertion, and shall not be enforceable against, as applicable, the Debtors, the Reorganized Debtors, the Estates, or the property of the foregoing parties, without the need for

 

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any objection by the Debtors or Reorganized Debtors, as applicable, or further notice to, or action, order, or approval of the Court or any other Entity, and any Claim arising out of the rejection of the Executory Contract or Unexpired Lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in a Proof of Claim to the contrary and all such Claims will be subject to the injunction set forth in Article VIII.F of the Prepackaged Plan. Claims arising from the rejection of the Executory Contract and Unexpired Leases shall be classified as General Unsecured Claims and shall be treated in accordance with Article III of the Prepackaged Plan.

c. Cure of Defaults for Assumed Executory Contracts and Unexpired Leases. The Debtors or the Reorganized Debtors, as applicable, shall pay Cure Claims, if any, on the Effective Date or as soon as reasonably practicable thereafter. Unless otherwise agreed upon in writing by the parties to the applicable Executory Contract or Unexpired Lease, all requests for payment of Cure Claims that differ from the amounts paid or proposed to be paid by the Debtors or the Reorganized Debtors to a counterparty must be filed with the Reorganized Debtors and the Notice and Claims Agent on or before thirty (30) days after the Effective Date. Any such request that is not timely filed shall be disallowed and forever barred, estopped, and enjoined from assertion, and shall not be enforceable against any Reorganized Debtor, without the need for any objection by the Reorganized Debtors or any other party in interest or any further notice to or action, order, or approval of the Court. Any Cure Claim shall be deemed fully satisfied, released, and discharged upon payment by the Debtors or the Reorganized Debtors of the Cure Claim; provided, however, that nothing herein shall prevent the Reorganized Debtors from paying any Cure Claim despite the failure of the relevant counterparty to file such request for payment of such Cure Claim. The Reorganized Debtors also may settle any Cure Claim without any further notice to or action, order, or approval of the Court. In addition, any objection to the assumption of an Executory Contract or Unexpired Lease under the Prepackaged Plan must be filed with the Court on or before the Confirmation Hearing. Any such objection will be scheduled to be heard by the Court at the Confirmation Hearing or at the Debtors’ or Reorganized Debtors’, as applicable, first scheduled omnibus hearing for which such objection is timely filed. Any counterparty to an Executory Contract or Unexpired Lease that fails to timely object to the proposed assumption of any Executory Contract or Unexpired Lease will be deemed to have consented to such assumption.

If there is any dispute regarding any Cure Claim, the ability of the Reorganized Debtors or any assignee to provide “adequate assurance of future performance” within the meaning of section 365 of the Bankruptcy Code, or any other matter pertaining to assumption, then payment of any Cure Claim shall occur as soon as reasonably practicable after entry of a Final Order resolving such dispute, approving such assumption (and, if applicable, assignment), or as may be agreed upon by the Debtors or the Reorganized Debtors, as applicable, and the counterparty to the Executory Contract or Unexpired Lease. The Debtors and Reorganized Debtors, as applicable, reserve the right at any time to move to reject any Executory Contract or Unexpired Lease based upon the existence or outcome of any such dispute.

Assumption of any Executory Contract or Unexpired Lease pursuant to the Prepackaged Plan or otherwise and full payment of any applicable Cure Claim pursuant to Article V.B of the Prepackaged Plan shall result in the full release and satisfaction of any Cure Claims, Claims, or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed Executory Contract or Unexpired Lease at any time prior to the effective date of assumption.

 

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d. Preexisting Obligations to the Debtors Under Executory Contracts and Unexpired Leases. Notwithstanding any non-bankruptcy law to the contrary, the Debtors expressly reserve and do not waive any right to receive, or any continuing obligation of a counterparty to provide, warranties or continued maintenance obligations on goods previously purchased, or services previously received, by the contracting Debtors from counterparties to rejected or repudiated Executory Contracts or Unexpired Leases.

e. Indemnification Obligations. Except to the extent inconsistent with the Prepackaged Plan, the obligation of each Debtor to indemnify any individual who is serving or served as one of such Debtor’s directors, officers or employees on or after the Petition Date will be deemed and treated as Executory Contracts that are assumed by each Reorganized Debtor pursuant to the Prepackaged Plan as of the Effective Date on the terms provided in the applicable certificates of incorporation, bylaws or similar constituent documents, by statutory law or by written agreement, policies or procedures of or with such Debtor. Accordingly, such indemnification obligations will survive and be unaffected by entry of the Confirmation Order, irrespective of whether such indemnification is owed for an act or event occurring before or after the Petition Date; provided, however, that none of the Reorganized Debtors shall amend or restate any New Organizational Documents before or after the Effective Date to terminate or adversely affect any such indemnification obligations; provided, further, that the Reorganized Debtors shall not indemnify officers, directors, members, or managers, as applicable, of the Reorganized Debtors for any claims or Causes of Action arising out of or relating to any act or omission that is a criminal act or constitutes intentional fraud, gross negligence, or willful misconduct as determined by a final order of a court of competent jurisdiction.

f. Insurance Policies. All insurance policies pursuant to which any Debtor has any obligations in effect as of the date of the Confirmation Order shall be deemed and treated as executory contracts pursuant to the Prepackaged Plan and shall be assumed by the respective Debtors and Reorganized Debtors and shall continue in full force and effect thereafter in accordance with their respective terms. All other insurance policies shall vest in the Reorganized Debtors.

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

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

 

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

24. Treatment of General Unsecured Claims. General Unsecured Claims will be paid in full in Cash (together with interest if provided for under the governing agreement) in the ordinary course of the Debtors’ business in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing or other documents relating to such transactions, or Reinstated. The Debtors will resolve any dispute regarding the amount of a General Unsecured Claim in the ordinary course of the Debtors’ business, and in accordance with the terms and conditions of the agreements governing such Claims. In the event that the Debtors and the Holder of any Disputed General Unsecured Claim are unable to resolve such dispute in accordance with the governing documents (if any), then the Debtors or the Reorganized Debtors shall move the Court to resolve such dispute. Holders of General Unsecured Claims accordingly are not required to File a Proof of Claim and no such parties should File a Proof of Claim.

The Confirmation Order will constitute an order of the Court disallowing without prejudice any Proof of Claim Filed in the Chapter 11 Cases without the need for any objection by the Reorganized Debtors or any further notice to or action, order or approval of the Court.

25. Distributions

a. Distributions Generally. One or more Disbursing Agents shall make all distributions under the Prepackaged Plan to the Holders of Allowed Claims in accordance with the terms of the Prepackaged Plan. Such distributions shall be made to Holders of Allowed Claims on behalf of the respective Debtors to which such Allowed Claims relate.

b. Distribution Record Date. As of the close of business on the Distribution Record Date, the various transfer registers for each of the Classes of Claims as maintained by the Debtors, the Prepetition ABL Agent, the Prepetition Term Loan Agent or their respective agents, shall be closed, and the Debtors, the Prepetition ABL Agent, the Prepetition Term Loan Agent or their respective agents shall not be required to make any further changes in the record Holders of any of the Claims. The Debtors, the Reorganized Debtors or the Disbursing Agent shall have no obligation to recognize any transfer of the Claims or Interests occurring on or after the Distribution Record Date. The Debtors, the Reorganized Debtors and the Disbursing Agent shall be entitled to recognize and deal for all purposes hereunder only with those record Holders stated on the transfer ledgers as of the close of business on the Distribution Record Date, to the extent applicable.

 

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c. Timing and Calculation of Amounts to Be Distributed. Unless otherwise provided in the Prepackaged Plan or the Confirmation Order, on the Effective Date or as soon as reasonably practicable thereafter (or, if a Claim is not an Allowed Claim on the Effective Date, on the date that such Claim becomes Allowed or as soon as reasonably practicable thereafter), each Holder of an Allowed Claim (or such Holder’s affiliate) shall receive the full amount of the distributions that the Prepackaged Plan provides for Allowed Claims in each applicable Class. In the event that any payment or act under the Prepackaged Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. Except as otherwise provided in the Prepackaged Plan, Holders of Claims shall not be entitled to interest, dividends, or accruals on the distributions provided for in the Prepackaged Plan, regardless of whether such distributions are delivered on or at any time after the Effective Date.

d. Disbursing Agent. All distributions under the Prepackaged Plan shall be made by the Reorganized Debtors (or such other Entity designated by the Reorganized Debtors), as Disbursing Agent, on or after the Effective Date to the record holders of Claims and Interests as of the Distribution Record Date who are entitled to receive distributions under the Prepackaged Plan. A Disbursing Agent shall not be required to give any bond or surety or other security for the performance of its duties. The Reorganized Debtors shall use commercially reasonable efforts to provide the Disbursing Agent (if other than the Reorganized Debtors) with the amounts of Claims and the identities and addresses of Holders of Claims and Interests as of the Distribution Record Date, in each case, as set forth in the Debtors’ or Reorganized Debtors’ books and records. The Reorganized Debtors shall cooperate in good faith with the applicable Disbursing Agent (if other than the Reorganized Debtors) to comply with the reporting requirements outlined in Article IV of the Prepackaged Plan.

e. Rights and Powers of Disbursing Agent. From and after the Effective Date, the Disbursing Agent, solely in its capacity as Disbursing Agent, shall be exculpated by all Entities, including, without limitation, Holders of Claims against and Interests in the Debtors and other parties in interest, from any and all Claims, Causes of Action, and other assertions of liability arising out of the discharge of the powers and duties conferred upon such Disbursing Agent by the Prepackaged Plan or any order of the Court entered pursuant to or in furtherance of the Prepackaged Plan, or applicable law, except for actions or omissions to act arising out of the gross negligence or willful misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing Agent. No Holder of a Claim or Interest or other party in interest shall have or pursue any claim or Cause of Action against the Disbursing Agent, solely in its capacity as Disbursing Agent, for making payments in accordance with the Prepackaged Plan or for implementing provisions of the Prepackaged Plan, except for actions or omissions to act arising out of the gross negligence or willful misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing Agent.

A Disbursing Agent shall be empowered to (i) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties hereunder, (ii) make all distributions contemplated hereby, (iii) employ professionals to represent it with respect to its responsibilities, and (iv) exercise such other powers as may be vested in the Disbursing Agent by order of the Court, pursuant to the Prepackaged Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions of the Prepackaged Plan.

 

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f. Expenses of Disbursing Agent. To the extent the Disbursing Agent is an Entity other than a Reorganized Debtor, except as otherwise ordered by the Court and subject to the written agreement of the Reorganized Debtors, the amount of any reasonable fees and expenses incurred by the Disbursing Agent on or after the Effective Date (including taxes) and any reasonable compensation and expense reimbursement Claims (including for reasonable attorneys’ and other professional fees and expenses) made by the Disbursing Agent shall be paid in Cash by the Reorganized Debtors in the ordinary course of business.

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

h. Delivery of Distributions. Subject to Bankruptcy Rule 9010, all distributions to any Holder of an Allowed Claim or Interest shall be made to a Disbursing Agent, who shall transmit such distribution to the applicable Holders of Allowed Claims or Interests on behalf of the respective Debtor. In the event that any distribution to any Holder is returned as undeliverable, no further distributions shall be made to such Holder unless and until such Disbursing Agent is notified in writing of such Holder’s then-current address, at which time all currently-due, missed distributions shall be made to such Holder as soon as reasonably practicable thereafter without interest. Nothing herein shall require the Disbursing Agent to attempt to locate Holders or of undeliverable distributions and, if located, assist such Holders in complying with Article IV.J of the Prepackaged Plan.

Notwithstanding anything to the contrary in the Prepackaged Plan, including Article VII, distributions under the Prepackaged Plan (A) to Holders of DIP Facility Claims shall be made to the DIP Agent, (B) to the Holder(s) of ABL Claims (if any) shall be made to the Prepetition ABL Agent, and (C) to the Holders of Prepetition Term Loan Claims shall be made to the Prepetition Term Loan Agent, respectively, in accordance with the terms of the Prepackaged Plan and the applicable credit documents.

i. Securities Registration Exemption. Pursuant to section 1145 of the Bankruptcy Code, the issuance of the New Equity by the Debtors as contemplated by this Plan is exempt from, among other things, the registration requirements of Section 5 of the Securities Act and any other applicable U.S. state or local law requiring registration prior to the offering, issuance, distribution or sale of Securities. The Securities issued by the Debtors pursuant to section 1145 of the Bankruptcy Code (a) are not “restricted securities” as defined in Rule 144(a)(3) under the Securities Act, and (b) are freely tradable and transferable by any initial recipient thereof that (i) is not an “affiliate” of the Reorganized Debtors as defined in Rule 144(a)(1) under the Securities Act, (ii) has not been such an “affiliate” within ninety (90) calendar days of such transfer, (iii) has not acquired the Securities from an “affiliate” within one year of such transfer and (iv) is not an Entity that is an “underwriter” as defined in subsection (b) of section 1145 of the Bankruptcy Code.

 

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Should the Reorganized Debtors elect on or after the Effective Date to reflect any ownership of the New Equity through the facilities of DTC, and presuming DTC agrees to such request, the Reorganized Debtors need not provide any further evidence other than the Prepackaged Plan or the Confirmation Order with respect to the treatment of the New Equity under applicable securities laws.

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

The Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds, the Premium Convertible Bonds, the Management Commitment Stapled Special Voting Stock, the Rights Offering Stapled Special Voting Stock, the Premium Stapled Special Voting Stock and the New Secured Bonds will be exempt from the registration requirements of the Securities Act pursuant to section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, and will be “restricted securities” subject to transfer restrictions under the U.S. federal securities laws, as further described in the Rights Offering Procedures, the Backstop Commitment Agreement and this Plan.

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

Any party entitled to receive cash or any property as an issuance or distribution under the Prepackaged Plan shall, upon request, deliver to the Disbursing Agent or such other Entity designated by the Reorganized Debtors (which Entity shall subsequently deliver to the Disbursing Agent all tax forms received) an IRS Form W-9 or (if the payee is a foreign Entity) the appropriate IRS Form W-8 and any other forms or documents reasonably requested by any Reorganized Debtor to reduce or eliminate any withholding required by any federal, state, or local Taxing Authority. If such request is made by the Reorganized Debtors, the Disbursing Agent, or such other Entity designated by the Reorganized Debtors or Disbursing Agent and the Holder fails to comply before the date that is one hundred and eighty (180) days after the request is made, the amount of such distribution shall irrevocably revert to the applicable Reorganized Debtor and any Claim in respect of such distribution shall be discharged and forever barred from assertion against such Reorganized Debtor or its respective property.

 

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Distributions in respect of Allowed Claims shall be allocated first to the principal amount of such Claims (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claims, to any portion of such Claims for accrued but unpaid interest as Allowed herein.

k. Distributions after Effective Date.

Distributions made after the Effective Date to Holders of Disputed Claims that are not Allowed Claims as of the Effective Date but which later become Allowed Claims shall be deemed to have been made on the Effective Date.

l. Unclaimed Property.

Undeliverable distributions or unclaimed distributions shall remain in the possession of the Debtors until such time as a distribution becomes deliverable or Holder accepts distribution, or such distribution reverts back to the Debtors or Reorganized Debtors, as applicable, and shall not be supplemented with any interest, dividends, or other accruals of any kind. Such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one hundred and eighty (180) days from the date of distribution. After such date all unclaimed property or interest in property shall revert to the Reorganized Debtors, and the Claim of any other Holder to such property or interest in property shall be discharged and forever barred.

m. Satisfaction of Claims.

Except as otherwise specifically provided in the Prepackaged Plan, any distributions and deliveries to be made on account of Allowed Claims under the Prepackaged Plan shall be in complete and final satisfaction, settlement, and discharge of and exchange for such Allowed Claims.

n. Fractional Shares.

If any distributions of New Equity or Stapled Special Voting Stock pursuant to the Prepackaged Plan would result in the issuance of a fractional share of any New Equity or Stapled Special Voting Stock to holders on the books of the Debtors, then the number of shares of New Equity or Stapled Special Voting Stock to be issued in respect of such distribution shall be calculated to one decimal place and rounded up or down to the closest whole share (with a half share or greater rounded up and less than a half share rounded down). The total number of shares of New Equity or Stapled Special Voting Stock to be distributed in connection with the Prepackaged Plan shall be adjusted as necessary to account for the rounding provided for in the Prepackaged Plan. No consideration shall be provided in lieu of fractional shares or notes that are rounded down. Neither the Reorganized Debtors nor the Disbursing Agent shall have any obligation to make a distribution that is less than one (1) share of New Equity or Stapled Special Voting Stock. New Equity or Stapled Special Voting Stock that is not distributed in accordance with the Prepackaged Plan shall be returned to, and ownership thereof shall vest in, Reorganized Pioneer. For the avoidance of doubt, the foregoing provisions in this paragraph shall not apply to DTC, which shall be treated as a single holder with respect to a particular class of securities.

 

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o. Minimum Distributions.

Holders of Allowed Notes Claims or Allowed Interests entitled to Equity valued at $100.00 or less (as estimated by the Reorganized Debtors in good faith), shall not receive distributions, and each such Claim or Interest to which this limitation applies shall be discharged pursuant to Article VIII of the Prepackaged Plan and its Holder is forever barred pursuant to Article VIII of the Prepackaged Plan from asserting that Claim or Interest against the Reorganized Debtors or their property.

p. Setoffs.

Except as otherwise provided herein or in the Confirmation Order, and subject to applicable law, the Debtors or Reorganized Debtors, as applicable, or such Entity’s designee (including, without limitation, the Disbursing Agent) may, pursuant to the Bankruptcy Code (including section 553 of the Bankruptcy Code), applicable non-bankruptcy law, or as may be agreed to by the Holder of a Claim, set off against any Allowed Claim (which setoff shall be made against the Allowed Claim, not against any distributions to be made under the Prepackaged Plan with respect to such Allowed Claim), any Claims, rights and Causes of Action of any nature that such Debtor may hold against the Holder of such Allowed Claim, to the extent such Claims, rights or Causes of Action against such Holder have not been otherwise released, waived, relinquished, exculpated, compromised or settled on or prior to the Effective Date (whether pursuant to the Prepackaged Plan or otherwise), and any distribution to which a Holder is entitled under the Prepackaged Plan shall be made on account of the Claim, as reduced after application of the setoff described above. In no event shall any Holder of Claims be entitled to setoff any Claim against any Claim, right or Cause of Action of the Debtors unless such Holder obtains entry of a Final Order entered by the Court authorizing such setoff or unless such setoff is otherwise agreed to in writing by the Debtors and a Holder of a Claim; provided, however, that, where there is no written agreement between the Debtors and a Holder of a Claim authorizing such setoff, nothing herein shall prejudice or be deemed to have prejudiced the Debtors’ rights to assert that any Holder’s setoff rights were required to have been asserted by motion to the Court prior to the Effective Date.

q. Hart-Scott-Rodino Antitrust Improvements Act.

Any New Equity or Stapled Special Voting Stock to be distributed under the Prepackaged Plan to an Entity required to file a premerger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, to the extent applicable, shall not be distributed until the notification and waiting periods applicable under such Act to such Entity have expired or been terminated.

26. Release, Injunction and Related Provisions.

a. Discharge of Claims and Termination of Interests. Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically provided in the Prepackaged Plan or in any contract, instrument or other agreement or document created pursuant to the Prepackaged Plan, including the Plan Supplement documents, the distributions, rights and

 

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treatment that are provided in the Prepackaged Plan shall be in complete satisfaction, discharge and release, effective as of the Effective Date, of Claims and Causes of Action of any nature whatsoever, including any interest accrued on Claims from and after the Petition Date, whether known or unknown, against liabilities of, liens on, obligations of, rights against, and interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Prepackaged Plan on account of such Claims and Interests, including demands, liabilities and Causes of Action that arose before the Effective Date, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not the Holder of such a Claim has accepted the Prepackaged Plan. Any default or “event of default” by the Debtors or Affiliates with respect to any Claim or Interest that existed immediately before or on account of the Filing of the Chapter 11 Cases shall be deemed cured (and no longer continuing) as of the Effective Date. The Confirmation Order shall be a judicial determination of the discharge of all Claims subject to the Effective Date occurring.

b. Release of Liens. Except as otherwise specifically provided in the Prepackaged Plan, the Confirmation Order or the Exit Facilities Documentation (including in connection with any express written amendment of any mortgage, deed of trust, Lien, pledge, or other security interest under the Exit Facilities Documentation), on the Effective Date and concurrently with the applicable distributions made pursuant to the Prepackaged Plan and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date in accordance with Article III of the Plan, all mortgages, deeds of trust, Liens, pledges or other security interests against any property of the Estates shall be fully released and discharged, and all of the right, title and interest of any Holder of such mortgages, deeds of trust, Liens, pledges or other security interests shall revert to the Reorganized Debtors and their successors and assigns, in each case, without any further approval or order of the Court and without any action or Filing being required to be made by the Debtors. In addition, on or after the Effective Date, at the written request and sole expense of the Debtors or the Reorganized Debtors, the Prepetition ABL Agent and the Prepetition Term Loan Agent shall execute and deliver all documents reasonably requested by the Debtors, the Reorganized Debtors or the Exit Agents to evidence the release of such mortgages, deeds of trust, Liens, pledges and other security interests (including as required under the laws of other jurisdictions for non-U.S. security interests) and shall authorize the Reorganized Debtors to file UCC-3 termination statements (to the extent applicable) with respect thereto.

c. Debtor Release Pursuant to section 1123(b) of the Bankruptcy Code, to the fullest extent permitted by applicable law, for good and valuable consideration, including the service of the Released Parties to facilitate the expeditious reorganization of the Debtors and the implementation of the restructuring contemplated by the Prepackaged Plan, pursuant to the Confirmation Order and on and after the Effective Date, the Released Parties and their respective property are conclusively, absolutely, unconditionally, irrevocably, and forever deemed released, acquitted and discharged by the Debtors, the Reorganized Debtors, and their Estates from any and all Causes of Action, including any derivative claims, asserted or assertable on behalf of the Debtors, whether known or unknown, foreseen or unforeseen, matured or unmatured, existing or hereinafter arising,

 

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in law, equity, contract, tort, or otherwise, by statute, violations of federal or state securities law or otherwise that the Debtors, the Reorganized Debtors, or their Estates or their Affiliates would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the Holder of any Claim against, or Interest in, a Debtor or any other Entity, based on or relating to, or in any manner arising from or in connection with, in whole or in part, the Debtors, their Affiliates, the Reorganized Debtors, the Chapter 11 Cases, the Debtors’ in- or out-of-court restructuring efforts (including the pursuit of the Restructuring Transactions), intercompany transactions, the purchase, sale or rescission of the purchase or sale of any security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Prepackaged Plan, the business or contractual arrangements between the Debtors and any Released Party, the restructuring of Claims and Interests prior to or in the Chapter 11 Cases, the Prepetition ABL Documents, the Prepetition Term Loan Documents or the Indenture, the negotiation, formulation, preparation, dissemination, or filing of the Prepackaged Plan and any solicitation of votes with respect to the Prepackaged Plan, the Restructuring Support Agreement the Plan Supplement, the Disclosure Statement, the Backstop Commitment Agreement, the documents in connection with the Rights Offering, the DIP Facility, the Exit Facilities, and any related agreements, instruments, term sheets or other documents contemplated by the foregoing or appropriate to effectuate the foregoing, the pursuit of Confirmation, the pursuit of Consummation, and any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date related or relating to any of the foregoing, except for any obligations arising under or pursuant to this Plan, the Restructuring Support Agreement (including the Restructuring Term Sheet), the Backstop Commitment Agreement or other Restructuring Documents, and except for any act or omission that constitutes fraud, gross negligence or willful misconduct as determined by a final order of a court of competent jurisdiction (all such claims and liabilities as described herein, collectively, the “Released Claims”); provided, however, that any holder of a Claim or Interest that opts out of the releases contained in the Prepackaged Plan or otherwise objects to the Prepackaged Plan or any portion or aspect thereof, including the releases in the Prepackaged Plan, shall not be a “Released Party.”

Notwithstanding anything to the contrary in the foregoing, the releases set forth above do not release the rights of the applicable party or Entity to enforce any Restructuring Document and any agreement assumed pursuant to the Prepackaged Plan or by order of the Court.

Entry of the Confirmation Order shall constitute the Court’s approval, pursuant to Bankruptcy Rule 9019, of the Debtor Release, which includes by reference each of the related provisions and definitions contained in this Plan, and further, shall constitute the Court’s finding that the Debtor Release is: (1) in exchange for the good and valuable consideration provided by the Released Parties; (2) a good faith settlement and compromise of the Released Claims released by the Debtors, the Reorganized Debtors and the Estates; (3) in the best interests of the Debtors, the Estates and all Holders of Claims and Interests; (4) fair, equitable, and reasonable; (5) given and made after due notice and opportunity for hearing; and (6) a bar to any of the Debtors, the Reorganized Debtors, or the Estates asserting any Claim or Cause of Action released pursuant to the Debtor Release.

 

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d. Third Party Release. Except as otherwise provided in this Plan, for good and valuable consideration, as of the Effective Date and to the fullest extent permitted by applicable law, as of the Effective Date, each of the Releasing Parties (regardless of whether a Releasing Party is a Released Party) shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever released and acquitted each of the Released Parties and their respective property from any and all Released Claims; provided, however, that any holder of a Claim or Interest that opts out of the releases contained in the Prepackaged Plan or otherwise objects to the Prepackaged Plan or any portion or aspect thereof, including the releases in the Prepackaged Plan, shall not be a “Released Party.”

Notwithstanding anything to the contrary in the foregoing, the releases set forth above do not release the rights of the applicable party or Entity to enforce any Restructuring Document and any agreement assumed pursuant to the Prepackaged Plan or by order of the Court.

Entry of the Confirmation Order shall constitute the Court’s approval, pursuant to Bankruptcy Rule 9019, of the Third-Party Release, which includes, by reference, each of the related provisions and definitions contained under this Plan, and, further, shall constitute the Court’s finding that the Third-Party Release is: (1) consensual; (2) essential to the confirmation of this Plan; (3) given in exchange for the good and valuable consideration provided by the Released Parties; (4) a good faith settlement and compromise of the Claims released by the Third-Party Release; (5) in the best interests of the Debtors and their Estates; (6) fair, equitable, and reasonable; (7) given and made after due notice and opportunity for hearing; and (8) a bar to any of the Releasing Parties asserting any claim or Cause of Action released pursuant to the Third-Party Release.

e. Exculpation. To the maximum extent permitted by Section 1125(e) of the Bankruptcy Code and without affecting or limiting either the estate release set forth in Article VIII.C or the third party releases of the Releasing Parties set forth in Article VIII.D of the Plan, and notwithstanding anything herein to the contrary, no Exculpated Party will have or incur, and each Exculpated Party is hereby exculpated from any claim, obligation, suit, judgment, damage, demand, debt, right, cause of action, remedy, loss, and liability for any claim related to any act or omission derived from, based upon, related to or arising from the Debtors’ in or out-of-court prepetition restructuring efforts, including the Restructuring Transactions; the administration of the Chapter 11 Cases; the formulation, preparation, dissemination, negotiation or Filing of the Disclosure Statement, this Plan, the Restructuring Support Agreement, the Backstop Commitment Agreement, the Filings related to the Rights Offering, or any contract, instrument, release or other agreement or document (including, for the avoidance of doubt, providing any legal opinion requested by any Entity regarding any transaction, contract, instrument, document or other agreement contemplated by this Plan or the reliance by any Released Party on this Plan or the Confirmation Order in lieu of such legal opinion) created or entered into in connection with any of the foregoing, including the Restructuring Documents; the solicitation of votes for, or confirmation of, the Prepackaged Plan; the funding or consummation of the Prepackaged Plan; the occurrence of the Effective Date; the administration of the Prepackaged Plan or the property to be distributed under the Prepackaged Plan; the issuance of New Equity, Stapled Special Voting Stock and New Convertible Bonds (inclusive of the Management

 

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Commitment Convertible Bonds, the Rights Offering Convertible Bonds, the Premium Convertible Bonds, the Management Commitment Stapled Special Voting Stock, the Rights Offering Stapled Special Voting Stock and the Stapled Special Voting Stock) under or in connection with the Prepackaged Plan; the postpetition purchase, sale, or rescission of the purchase or sale of any security of the Debtors the postpetition purchase, sale, or rescission of the purchase or sale of any security of the Debtors; or the transactions in furtherance of any of the foregoing; provided, that nothing in Article VIII.D of the Plan shall be construed to release or exculpate an Exculpated Party from gross negligence, willful misconduct, or fraud as determined by a Final Order.

Injunction. Except as otherwise expressly provided in the Prepackaged Plan or for obligations issued or required to be paid pursuant to the Prepackaged Plan or the Confirmation Order, all Entities who have held, hold or may hold Claims or Interests that have been released, discharged or are subject to exculpation pursuant to Article VIII of the Prepackaged Plan, are permanently enjoined, from and after the Effective Date, from taking any of the following actions against, as applicable, the Debtors, the Reorganized Debtors, and/or the Released Parties: (a) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests; (b) enforcing, attaching, collecting or recovering by any manner or means any judgment, award, decree or order against such Entities on account of or in connection with or with respect to any such Claims or Interests; (c) creating, perfecting or enforcing any lien or encumbrance of any kind against such Entities or the property or the estates of such Entities on account of or in connection with or with respect to any such Claims or Interests; (d) asserting any right of setoff, subrogation or recoupment of any kind against any obligation due from such Entities or against the property of such Entities on account of or in connection with or with respect to any such Claims or Interests unless such Holder has filed a motion requesting the right to perform such setoff on or before the Effective Date, and notwithstanding an indication of a Claim or Interest or otherwise that such Holder asserts, has, or intends to preserve any right of setoff pursuant to applicable law or otherwise; and (e) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Prepackaged Plan. Notwithstanding anything to the contrary in the foregoing, the injunction does not enjoin any party under the Prepackaged Plan or under any document, instrument or agreement (including those attached to this Disclosure Statement or included in the Plan Supplement) executed to implement the Prepackaged Plan from bringing an action to enforce the terms of the Prepackaged Plan or such document, instrument or agreement (including those attached to this Disclosure Statement or included in the Plan Supplement) executed to implement the Prepackaged Plan.

f. Waiver of Statutory Limitations on Releases. Each Releasing Party in each of the releases contained in the Prepackaged Plan expressly acknowledges that although ordinarily a general release may not extend to Claims which the Releasing Party does not know or suspect to exist in his favor, which if known by it may have materially affected its settlement with the party released, each Releasing Party has carefully considered and taken into account in determining to enter into the above releases the possible existence of such unknown losses or Claims. Without limiting the generality of the foregoing, each

 

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Releasing Party expressly waives any and all rights conferred upon it by any statute or rule of law which provides that a release does not extend to Claims which the claimant does not know or suspect to exist in its favor at the time of executing the release, which if known by it may have materially affected its settlement with the Released Party, including the provisions of California Civil Code Section 1542. The releases contained in the Prepackaged Plan are effective regardless of whether those released matters are presently known, unknown, suspected or unsuspected, foreseen or unforeseen.

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

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

Subject to entry of the Confirmation Order, the allowance, classification and treatment of all Allowed Claims and Allowed Interests and the respective distributions and treatments under the Prepackaged Plan take into account and conform to the relative priority and rights of the Claims and Interests in each Class in connection with any contractual, legal and equitable subordination rights relating thereto, whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise, including the Existing Intercreditor Agreement, the First Lien Credit Agreement Documents and the Mezzanine Facility Documents.

i. Setoffs. Except as otherwise provided herein or in the Confirmation Order, and subject to applicable law, the Debtors or Reorganized Debtors, as applicable, or such entity’s designee (including, without limitation, the Disbursing Agent) may, pursuant to the Bankruptcy Code (including section 553 of the Bankruptcy Code), applicable non-bankruptcy law, or as may be agreed to by the Holder of a Claim, set off against any Allowed Claim (which setoff shall be made against the Allowed Claim, not against any distributions to be made under the Prepackaged Plan with respect to such Allowed Claim), any Claims, rights and Causes of Action of any nature that such Debtor may hold against the Holder of such Allowed Claim, to the extent such Claims, rights or Causes of Action against such Holder have not been otherwise released, waived, relinquished, exculpated, compromised or settled on or prior to the Effective Date (whether

 

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pursuant to the Prepackaged Plan or otherwise), and any distribution to which a Holder is entitled under the Prepackaged Plan shall be made on account of the Claim, as reduced after application of the setoff described above. In no event shall any Holder of Claims be entitled to setoff any Claim against any Claim, right or Cause of Action of the Debtors unless such Holder obtains entry of a Final Order entered by the Court authorizing such setoff or unless such setoff is otherwise agreed to in writing by the Debtors and a Holder of a Claim; provided, however, that, where there is no written agreement between the Debtors and a Holder of a Claim authorizing such setoff, nothing herein shall prejudice or be deemed to have prejudiced the Debtors’ rights to assert that any Holder’s setoff rights were required to have been asserted by motion to the Court prior to the Effective Date.

27. Conditions Precedent to Confirmation and Consummation of the Prepackaged Plan

a. Conditions Precedent to Confirmation. The following are conditions precedent to confirmation of the Prepackaged Plan:

 

i.

an order finding that the Disclosure Statement contains adequate information pursuant to section 1125 of the Bankruptcy Code shall have been entered by the Court;

 

ii.

the Prepackaged Plan and the Plan Supplement and all of the schedules, documents, and exhibits contained therein shall have been Filed; and

 

iii.

the Restructuring Support Agreement shall not have been terminated and shall be in full force and effect.

28. Conditions Precedent to the Effective Date.

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

a. the Court shall have entered the Confirmation Order, the form and substance of which is acceptable to the Debtors and the Required Consenting Stakeholders in accordance with the consent rights on the terms set forth in the Restructuring Term Sheet;

b. the Confirmation Order shall be a Final Order;

c. the Court shall have entered the Interim DIP Order and the Final DIP Order;

 

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d. the Court shall have entered the Backstop Order;

e. the Backstop Order shall not have been stayed, modified or vacated;

f. the Professional Fee Escrow shall have been established and funded in Cash in accordance with Article II.B.1 of the Prepackaged Plan;

g. the Restructuring Documents shall be in form and substance acceptable or reasonably acceptable (as applicable in accordance with Section 3.02 of the Restructuring Support Agreement) to the Debtors and the Required Consenting Stakeholders in accordance with the consent rights in the Restructuring Support Agreement and contain terms and conditions consistent in all material respects with the Prepackaged Plan and the Restructuring Support Agreement;

h. the final version of the Plan Supplement and all of the schedules, documents, and exhibits contained therein (and any amendment thereto) shall have been filed with the Court in a manner consistent in all material respects with the Restructuring Support Agreement;

i. the Debtors shall have received any authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions or documents that are necessary to implement the Prepackaged Plan and that are required by law, regulation or order;

j. the New Organizational Documents shall have been filed with the appropriate governmental authorities, as applicable;

k. the Restructuring Support Agreement shall not have been terminated and shall be in full force and effect;

l. the Bankruptcy Court shall have entered an order, in form and substance satisfactory to the Required Consenting Noteholders, authorizing the Company’s assumption of and performance under the Backstop Commitment Agreement, which order may be the Confirmation Order, and such order shall be a Final Order;

m. the Backstop Commitment Agreement shall not have been terminated and shall be in full force and effect;

n. the Rights Offering and all related transactions shall have been conducted and consummated, in all material respects, in accordance with the Rights Offering Procedures, the Backstop Commitment Agreement, the order authorizing the Company’s assumption of and performance under the Backstop Commitment Agreement, and any other relevant transaction documents;

o. all actions and all agreements, instruments or other documents necessary to implement the Prepackaged Plan, including, without limitation, entry into the Restructuring Documents and the New Organizational Documents, shall have been effected or executed and delivered by all of the Entities that are parties thereto, and all conditions precedent to the consummation of such agreements, instruments or other documents shall have been waived or satisfied in accordance with their terms thereof and to the extent applicable, the closing of such agreements, instruments or other documents shall have occurred;

 

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p. all material governmental approvals and consents that are legally required for the consummation of this Prepackaged Plan shall have been obtained, not be subject to unfulfilled conditions and be in full force and effect; and

q. to the extent invoiced at least two (2) Business Days before the Effective Date, all unpaid Restructuring Expenses shall have been paid in Cash pursuant to the applicable fee arrangements of such professionals.

29. Waiver of Conditions. The conditions to the Effective Date of the Prepackaged Plan set forth in Article IX.B of the Prepackaged Plan may be waived on if waived in writing by the Debtors and the Required Consenting Noteholders, other than Article IX.B.5, which may only be waived in writing by the Debtors and the Required Consenting Stakeholders, without notice, leave or order of the Court or any formal action other than proceedings to confirm or consummate the Prepackaged Plan.

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

31. Effect of Failure of a Condition. If the conditions listed in Article IX of the Prepackaged Plan are not satisfied or waived in accordance with Article IX of the Prepackaged Plan on or before the first Business Day that is more than thirty (30) days after the date on which the Confirmation Order is entered or by such later date as may be agreed between the Debtors and the Required Consenting Noteholders as set forth by the Debtors in a notice Filed with the Court prior to the expiration of such period, the Prepackaged Plan shall be null and void in all respects and nothing contained in the Prepackaged Plan or the Disclosure Statement shall (a) constitute a waiver or release of any Claims by or against or any Interests in the Debtors, (b) prejudice in any manner the rights of any Entity, or (c) constitute an admission, acknowledgement, offer, or undertaking by the Debtors, any Holders of Claim or Interests, or any other Entity.

32. Modification, Revocation or Withdrawal of the Prepackaged Plan

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

 

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

c. Revocation or Withdrawal of the Prepackaged Plan. Subject to the terms of the Restructuring Support Agreement, the Debtors reserve the right to revoke or withdraw the Prepackaged Plan prior to the Confirmation Date. If the Debtors revoke or withdraw the Prepackaged Plan, or if Confirmation and Consummation does not occur, then: (1) the Prepackaged Plan shall be null and void in all respects; (2) any settlement or compromise embodied in the Prepackaged Plan (including the fixing or limiting to an amount certain of any Claim or Class of Claims), assumption of Executory Contracts or Unexpired Leases effected by the Prepackaged Plan and any document or agreement executed pursuant to the Prepackaged Plan, shall be deemed null and void; and (3) nothing contained in the Prepackaged Plan shall (i) constitute a waiver or release of any Claims, (ii) prejudice in any manner the rights of the Debtors or any other Entity, including the Holders of Claims or Interests or the Non-Debtors, or (iii) constitute an representation, acknowledgement, offer or undertaking of any sort by the Debtors or any other Entity, including the Non-Debtors.

33. Retention of Jurisdiction. Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, on and after the Effective Date, the Court shall retain jurisdiction over the Chapter 11 Cases and all matters, arising out of, or related to, the Chapter 11 Cases and the Prepackaged Plan, including jurisdiction to:

a. allow, disallow, determine, liquidate, classify, estimate or establish the priority, Secured or unsecured status, or amount of any Claim, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the Secured or unsecured status, priority, amount or allowance of Claims;

b. decide and resolve all matters related to the granting and denying, in whole or in part, of any applications for allowance of compensation or reimbursement of expenses to Professionals authorized pursuant to the Bankruptcy Code or the Prepackaged Plan;

c. resolve any matters related to: (a) the assumption and assignment or rejection of any Executory Contract or Unexpired Lease to which a Debtor is a party or with respect to which a Debtor may be liable in any manner and to hear, determine and, if necessary, liquidate, any Claims arising therefrom, including Cure Claims; (b) any dispute regarding whether a contract or lease is or was executory or expired; and (c) any other issue related to an Executory Contract or Unexpired Lease;

d. to resolve any disputes concerning whether an Entity had sufficient notice of the Chapter 11 Cases, the Disclosure Statement, any solicitation conducted in connection with the Chapter 11 Cases, any bar date established in the Chapter 11 Cases, or any deadline for responding or objecting to the amount of a Cure, in each case, for the purpose of determining whether a Claim or Interest is discharged hereunder or for any other purpose;

 

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e. ensure that distributions to Holders of Allowed Claims and Interests are accomplished pursuant to the provisions of the Prepackaged Plan;

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

g. adjudicate, decide or resolve any and all matters related to Causes of Action;

h. adjudicate, decide or resolve any and all matters related to section 1141 of the Bankruptcy Code;

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

j. enter and enforce any order for the sale of property pursuant to section 363, 1123 or 1146(a) of the Bankruptcy Code;

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

l. hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Prepackaged Plan, the Plan Supplement, or the Confirmation Order, or any agreement, instrument, or other document governing or relating to any of the foregoing;

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

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

o. resolve any cases, controversies, suits, disputes or Causes of Action with respect to the payment of General Unsecured Claims by the Debtors or the Reorganized Debtors;

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

 

55

q. determine any other matters that may arise in connection with or relate to the Prepackaged Plan, the Disclosure Statement, the Confirmation Order or the Plan Supplement; provided, however, that the Court shall not retain jurisdiction over disputes concerning documents contained in the Plan Supplement that have a jurisdictional, forum selection or dispute resolution clause that refers disputes to a different court;

r. adjudicate any and all disputes arising from or relating to distributions under the Prepackaged Plan or any transactions contemplated herein, subject to the proviso in sub-paragraph q above;

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

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

u. to resolve disputes as to the ownership of any Claim or Interest;

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

w. grant any consensual request to extend the deadline for assuming or rejecting Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code;

x. hear, adjudicate, decide or resolve any and all matters related to Article VIII of the Prepackaged Plan, including without limitation, the releases, discharge, exculpation and injunctions issued thereunder;

y. enforce all orders previously entered by the Court;

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

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

bb. hear, determine, and resolve any cases, matters, controversies, suits, disputes or Causes of Action in connection with or in any way related to the Chapter 11 Cases, including with respect to the settlements, compromises, discharges, releases, injunctions, exculpations and other provisions contained in Article VIII of the Prepackaged Plan, and enter such orders as may be necessary or appropriate to implement such releases, injunctions and other provisions.

As of the Effective Date, notwithstanding anything in Article XI of the Prepackaged Plan to the contrary, the Exit Facilities Documentation and any documents set forth in the Plan Supplement shall be governed by the respective jurisdictional provisions therein.

 

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ARTICLE VI.

VALUATION OF THE DEBTORS

In order to provide information to parties in interest regarding the possible range of values of their distributions under the Plan, it is necessary to ascribe an estimated value, or range of values, to the Company. The Debtors have been advised by Lazard, their investment banker and financial advisor, with respect to the estimated value of the Company on a going-concern basis. The estimate of the total enterprise value of the Reorganized Debtors is approximately $275 million to $335 million, with a mid-point of $305 million.

A summary of the valuation analysis is set forth in Exhibit D attached hereto. The estimates of the enterprise value contained therein do not reflect values that could be attainable in public or private markets, and are not a prediction or guarantee of the actual market value that may be realized through the sale of any securities to be issued pursuant to the Plan.

Depending on the results of the Reorganized Debtors’ operations, changes in the financial markets and/or other economic conditions, the value of the Reorganized Debtors may change significantly. In addition, the valuation of newly issued securities is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities at issuance will depend upon, among other things, prevailing interest rates, conditions in the financial markets, the anticipated initial securities holdings of prepetition creditors, some of which may prefer to liquidate their investment rather than hold it on a long-term basis, and other factors that generally influence the prices of securities. Actual market prices of such securities also may be affected by the Debtors’ history in the Chapter 11 Cases, conditions affecting generally the industry in which the Debtors participate and by other factors not capable of accurate prediction. Accordingly, the reorganization enterprise value estimated by Lazard does not necessarily reflect, and should not be construed as reflecting, values that will be attained in the public or private markets. The estimated reorganization enterprise value depends highly upon achieving the future financial results set forth in the Financial Projections, as well as the realization of certain other assumptions that are not guaranteed. The valuations set forth therein represent estimated reorganization enterprise values and do not necessarily reflect values that could be attainable in public or private markets.

ARTICLE VII.

TRANSFER RESTRICTIONS AND CONSEQUENCES

UNDER FEDERAL SECURITIES LAWS

The Solicitation is being made before the Petition Date only to Holders who are “accredited investors” within the meaning of Rule 501(a) of Regulation D of the Securities Act.

A. 1145 Securities

1. Issuance.

The Prepackaged Plan provides for the offer, issuance, sale or distribution of shares of New Equity (the “Section 1145 Securities”). The offer, issuance, sale or distribution of the Section 1145 Securities by Reorganized Pioneer will be exempt from registration under section 5 of the Securities Act and under any state or local law requiring registration for offer or sale of a security pursuant to section 1145 of the Bankruptcy Code.

 

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Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under section 5 of the Securities Act and state or local securities laws if three principal requirements are satisfied: (i) the securities must be offered and sold under a plan of reorganization and must be securities issued by the debtor, an affiliate participating in a joint plan with the debtor, or a successor to the debtor under the plan; (ii) the recipients of the securities must hold prepetition or administrative expense claims against the debtor or interests in the debtor; and (iii) the securities must be issued entirely in exchange for the recipient’s claim against or interest in the debtor, or “principally” in exchange for such claim or interest and “partly” for cash or property.

2. Subsequent Transfers.

The Section 1145 Securities may be freely transferred by recipients following the initial issuance under the Prepackaged Plan, and all resales and subsequent transfers of the Section 1145 Securities are exempt from registration under the Securities Act and state securities laws, unless the Holder is an “underwriter” with respect to such securities. Section 1145(b) of the Bankruptcy Code defines four types of “underwriters”:

(i) a Person who purchases a claim against, an interest in, or a claim for an administrative expense against the debtor with a view to distributing any security received in exchange for such claim or interest;

(ii) a Person who offers to sell securities offered or sold under a plan for the holders of such securities;

(iii) a Person who offers to buy securities offered or sold under a plan from the holders of such securities, if the offer to buy is:

(A) with a view to distributing such securities; and

(B) under an agreement made in connection with the plan, the consummation of the plan, or with the offer or sale of securities under the plan; and

(iv) a Person who is an “issuer” (as defined in section 2(a)(11) of the Securities Act) with respect to the securities.

Under section 2(a)(11) of the Securities Act, an “issuer” includes any Person directly or indirectly controlling or controlled by the issuer, or any Person under direct or indirect common control of the issuer.

To the extent that Persons who receive Section 1145 Securities pursuant to the Prepackaged Plan are deemed to be underwriters, resales by such Persons would not be exempted from registration under the Securities Act or other applicable law by section 1145 of the Bankruptcy Code. Persons deemed to be underwriters may, however, be permitted to resell such Section 1145 Securities without registration pursuant to the provisions of Rule 144 under the Securities Act or another available exemption under the Securities Act. In addition, such Persons will also be entitled to resell their Section 1145 Securities in transactions registered under the Securities Act following the effectiveness of a registration statement.

 

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Holders of Section 1145 Securities who are deemed underwriters may resell Section 1145 Securities pursuant to the limited safe harbor resale provision under Rule 144 of the Securities Act. Generally, Rule 144 would permit the public sale of securities received by such Person if, at the time of the sale, certain current public information regarding the issuer is available and only if such Person also complies with the volume, manner of sale and notice requirements of Rule 144. If the issuer is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), adequate current public information as specified under Rule 144 is available if certain company information is made publicly available, as specified in Section (c)(2) of Rule 144. Reorganized Pioneer will not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

Whether or not any particular Person would be deemed to be an underwriter with respect to the Section 1145 Securities or other security to be issued pursuant to the Prepackaged Plan would depend upon various facts and circumstances applicable to that Person. Accordingly, the Debtors express no view as to whether any particular Person receiving Section 1145 Securities or other securities under the Prepackaged Plan would be an underwriter with respect to such Section 1145 Securities or other securities, whether such Person may freely resell such securities or the circumstances under which they may resell such securities.

B. Rights to Purchase New Convertible Bonds in the Rights Offering

The rights to purchase New Convertible Bonds in the Rights Offering will not be listed or quoted on any public or over-the-counter exchange or quotation system.

The rights to purchase the Subscription Rights and any Rights Offering Convertible Bonds issuable upon the Effective Date pursuant to the exercise thereof, will be distributed and issued only to Eligible Holders (as defined in the Rights Offering Procedures) who are “accredited investors” within the meaning of Rule 501(a) of Regulation D of the Securities Act or “qualified institutional buyers” as defined in Rule 144A under the Securities Act. A number of the Eligible Holders are parties to the Restructuring Support Agreement. The Subscription Rights with respect to the Rights Offering are not separately transferrable or detachable from the Notes Claims or the Existing Equity Interests (as defined in the Rights Offering Procedures) and may only be transferred together with the Notes Claims or Existing Equity Interests, as applicable.

C. Private Placement Securities.

1. Issuance.

Section 4(a)(2) of the Securities Act provides that the issuance of securities by an issuer in transactions not involving a public offering are exempt from registration under the Securities Act. Regulation D is a non-exclusive safe harbor from registration promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Act.

 

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The Debtors believe that Rights Offering Convertible Bonds (and the corresponding Rights Offering Stapled Special Voting Stock) issued in connection with the exercise of the Subscription Rights, the Management Commitment Convertible Bonds (and the Corresponding Management Commitment Stapled Special Voting Stock), the Premium Convertible Bonds (and the corresponding Premium Stapled Special Voting Stock) and the New Secured Bonds (together, the “4(a)(2) Securities”) are issuable without registration under the Securities Act in reliance upon the exemption from registration provided under section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. The 4(a)(2) Securities will be subject to resale restrictions and may be resold, exchanged, assigned or otherwise transferred only pursuant to registration, or an applicable exemption from registration, under the Securities Act and other applicable law, as described below.

2. Subsequent Transfers.

The 4(a)(2) Securities will be deemed “restricted securities” (as defined by Rule 144 of the Securities Act) that may not be offered, sold, exchanged, assigned or otherwise transferred unless they are registered under the Securities Act, or an exemption from registration under the Securities Act is available.

Rule 144 provides a limited safe harbor for the public resale of restricted securities if certain conditions are met. These conditions vary depending on whether the holder of the restricted securities is an “affiliate” of the issuer. Rule 144 defines an affiliate as “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer.”

A non-affiliate of an issuer that is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and who has not been an affiliate of the issuer during the ninety (90) days preceding such sale may resell restricted securities after a one-year holding period whether or not there is current public information regarding the issuer.

An affiliate of an issuer that is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act may resell restricted securities after the one-year holding period if at the time of the sale certain current public information regarding the issuer is available. An affiliate must also comply with the volume, manner of sale and notice requirements of Rule 144. First, the rule limits the number of restricted securities (plus any unrestricted securities) sold for the account of an affiliate (and related persons) in any three-month period to the greater of 1% of the outstanding securities of the same class being sold, or, if the class is listed on a stock exchange, the average weekly reported volume of trading in such securities during the four weeks preceding the filing of a notice of proposed sale on Form 144 or if no notice is required, the date of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker. Second, the manner of sale requirement provides that the restricted securities must be sold in a broker’s transaction, directly with a market maker or in a riskless principal transaction (as defined in Rule 144). Third, if the amount of securities sold under Rule 144 in any three month period exceeds 5,000 shares or has an aggregate sale price greater than $50,000, an affiliate must file or cause to be filed with the SEC three copies of a notice of proposed sale on Form 144, and provide a copy to any exchange on which the securities are traded.

 

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The Debtors believe that the Rule 144 exemption will not be available with respect to any 4(a)(2) Securities (whether held by non-affiliates or affiliates) until at least one year after the Effective Date. Accordingly, unless transferred pursuant to an effective registration statement or another available exemption from the registration requirements of the Securities Act, non-affiliate Holders of 4(a)(2) Securities will be required to hold their 4(a)(2) Securities for at least one year and, thereafter, to sell them only in accordance with the applicable requirements of Rule 144, pursuant to the an effective registration statement or pursuant to another available exemption from the registration requirements of applicable securities laws.

Each certificate representing, or issued in exchange for or upon the transfer, sale or assignment of, any 4(a)(2) Security shall, upon issuance, be stamped or otherwise imprinted with a restrictive legend substantially consistent with the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON [DATE OF ISSUANCE], HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY OTHER APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN AVAILABLE EXEMPTION FROM REGISTRATION THEREUNDER.”

Reorganized Pioneer reserves the right to require certification, legal opinions or other evidence of compliance with Rule 144 as a condition to the removal of such legend or to any resale of the 4(a)(2) Securities. Reorganized Pioneer also reserves the right to stop the transfer of any 4(a)(2) Securities if such transfer is not in compliance with Rule 144, pursuant to an effective registration statement or pursuant to another available exemption from the registration requirements of applicable securities laws. All persons who receive 4(a)(2) Securities will be required to acknowledge and agree that (a) they will not offer, sell or otherwise transfer any 4(a)(2) Securities except in accordance with an exemption from registration, including under Rule 144 under the Securities Act, if and when available, or pursuant to an effective registration statement, and (b) the 4(a)(2) Securities will be subject to the other restrictions described above.

Any Persons receiving restricted securities under the Prepackaged Plan should consult with their own counsel concerning the availability of an exemption from registration for resale of these securities under the Securities Act and other applicable law.

BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE AND THE HIGHLY FACT-SPECIFIC NATURE OF THE AVAILABILITY OF EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING THE EXEMPTIONS AVAILABLE UNDER SECTION 1145 OF THE BANKRUPTCY CODE AND RULE 144 UNDER THE SECURITIES ACT, NONE OF THE DEBTORS MAKE ANY REPRESENTATION CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE ISSUED UNDER OR OTHERWISE ACQUIRED PURSUANT TO THE PREPACKAGED PLAN. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE SECURITIES TO BE ISSUED UNDER OR OTHERWISE ACQUIRED PURSUANT TO THE PREPACKAGED PLAN CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES AND THE CIRCUMSTANCES UNDER WHICH THEY MAY RESELL SUCH SECURITIES.

 

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D. Listing

Under the Registration Rights Agreement and subject to further revision by the Required Consenting Noteholders in consultation with Reorganized Pioneer, holders of a majority of shares of New Equity and Stapled Special Voting Stock can require Reorganized Pioneer to use its reasonable best efforts to list the New Equity for trading on Nasdaq or the New York Stock Exchange, in accordance with the applicable listing requirements of Nasdaq or New York Stock Exchange, acceptable to the Debtors and the Required Consenting Noteholders by notice, with such listing to be effective as soon as practical after the delivery of such notice.

ARTICLE VIII.

CERTAIN U.S. FEDRAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN

A summary description of certain U.S. federal income tax consequences of the Prepackaged Plan is provided below. Only the principal consequences of the Prepackaged Plan for the Debtors and those Holders that are entitled to vote to accept or reject the Prepackaged Plan are described below. This description is for informational purposes only and substantial uncertainties exist with respect to various tax consequences of the Prepackaged Plan. No opinion of counsel has been sought or obtained with respect to any tax consequences of the Prepackaged Plan. No rulings or determinations of the United States Internal Revenue Service (the “IRS”) or any other tax authorities have been sought or obtained with respect to any tax consequences of the Prepackaged Plan, and the discussion below is not binding on the IRS or such other authorities. No assurance can be given that the IRS would not assert, or that a court would not sustain, a different position from any discussed herein.

The following discussion is based upon the Internal Revenue Code of 1986, as amended (the “Tax Code”), judicial decisions, existing and proposed Treasury Regulations, and published administrative guidance, all as in effect as of the date hereof, all of which are subject to change, possibly on a retroactive basis. Any such change could significantly affect the U.S. federal income tax consequences described below.

This summary does not address any estate or gift tax consequences of the Prepackaged Plan or tax consequences of the Prepackaged Plan under any state, local or non-U.S. laws. This discussion does not address all tax considerations that might be relevant to particular Holders in light of their personal circumstances and, in particular, this description of certain U.S. federal income tax consequences does not address all of the tax considerations that may be relevant to special classes of Holders, such as: broker-dealers, banks, mutual funds, insurance companies, financial institutions, thrifts, small business investment companies, regulated investment companies, real estate investment trusts, tax-exempt organizations, retirement plans, individual retirement and other tax-deferred accounts, S corporations, partnerships or other pass-through entities for U.S. federal income tax purposes, persons holding securities as part of a hedging, straddle, conversion or constructive sale transaction or other integrated investment, traders in securities that elect to use a mark-to-market method of tax accounting for their security holdings,

 

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dealers in securities or foreign currencies, persons whose functional currency is not the U.S. dollar, certain expatriates or former long term residents of the United States, persons who received their Claim or Interest as compensation, and persons who use the accrual method of accounting and report income on an “applicable financial statement.” Additionally, this discussion does not address the alternative minimum tax or the “Medicare” tax on net investment income.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of a claim or interest who is for U.S. federal income tax purposes: (1) an individual citizen or resident of the United States; (2) a corporation created or organized under the laws of the United States or any state thereof or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust (A) if a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all substantial decisions of the trust or (B) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. ‘‘Non-U.S. Holder’’ means any beneficial owner (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder.

If an entity or arrangement treated as a partnership or other pass-through vehicle for U.S. federal income tax purposes is a Holder, the tax treatment of its partners or other owners will generally depend upon the status of the individual partner (or other owner) and the activities of the entity or arrangement. A partner (or other owner) of a partnership or other pass-through entity that is a Holder should consult its own tax advisor regarding the tax consequences of the Prepackaged Plan based on such Holder’s particular situation.

This discussion assumes that Holders entitled to vote hold their Claims and Interests as “capital assets” (generally, property held for investment) for U.S. federal income tax purposes and that, except as otherwise specified below, the various debt and other arrangements to which the Debtors are parties will be respected for U.S. federal income tax purposes in accordance with their form.

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any Holder and no opinion or representation is made with respect to the U.S. federal income tax consequences to any such Holder. Holders are urged to consult their own tax advisors regarding the application of U.S. federal, state and local tax laws, as well as any applicable non-U.S. tax laws, based on their particular situation.

A. U.S. Federal Income Tax Consequences to the Debtors

1. General.

Each of the Debtors is a member of an affiliated group of corporations that files consolidated federal income tax returns with Pioneer Energy Services Corp. (“Pioneer”) as the common parent (such consolidated group, the “PES Group”) or an entity disregarded as separate from its owner for U.S. federal income tax purposes whose business activities and operations are reflected on the consolidated U.S. federal income tax returns of the PES Group. The Debtors estimate that, as of December 31, 2019, the PES Group had consolidated net operating loss

 

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(“NOL”) carryforwards of approximately $443 million, among other tax attributes (including tax basis in assets), and approximately $31 million of disallowed business interest expense carryovers. However, the amount of PES Group NOLs and other tax attributes, as well as the application of any limitations thereon, remains subject to review and adjustment, including by the IRS. In addition, as discussed below, in connection with the implementation of the Prepackaged Plan, it is anticipated that the Debtors’ NOL carryforwards and certain other tax attributes will be significantly reduced, and that the subsequent utilization of certain tax attributes (including disallowed business interest carryovers) will be significantly limited.

2. Cancellation of Debt.

In general, the Tax Code provides that a debtor must reduce certain of its tax attributes — such as NOL carryforwards and current year operating losses, capital loss carryforwards, certain tax credits, and tax basis in assets — by the amount of any cancellation of debt (“COD”) if the discharge occurs pursuant to a confirmed chapter 11 plan. The amount of COD incurred is generally the amount by which the indebtedness discharged exceeds the value of any consideration given in exchange therefor. Certain statutory or judicial exceptions may apply to limit the amount of COD incurred for U.S. federal income tax purposes. The debtor can also elect to reduce the basis of depreciable property prior to any reduction in its NOL carryforwards or other tax attributes. If such election is not made, then in applying the attribute reduction rule to the tax basis in assets, the tax law limits the reduction in tax basis to the amount by which the debtor’s aggregate tax basis in its assets exceeds the debtor’s post-emergence liabilities. Where, as here, the debtor joins in the filing of a consolidated U.S. federal income tax return, applicable Treasury Regulations require, in certain circumstances, that the tax attributes of the consolidated subsidiaries of the debtor and other members of the group must also be reduced. Any reduction in tax attributes in respect of COD generally does not occur until after the determination of the debtor’s net income or loss for the taxable year in which the COD is incurred. In connection with implementation of the Prepackaged Plan, the Debtors expect to incur a significant amount of COD for U.S. federal income tax purposes, with an attendant reduction in NOLs, and potentially other tax attributes.

3. Limitations on NOLs and Other Tax Attributes.

Under the Tax Code, any NOL carryforwards and certain other tax attributes, including carryover of disallowed interest and certain “built-in” losses, of a corporation (collectively, “Pre-Change Losses”) may be subject to an annual limitation if the corporation undergoes an “ownership change” within the meaning of section 382 of the Tax Code. These limitations apply in addition to, and not in lieu of, the attribute reduction that may result from the COD arising in connection with the Prepackaged Plan.

Under section 382 of the Tax Code, if a corporation undergoes an “ownership change” and does not qualify for (or elects out of) the special bankruptcy exception in section 382(l)(5) of the Tax Code discussed below, the amount of its Pre-Change Losses that may be utilized to offset future taxable income or tax liability is subject to an annual limitation. The Debtors anticipate that the PES Group will experience an “ownership change” (within the meaning of section 382 of the Tax Code) on the Effective Date. Section 383 of the Tax Code applies a similar limitation to capital loss carryforwards and tax credits and, as a result, the PES Group’s ability to use its capital loss carryforwards and tax credits is expected to be similarly limited.

 

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In general, the amount of the annual limitation to which a corporation that undergoes an ownership change will be subject is equal to the product of (i) the fair market value of the stock of the corporation immediately before the ownership change (with certain adjustments) multiplied by (ii) the “long-term tax-exempt rate” in effect for the month in which the ownership change occurs (e.g., 1.63% for ownership changes occurring in February 2020). As discussed below, this annual limitation potentially may be increased in the event the corporation (or consolidated group) has an overall “built-in” gain in its assets at the time of the ownership change. For a corporation (or consolidated group) in bankruptcy that undergoes an ownership change pursuant to a confirmed bankruptcy plan, the fair market value of the stock of the corporation (or the parent of the consolidated group) is generally determined immediately after (rather than before) the ownership change, after giving effect to the discharge of creditors’ claims, but subject to certain adjustments; in no event, however, can the stock value for this purpose exceed the pre-change gross value of the corporation’s assets.

Section 382 of the Tax Code also limits Pioneer’s ability to use “net unrealized built-in losses” (i.e., losses and deductions attributable to a period prior to, but remaining unrecognized as of, the Effective Date) to offset future income. If, however, Pioneer has an unrealized built-in gain as of the Effective Date, any built-in gains recognized, or deemed recognized under the terms of IRS Notice 2003-65, during the following five years generally will increase the annual limitation in the year recognized (but only up to the amount of the net unrealized built-in gain as of the Effective Date), such that Pioneer would be permitted to use its pre-change losses against such built-in gain income in addition to its regular allowance. In addition, any portion of the annual limitation that is not used in a given year may be carried forward, thereby adding to the annual limitation for the subsequent taxable year.

The PES Group’s Pre-Change Losses will be subject to additional limitation if Pioneer experiences future ownership changes or if it does not continue its historic business for at least two years following the Effective Date. In addition, although, as discussed below, the Debtors intend to treat the New Convertible Bonds as equity of Pioneer for U.S. federal income tax purposes, it is possible that a court or the IRS would disagree. If the New Convertible Bonds were to be treated as debt for U.S. federal income tax purposes, depending on a variety of factors, including the identity of the holders of the New Convertible Bonds at the time of conversion, it is possible that the exchange of the New Convertible Bonds for common stock of Reorganized Pioneer pursuant to the terms of the New Convertible Bonds could result in an additional ownership change. As a result, the PES Group’s ability to use Pre-Change Losses may be subject to further future limitation.

The application of section 382 of the Tax Code will be materially different from that described above if Pioneer is subject to the special rules for corporations in bankruptcy provided in section 382(l)(5) of the Tax Code. Pioneer generally would qualify for the special rules provided in section 382(l)(5) of the Tax Code if the historic Holders of Interests in Pioneer and certain Holders of Pioneer’s debt, taken together, own equity interests representing at least fifty percent of the voting power and equity value of Pioneer following consummation of the transactions under the Prepackaged Plan. In that case, Pioneer’s ability to use Pre-Change Losses would not be limited as described in the preceding paragraphs. However, several other limitations would apply to Pioneer under section 382(l)(5), including (a) Pioneer’s Pre-Change Losses would be calculated without taking into account deductions for interest paid or accrued in the portion of

 

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the current tax year ending on the Effective Date and the three taxable years preceding the Effective Date with respect to the debt securities that are exchanged for Pioneer common stock pursuant to the Prepackaged Plan, and (b) if Pioneer undergoes another ownership change within two years after the Effective Date, Pioneer’s section 382 limitation following that ownership change would be zero. It is uncertain whether the provisions of section 382(l)(5) will be available and, if available, there are significant uncertainties about how they would apply to the Debtors. If Pioneer qualifies for the special rule under section 382(l)(5), the use of Pre-Change Losses will be subject to section 382(l)(5) of the Tax Code unless Pioneer affirmatively elects for the provisions not to apply. Although the Debtors are not certain whether the special rules under section 382(l)(5) would apply, the Debtors currently expect to elect for those rules not to apply.

B. U.S. Holders of Certain Claims and Interests

The following section discusses certain U.S. federal income tax consequences of the transactions contemplated by the Prepackaged Plan to U.S. Holders of Notes Claims and Pioneer Interests. This section also discusses certain U.S. federal income tax consequences to U.S. Holders of the New Equity, New Convertible Bonds, and the Subscription Rights. U.S. Holders should consult their own tax advisors for information that may be relevant to their particular situations and circumstances and the particular tax consequences to them of the transactions contemplated by the Prepackaged Plan.

1. Treatment of U.S. Holders of Certain Claims and Interests - In General.

Pursuant to the Prepackaged Plan, each U.S. Holder of Notes Claims and Pioneer Interests will receive New Equity and Subscription Rights in exchange for such Claims and Interests, respectively. The U.S. federal income tax consequences of the Prepackaged Plan to U.S. Holders of Notes Claims and Pioneer Interests depends, in part, on whether Notes Claims and the Subscription Rights constitute “securities” of Pioneer for U.S. federal income tax purposes.

The term “security” is not defined in the Tax Code or the Treasury regulations and has not been clearly defined by judicial decisions. The determination of whether a debt obligation constitutes a “security” depends on an overall evaluation of the nature of the debt, including whether the U.S. Holder of such debt obligation is subject to a material level of entrepreneurial risk and whether a continuing proprietary interest is intended or not. Whether a debt instrument constitutes a “security” for U.S. federal income tax purposes is determined based on all the relevant facts and circumstances, but most authorities have held that the length of the term of a debt instrument is an important factor in determining whether such instrument is a security for U.S. federal income tax purposes. These authorities have indicated that a term of less than five years is evidence that the instrument is not a security, whereas a term of ten years or more is evidence that it is a security. The initial term to maturity of the Notes was just under eight years. There are numerous other factors that are taken into account in determining whether a debt instrument is a security, including the presence of collateral, if any, the creditworthiness of the obligor, the subordination or lack thereof to creditors, the right to vote or otherwise participate in the management of the obligor, convertibility of the instrument into an equity interest of the obligor, whether payments of interest are fixed, variable or contingent, and whether such payments are made on a current basis or accrued.

 

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In addition, a right to acquire stock will also generally be treated as a security for purposes of this analysis. Although the matter is not free from doubt, Pioneer intends to treat the New Convertible Bonds as equity of Pioneer for U.S. federal income tax purposes, and all U.S. Holders subscribing for New Convertible Bonds will be required, under the terms of the New Convertible Bonds, to so treat those interests. As a result, it is expected that the Subscription Rights, which confer on U.S. Holders the right to acquire New Convertible Bonds, should be treated as securities for such purposes.

Unless otherwise specified, the discussion in this Article VIII assumes that each of the Notes Claims and Subscription Rights constitute securities for U.S. federal income tax purposes and that the New Convertible Bonds are appropriately treated as equity for U.S. federal income tax purposes. U.S. Holders are urged to consult their own tax advisors as to the treatment of Notes Claims and the Subscription Rights as securities and the U.S. federal income tax consequences of such treatment.

2. Treatment of U.S. Holders of Notes Claims.

a. Recapitalization Treatment

If, and to the extent that, a U.S. Holder’s Notes Claims constitute “securities” of Pioneer for U.S. federal income tax purposes and the Subscription Rights constitute “securities” of Reorganized Pioneer for U.S. federal income tax purposes, the U.S. Holder’s receipt of the New Equity and the Subscription Rights pursuant to the Prepackaged Plan should be treated as a “recapitalization” for U.S. federal income tax purposes. If so treated, each U.S. Holder of a Notes Claim generally will not recognize any gain or loss upon the exchange of its Notes Claim for the New Equity and the Subscription Rights. Any consideration received in respect of accrued but unpaid interest to the extent not previously taxed, if any, is treated separately, see B.2.e, “Distributions in Discharge of Accrued Interest,” below.

In a recapitalization exchange, the U.S. Holder’s aggregate tax basis in the New Equity and the Subscription Rights received should generally equal such U.S. Holder’s aggregate adjusted tax basis in the Notes Claims exchanged therefor, increased by any interest income recognized in the exchange, and decreased by any deductions claimed in respect of any previously accrued but unpaid interest. Such aggregate tax basis should be allocated between the New Equity and the Subscription Rights in accordance with the respective fair market values thereof. A U.S. Holder’s holding period in the New Equity will include its holding period in the Notes Claims exchanged therefor, except to the extent of any New Equity received in respect of accrued but unpaid interest.

b. Taxable Exchange

In the event that a U.S. Holder’s Notes Claims do not constitute “securities” of Pioneer for U.S. federal income tax purposes, a holder of Notes Claims will recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the aggregate fair market value of the New Equity and the Subscription Rights received in satisfaction of its Notes Claims (other than any consideration received in respect of Notes Claims for accrued but unpaid interest to the extent not previously taxed), and (ii) the U.S. Holder’s adjusted tax basis in its Notes Claims. For a discussion of the character of such gain or loss, see B.2.d, “Character of Gain or Loss,” below. A U.S. Holder will have ordinary interest income to the extent of any consideration allocable to accrued but unpaid interest not previously included in income, see B.2.e, “Distributions in Discharge of Accrued Interest,” below.

 

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In this event, a U.S. Holder of Notes Claims will have a tax basis in the New Equity and the Subscription Rights received in satisfaction of its Notes Claims equal to the fair market value of such interests and rights. Such U.S. Holder’s holding period in respect thereof should begin the day following the Effective Date.

c. Character of Gain or Loss

Where gain or loss is recognized by a U.S. Holder, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the U.S. Holder, whether the Claim constitutes a capital asset in the hands of the U.S. Holder and its holding period, whether the Claim was acquired at a market discount, and whether and to what extent the holder previously claimed a bad debt deduction.

A U.S. Holder that purchased its Claim from a prior holder at “market discount” may be subject to the market discount rules of the Tax Code. A debt instrument may be considered to have been acquired with “market discount” if the holder’s adjusted tax basis in the debt instrument is less than its stated principal amount by more than a de minimis amount. Under these rules, any gain recognized on the exchange of Claims (other than in respect of a Claim for accrued but unpaid interest) generally will be treated as ordinary income to the extent of the market discount accrued (on a straight line basis or, at the election of the holder, on a constant yield basis) during the holder’s period of ownership, unless the holder elected to include the market discount in income as it accrued. If a holder did not elect to include market discount in income as it accrued and, thus, under the market discount rules, was required to defer all or a portion of any deductions for interest on debt incurred or maintained to purchase or carry its Claims, such deferred amounts would become deductible at the time of a taxable exchange in respect of such Claims or instruments (like the New Equity and Subscription Rights) acquired in a tax-free exchange in respect of such Claims.

A U.S. Holder who acquired its Claim at a “market discount” and that receives the New Equity and the Subscription Rights as part of a “recapitalization” exchange may be required to carry over to such New Equity and Subscription Rights any accrued market discount with respect to its Claim to the extent not previously included in income. The Tax Code indicates that any accrued market discount in respect of the Claims that is not currently includible in income should carry over to any nonrecognition property received in exchange therefor, or, in respect of the U.S. Holder of Notes Claims, to the New Equity and Subscription Rights received. Any gain recognized by a U.S. Holder upon a subsequent disposition of the New Equity and Subscription Rights (or the New Convertible Bonds received on exercise of such Subscription Rights) should be treated as ordinary income to the extent of any accrued market discount not previously included in income. To date, specific Treasury Regulations implementing this rule have not been issued, and it is therefore unclear how market discount, if any, should be allocated between the New Equity and the Subscription Rights received by a U.S. Holder of Notes Claims, and accordingly, when ordinary income associated with such accrued market discount is appropriately recognized. U.S. Holders of Notes Claims who acquired the notes underlying their Claims with market discount should consult with their own tax advisors as to the appropriate treatment of any such market discount and the timing of the recognition thereof.

 

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d. Distributions in Discharge of Accrued Interest or OID

In general, to the extent that any exchange consideration received pursuant to the Prepackaged Plan by a U.S. Holder of a Claim is received in satisfaction of interest accrued during its holding period, such amount will be taxable to the holder as interest income (if not previously included in the holder’s gross income). Conversely, a U.S. Holder may be entitled to recognize a deductible loss to the extent any accrued interest was previously included in its gross income and is not paid in full.

If the fair market value of the consideration received pursuant to the Prepackaged Plan is not sufficient to fully satisfy all principal and interest on a Claim, the extent to which such consideration will be attributable to accrued but untaxed interest on the Claim is unclear. Under the Prepackaged Plan, distributions with respect to Allowed Claims shall be allocated first to the principal portion of such Allowed Claim (as determined for United States federal income tax purposes) and, thereafter, to the remaining portion of such Allowed Claim, if any. There is no assurance that the IRS will respect such allocation. U.S. Holders are urged to consult their own tax advisors regarding the allocation of consideration received under the Prepackaged Plan, as well as the deductibility of accrued but unpaid interest and the character of any loss claimed with respect to accrued but unpaid interest previously included in gross income for U.S. federal income tax purposes.

e. Subscription Rights

The Debtors expect that a U.S. Holder of a Notes Claim’s receipt of the Subscription Rights and subscription for New Convertible Bonds will be treated, for U.S. federal income tax purposes, as the receipt of a right to acquire New Convertible Bonds and the subsequent exercise of such option. Accordingly, no gain or loss would generally be recognized upon the exercise of such Subscription Rights. A U.S. Holder’s aggregate tax basis in the New Convertible Bonds received upon exercise of its Subscription Rights should be equal to the sum of (i) the amount of Cash paid upon exercise of the Subscription Rights and (ii) the U.S. Holder’s tax basis in the Subscription Rights. In addition, if the Subscription Rights are treated as received as part of a “recapitalization,” any gain recognized upon a subsequent disposition of the New Convertible Bonds may be treated as ordinary income to the extent of any carryover of accrued market discount in respect of the Notes Claims exchanged therefor not previously included in income, see B.2.c, “Character of Gain or Loss,” above. A U.S. Holder’s holding period in the New Convertible Bonds received upon exercise of its Subscription Rights generally should commence the day following the exercise of the Subscription Rights.

Assuming that the Subscription Rights are respected for U.S. federal income tax purposes as options to acquire New Convertible Bonds, upon lapse of any Subscription Rights unexercised, the U.S. Holder generally would recognize a loss to the extent of the U.S. Holder’s tax basis in such Subscription Rights. In general, such loss would be a capital loss, long-term or short-term, depending upon whether the requisite holding period was satisfied (which in the case of a “recapitalization” exchange, even if the right lapses unexercised, should include the holding period of the Notes Claim exchanged therefor).

 

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3. Treatment of U.S. Holders of Pioneer Interests.

a. Receipt of the New Equity and the Subscription Rights

The New Equity and the Subscription Rights received by a U.S. Holders of Pioneer Interests, to the pursuant to the Prepackaged Plan should be treated as received in a “recapitalization” for U.S. federal income tax purposes. In the alternative, a U.S. Holder of Pioneer Interests might be treated, solely for U.S. federal income tax purposes, as having retained such interests in the form of New Equity and as having received a distribution of the Subscription Rights in respect of its New Equity. In either case, if so treated, a U.S. Holder of Pioneer Interests generally will not recognize any gain or loss upon the receipt, pursuant to the Prepackaged Plan, of the New Equity and the Subscription Rights.

In a recapitalization exchange, the U.S. Holder’s aggregate tax basis in the New Equity and the Subscription Rights received should generally equal such U.S. Holder’s aggregate adjusted tax basis in the Pioneer Interests previously held. Such aggregate tax basis should then be allocated between the New Equity and the Subscription Rights in accordance with the respective fair market values thereof. If the U.S. Holder’s receipt of the Subscription Rights is instead treated as a non-taxable distribution on such U.S. Holder’s New Equity, and the fair market value of the Subscription Rights on the Effective Date is less than fifteen percent of the fair market value of the U.S. Holder’s New Equity on such date, unless the holder makes the election described in the following sentence, no portion of such holder’s tax basis will be allocated to the Subscription Rights received. If the fair market value of the Subscription Rights on the Effective Date is more than fifteen percent of the fair market value of the holder’s New Equity on such date, or the holder elects, by including a statement on its tax return for the year including the Effective Date such treatment, the holder’s aggregate tax basis in its Pioneer Interests should be allocated between the New Equity and the Subscription Rights in accordance with the respective fair market values thereof. A U.S. Holder’s holding period in the New Equity should include its holding period in its Pioneer Interests.

b. Subscription Rights

The Debtors expect that a U.S. Holder of Pioneer Interests’ receipt of the Subscription Rights and subscription for New Convertible Bonds will be treated, for U.S. federal income tax purposes, as the receipt of a right to acquire New Convertible Bonds and the subsequent exercise of such option. Accordingly, no gain or loss would generally be recognized upon the exercise of such Subscription Rights. A U.S. Holder’s aggregate tax basis in the New Convertible Bonds received upon exercise of its Subscription Rights should be equal to the sum of (i) the amount of cash paid upon exercise of the Subscription Rights and (ii) the U.S. Holder’s tax basis in its Subscription Rights. A U.S. Holder’s holding period in the New Convertible Bonds received upon exercise of its Subscription Rights generally should commence the day following the exercise of the Subscription Rights.

 

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Assuming that the Subscription Rights are respected for U.S. federal income tax purposes as options to acquire New Convertible Bonds, upon lapse of any Subscription Rights unexercised, the U.S. Holder generally would recognize a loss to the extent of the U.S. Holder’s tax basis, if any, in such Subscription Rights. In general, such loss would be a capital loss, long-term or short-term, depending upon whether the requisite holding period was satisfied (which should include the holding period of the Pioneer Interests in respect of which such U.S. Holder’s New Equity and Subscription Rights were received).

4. Ownership and Disposition of New Equity and New Convertible Bonds

a. Distributions on New Equity and New Convertible Bonds

The Debtors intend, and the terms governing the New Convertible Bonds are expected to provide that the Debtors and all Holders of New Convertible Bonds agree, to treat the New Convertible Bonds as equity of Reorganized Pioneer for U.S. federal income tax purposes. The shares of Stapled Special Voting Stock attached to the New Convertible Bonds, which are intended solely to confer voting rights at Reorganized Pioneer on holders of New Convertibles Bonds, should not be treated as instruments separate from the New Convertible Bonds for U.S. federal income tax purposes. Under the terms of the New Convertible Bonds as set forth in the RSA and the appendices thereto, U.S. Holders of the New Convertible Bonds will share, on a pro rata as-converted basis, with U.S. Holders of the New Equity in any dividends or distributions made by Reorganized Pioneer. Cash distributions with respect to the New Equity and New Convertible Bonds generally will be treated as taxable dividends to the extent allocable to Reorganized Pioneer’s current and/or accumulated “earnings and profits” as determined under U.S. federal income tax principles, and will, subject to the discussion below, be includable as ordinary income by the U.S. Holder when received. To the extent the amount of any distribution exceeds available earnings and profits with respect to such distribution, the excess will be treated as (a) a non-taxable return of the holder’s adjusted tax basis (on a dollar-for-dollar basis) and (b) thereafter as capital gain from the sale or exchange of such stock.

Dividends received by non-corporate U.S. Holders may qualify for taxation at lower rates applicable to long-term capital gains, provided certain holding period and other requirements are satisfied. The length of time that a U.S. Holder has held its New Equity or New Convertible Bonds is reduced for any period during which the U.S. Holder’s risk of loss with respect to such interests is diminished by reason of the existence of certain options, contracts to sell, short sales or similar transactions. Non-corporate U.S. Holders are urged to consult their own tax advisors regarding the applicability of such lower rates in their particular situations. Subject to applicable limitations, a distribution that is treated as a dividend for U.S. federal income tax purposes may qualify for the dividends-received deduction if such amount is distributed to a corporate U.S. Holder and certain other requirements are satisfied.

b. Accrual on the New Convertible Bonds

Under section 305 of the Tax Code, certain transactions that affect the proportionate interest in the corporation’s assets of a Person treated as an equityholder for U.S. federal income tax purposes are treated as creating deemed distributions on such equity, which distributions may be taxed as dividends (with the consequences as described immediately above), despite the absence

 

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of any actual payment of cash (or property) to the holder of such equity. Under these rules, unless the New Convertible Bonds are treated as “participating equity” – generally, equity that participates in corporate growth to any significant extent (disregarding conversion privileges) – a Holder thereof may be treated as receiving constructive distributions equal to the amounts periodically accruing to the Holder in respect of the New Convertible Bonds under the terms thereof. The terms of the New Convertible Bonds as set forth in the RSA and the appendices thereto contemplate that the New Convertible Bonds will have the right to participate in any proceeds on liquidation of Reorganized Pioneer as if such New Convertible Bonds had been converted to New Equity in accordance with the terms of the New Convertible Bonds. As noted above, it is also contemplated that the New Convertible Bonds will participate with Holders of New Equity on dividends paid by Reorganized Pioneer. Accordingly, the Debtors intend to treat the New Convertible Bonds as participating preferred equity for purposes of section 305 of the Tax Code. Furthermore, the Debtors intend to treat the conversion of the New Convertible Bonds as not giving rise to a constructive dividend under section 305 of the Tax Code. There is no assurance, however, that the IRS will not successfully take a contrary position. U.S. Holders should consult with their tax advisors as to the tax consequences of holding New Convertible Bonds and of the possibility that the Holder will be treated as receiving constructive dividends with respect to such interests.

c. Conversion of the New Convertible Bonds

A U.S. Holder’s exercise of the conversion feature of the New Convertible Bonds, or the conversion of the New Convertible Bonds to common stock of Reorganized Pioneer pursuant to the terms thereof, should be treated as a “recapitalization” (or potentially as tax-free pursuant to section 1036 of the Tax Code) for U.S. federal income tax purposes. In such event, a U.S. Holder of New Convertible Bonds generally will not recognize loss, but should generally recognize gain realized in an amount not to exceed any Cash received. The U.S. federal income tax treatment of any Cash received as capital gain (treated as set forth below, under B.4.c, “Dispositions of New Equity and New Convertible Bonds”) or as a dividend (treated as set forth above, under B.4.a, “Distributions on New Equity and New Convertible Bonds”) will depend on several factors, analyzed as of the time of such conversion, including the size of a U.S. Holder’s interest in Reorganized Pioneer, the amount of Cash exchanged, and whether Reorganized Pioneer has any “earnings and profits” at such time. U.S. Holders should consult with their tax advisors as to the treatment of the conversion of their New Convertible Bonds to common stock of Reorganized Pioneer.

d. Dispositions of New Equity and New Convertible Bonds

Unless a nonrecognition provision applies, U.S. Holders generally will recognize capital gain or loss upon the sale or exchange of New Equity and upon the sale or exchange of New Convertible Bonds, in each case, in an amount equal to the difference between (i) the holder’s adjusted tax basis in the New Equity or New Convertible Bonds, respectively, and (ii) the sum of the Cash plus the fair market value of any property received from such disposition. Any such gain or loss generally would be treated as long-term if the holder’s holding period for its New Equity or New Convertible Bonds is more than one year at that time. A reduced tax rate on long-term capital gain may apply to non-corporate holders. The deductibility of capital loss is subject to significant limitations.

 

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C. Non-U.S. Holders of Certain Claims and Interests

The following section discusses certain U.S. federal income tax consequences of the transactions contemplated by the Prepackaged Plan to non-U.S. Holders of Notes Claims, and Pioneer Interests. This section also discusses certain U.S. federal income tax consequences to non-U.S. Holders of New Equity, New Convertible Bonds, and the Subscription Rights. Non-U.S. Holders should consult their own tax advisors for information that may be relevant to their particular situations and circumstances and the particular tax consequences to them of the transactions contemplated by the Prepackaged Plan.

1. Gain Recognition

Any gain realized by a non-U.S. Holder on the exchange of its Claim under the rules set forth for U.S. Holders, see B. “U.S. Holders of Certain Claims and Interests,” above, generally will not be subject to U.S. federal income taxation unless (a) the non-U.S. Holder is an individual who was present in the United States for 183 days or more during the taxable year in which the transactions contemplated by the Prepackaged Plan occur and certain other conditions are met or (b) such gain is effectively connected with the conduct by such non-U.S. Holder of a trade or business in the United States (and, if an income tax treaty applies, such gain is attributable to a permanent establishment maintained by such non-U.S. Holder in the United States).

If the first exception applies, the non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of thirty percent (or at a reduced rate or exemption from tax under an applicable income tax treaty) on the amount by which such non-U.S. Holder’s capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of the exchange. If the second exception applies, the non-U.S. Holder generally will be subject to U.S. federal income tax with respect to any gain realized on the exchange in the same manner as a U.S. Holder. In addition, if such a non-U.S. Holder is a corporation, it may be subject to a branch profits tax equal to thirty percent (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments under the Tax Code.

2. Ownership and Disposition of New Equity and New Convertible Bonds

a. Distributions on New Equity and New Convertible Bonds

The Debtors intend, and the terms governing the New Convertible Notes are expected to provide that the Debtors and all Holders of New Convertible Bonds agree, to treat the New Convertible Bonds as equity of Reorganized Pioneer for U.S. federal income tax purposes. The shares of Stapled Special Voting Stock attached to the New Convertible Bonds, which are intended solely to confer voting rights at Reorganized Pioneer on holders of New Convertible Bonds, should not be treated as instruments separate from the New Convertible Bonds for U.S. federal income tax purposes. Under the terms of the New Convertible Bonds as set forth in the RSA and the appendices thereto, Holders of the New Convertible Bonds will share, on a pro rata as-converted basis, with Holders of the New Equity in any dividends or distributions made by Reorganized Pioneer. Cash distributions with respect to the New Equity and New Convertible Bonds generally will be treated as taxable dividends to the extent allocable to Reorganized Pioneer’s current and/or accumulated “earnings and profits” as determined under U.S. federal income tax principles, and

 

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will be includable as ordinary income by the Holder when received. To the extent the amount of any distribution exceeds available earnings and profits with respect to such distribution, the excess will be applied against and will reduce the holder’s adjusted tax basis (on a dollar-for-dollar basis) in respect of the stock as to which the distribution was made, but not below zero. Any remaining excess will be treated as gain from the sale or exchange of such stock, with the consequences as described below.

Dividends paid to a non-U.S. Holder generally will be subject to U.S. federal income tax withholding at a thirty percent rate or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. Holder of New Equity or New Convertible Bonds who wishes to claim the benefit of an applicable treaty rate for dividends will be required to provide Reorganized Pioneer or the applicable paying agent or withholding agent with the applicable properly completed and executed IRS Form W-8 (or a suitable substitute or successor form or such other form as the IRS may prescribe). A non-U.S. Holder eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

If dividends paid to a non-U.S. Holder are ECI in respect of the non-U.S. Holder, the non-U.S. Holder will be required to pay U.S. federal income tax on that interest on a net income basis generally in the same manner as a U.S. Holder (and the thirty percent withholding tax described above will not apply, provided the appropriate IRS form is provided to Reorganized Pioneer or to the applicable paying agent or other withholding agent) unless an applicable income tax treaty provides otherwise. To claim an exemption from withholding in respect thereof, such non-U.S. Holder will be required to provide a properly completed and executed IRS Form W-8ECI (or a suitable substitute or successor form or such other form as the IRS may prescribe). If a non-U.S. Holder is eligible for the benefits of any income tax treaty between the United States and its country of residence, any interest income that is ECI will be subject to U.S. federal income tax in the manner specified by the treaty if the non-U.S. Holder claims the benefit of the treaty by providing an appropriate IRS Form W-8 (or a suitable substitute or successor form or such other form as the IRS may prescribe) that has been properly completed and duly executed. In addition, a corporate non-U.S. Holder may, under certain circumstances, be subject to an additional “branch profits tax” at a 30 percent rate, or, if applicable, a lower treaty rate, on its effectively connected earnings and profits attributable to such interest, subject to adjustments under the Tax Code.

b. Accrual on the New Convertible Bonds

Under section 305 of the Tax Code, certain transactions that affect the proportionate interest in the corporation’s assets of a Person treated as an equityholder for U.S. federal income tax purposes are treated as creating deemed distributions on such equity, which distributions may be taxed as dividends (with the consequences as described immediately above), despite the absence of any actual payment of cash (or property) to the holder of such equity. Under these rules, unless the New Convertible Bonds are treated as “participating equity” – generally, equity that participates in corporate growth to any significant extent (disregarding conversion privileges) – a Holder thereof may be treated as receiving constructive distributions equal to the amounts periodically accruing to the Holder in respect of the New Convertible Bonds under the terms thereof. The terms of the New Convertible Bonds as set forth in the RSA and the appendices thereto contemplate that the New Convertible Bonds will have the right to participate in any

 

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proceeds on liquidation of Reorganized Pioneer as if such New Convertible Bonds had been converted to New Equity in accordance with the terms of the New Convertible Bonds. As noted above, it is also contemplated that the New Convertible Bonds will participate with Holders of New Equity on dividends paid by Reorganized Pioneer. Accordingly, the Debtors intend to treat the New Convertible Bonds as participating preferred equity for purposes of section 305 of the Tax Code. Furthermore, the Debtors intend to treat the conversion of the New Convertible Bonds as not giving rise to a constructive dividend under section 305 of the Tax Code. There is no assurance, however, that the IRS will not successfully take a contrary position. Non-U.S. Holders should consult with their tax advisors as to the tax consequences of holding New Convertible Bonds and of the possibility that the Holder will be treated as receiving constructive dividends with respect to such interests.

c. Conversion of the New Convertible Bonds

A non-U.S. Holder’s exercise of the conversion feature of the New Convertible Bonds, or the conversion of the New Convertible Bonds to common stock of Reorganized Pioneer pursuant to the terms thereof, should be treated as a “recapitalization” (or potentially as tax-free pursuant to section 1036 of the Tax Code) for U.S. federal income tax purposes. The U.S. federal income tax treatment of any Cash received as capital gain (treated as set forth below, under the heading “Sale or Exchange”) or as a dividend (treated as set forth above, under the heading, “Dividends”) will depend on several factors, analyzed as of the time of such conversion, including the size of a Holder’s interest in Reorganized Pioneer, the amount of Cash exchanged, and whether Reorganized Pioneer has any “earnings and profits” at such time. Non-U.S. Holders should consult with their tax advisors as to the treatment of the conversion of their New Convertible Bonds to common stock of Reorganized Pioneer.

d. Dispositions of New Equity and New Convertible Bonds

A non-U.S. Holder will generally not be subject to U.S. federal income tax on any gain realized in respect of any transaction treated as a sale or exchange of the New Equity or the New Convertible Bonds for U.S. federal income tax purposes, except any such non-U.S. Holder that is subject to U.S. federal income taxation with respect to such income as set forth above, see C.1 “Gain Recognition,” or if Reorganized Pioneer is or has been a “United States real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met. Pioneer does not believe that it is, and does not anticipate Reorganized Pioneer becoming, a ‘‘United States real property holding corporation’’ for U.S. federal income tax purposes.

D. FATCA

Under legislation commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”), foreign financial institutions and certain other foreign entities must report certain information with respect to their U.S. account holders and investors or be subject to withholding at a rate of thirty percent on the receipt of “withholdable payments.” Withholdable payments, as defined for this purpose, are generally U.S. source payments of fixed or determinable, annual or periodical income, and, subject to the paragraph immediately below, also include gross proceeds from the sale of any property of a type which can produce U.S. source interest or dividends. FATCA withholding will apply even if the applicable payment would not otherwise be subject to U.S. federal nonresident withholding.

 

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FATCA withholding rules previously scheduled to take effect on January 1, 2019 would have applied to payments of gross proceeds from the sale or other disposition of property of a type that can produce U.S. source interest or dividends. However, such withholding has effectively been suspended under proposed Treasury Regulations that may be relied on until final regulations become effective. Nonetheless, there can be no assurance that a similar rule will not go into effect in the future. Each non-U.S. Holder should consult its own tax advisor regarding the possible impact of FATCA withholding rules on such non-U.S. Holder.

E. Backup Withholding and Information Reporting

Payments of interest (including accruals of OID) or dividends and any other reportable payments, possibly including amounts received pursuant to the Prepackaged Plan and payments of proceeds from the sale, retirement or other disposition of the exchange consideration, may be subject to “backup withholding” (currently at a rate of 24%) if a recipient of those payments fails to furnish to the payor certain identifying information and, in some cases, a certification that the recipient is not subject to backup withholding. Backup withholding is not an additional tax. Any amounts deducted and withheld generally should be allowed as a credit against that recipient’s U.S. federal income tax and may be refunded to the extent it results in an overpayment of tax, provided that appropriate proof is timely provided under rules established by the IRS. Furthermore, certain penalties may be imposed by the IRS on a recipient of payments who is required to supply information but who does not do so in the proper manner. Backup withholding generally should not apply with respect to payments made to certain exempt recipients, such as, in certain circumstances, corporations and financial institutions. Information may also be required to be provided to the IRS concerning the transactions contemplated by the Prepackaged Plan, unless an exemption applies. Holders should consult their own tax advisors regarding any available exemptions from backup withholding and information reporting and the procedures for obtaining such an exemption.

Treasury Regulations generally require disclosure by a taxpayer on its U.S. federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, certain transactions that result in the taxpayer’s claiming a loss in excess of certain thresholds. You are urged to consult your own tax advisor regarding these regulations and whether the contemplated transactions under the Prepackaged Plan will be subject to these regulations and require disclosure on your tax return.

The foregoing summary has been provided for informational purposes only and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular Holder’s circumstances and income tax situation. All Holders of Claims and Interests are urged to consult their tax advisors concerning the U.S. federal, state, local, and non-U.S., income and non-income tax consequences of the transactions contemplated by the Prepackaged Plan.

 

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ARTICLE IX.

CERTAIN RISK FACTORS TO BE CONSIDERED

 

Prior to voting to accept or reject the Prepackaged Plan, Holders of Claims and Interests should read and carefully consider the risk factors set forth below, in addition to the information set forth in this Disclosure Statement and the attachments, exhibits, or documents incorporated by reference hereto. The factors below should not be regarded as the only risks associated with the Prepackaged Plan or its implementation.

A. Certain Bankruptcy Law Considerations

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

2. Risk of Non-Confirmation of Prepackaged Plan under the Bankruptcy Code. Although the Debtors believe that the Prepackaged Plan will satisfy all requirements necessary for confirmation by the Court, there can be no assurance that the Court will reach the same conclusion or that modifications to the Prepackaged Plan will not be required for confirmation, or that such modifications would not necessitate re-solicitation of votes. Moreover, the Debtors can make no assurances that they will receive the requisite votes for acceptance to confirm the Prepackaged Plan. Even if Class 5 and Class 10 vote in favor of the Prepackaged Plan and the requirements for “cramdown” are met with respect to any Class that rejected the Prepackaged Plan, the Court may decline to confirm the Prepackaged Plan, if it finds that any of the requirements for confirmation are not met. If the plan is not confirmed, it is unclear what distributions Holders of Claims ultimately would receive with respect to their Claims under a subsequent plan of reorganization.

 

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3. Non-Consensual Confirmation. In the event that any impaired class of Claims or Interests does not accept or is deemed not to accept a plan of reorganization, the Court may nevertheless confirm such plan at the Debtors’ request if at least one impaired class has voted to accept the Prepackaged Plan (with such acceptance being determined without including the vote of any “insider” in such class), and as to each impaired class that has not accepted the Prepackaged Plan, the Court determines that the Prepackaged Plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired classes.

4. Risk of Non-Occurrence of Effective Date. There can be no assurance as to the timing of the Effective Date. If the conditions precedent to the Effective Date set forth in the Prepackaged Plan have not occurred or have not been waived as set forth in Article IX.C of the Prepackaged Plan, then the Confirmation Order may be vacated, in which event no distributions would be made under the Prepackaged Plan, the Debtors and all Holders of Claims and Interests would be restored to the status quo as of the day immediately preceding the Confirmation Date, and the Debtors’ obligations with respect to Claims and Interests would remain unchanged.

5. Risk of Termination of the Restructuring Support Agreement. The Restructuring Support Agreement contains provisions that give the Consenting Stakeholders the ability to terminate the Restructuring Support Agreement upon the occurrence of certain events or if certain conditions are not satisfied, including the failure to achieve certain milestones. Termination of the Restructuring Support Agreement could result in protracted Chapter 11 Cases, which could significantly and detrimentally impact the Debtors’ relationships with, among others, vendors, suppliers, employees and major customers.

6. Conversion into Chapter 7 Cases. If no plan of reorganization can be confirmed, or if the Court otherwise finds that it would be in the best interests of Holders of Claims and Interests, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code. See ARTICLE XI.C.3.f hereof, as well as the Liquidation Analysis attached hereto as Exhibit E, for a discussion of the effects that a chapter 7 liquidation would have on the recoveries to Holders of Claims.

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

8. Impact of the Chapter 11 Cases on the Debtors. The Chapter 11 Cases may affect the Debtors’ relationships with, and their ability to negotiate favorable terms with, creditors, customers, vendors, suppliers, employees and other personnel and counterparties. While the Debtors expect to continue normal operations, public perception of their continued viability may affect, among other things, the desire of new and existing customers to enter into or continue their agreements or arrangements with the Debtors. The failure to maintain any of these important relationships could adversely affect the Debtors’ business, financial condition and results of operations.

 

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In addition, the Debtors’ transactions that are outside of the ordinary course of business are generally subject to the approval of the Court, which may limit the Debtors’ ability to respond on a timely basis to certain events or take advantage of certain opportunities. As a result, the effect that the Chapter 11 Cases will have on the Debtors’ businesses, financial conditions and results of operations cannot be accurately predicted or quantified at this time.

Finally, the terms of the DIP Orders limit the Debtors’ ability to undertake certain business initiatives, as described therein.

9. Releases, Injunctions, and Exculpations Provisions May Not Be Approved. Article VIII of the Prepackaged Plan provides for certain releases, injunctions, and exculpations, including a release of liens and third-party releases that may otherwise be asserted against the Debtors, Reorganized Debtors, or Released Parties, as applicable. The releases, injunctions, and exculpations provided in the Prepackaged Plan may not be approved. If the releases are not approved, certain Released Parties may withdraw their support for the Prepackaged Plan. The releases provided to the Released Parties and the exculpation provided to the Exculpated Parties are necessary to the success of the Debtors’ reorganization because the Released Parties and Exculpated Parties have made significant contributions to the Debtors’ reorganization efforts and have agreed to make further contributions, including by agreeing to convert certain of their claims against the Debtors’ Estates into equity, but only if they receive the full benefit of the Prepackaged Plan’s release and exculpation provisions. The Prepackaged Plan’s release and exculpation provisions are an inextricable component of the Restructuring Support Agreement and the significant deleveraging and financial benefits embodied in the Prepackaged Plan.

10. The Prepackaged Plan Is Based Upon Assumptions the Debtors Developed Which May Prove Incorrect and Could Render the Prepackaged Plan Unsuccessful. The Restructuring affects both the Debtors’ capital structure and the ownership structure and operation of their businesses and reflects assumptions and analyses based on the Debtors’ experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Debtors consider appropriate under the circumstances.

Whether actual future results and developments will be consistent with the Debtors’ expectations and assumptions depends on a number of factors, including but not limited to (a) the ability to implement the changes to the Debtors’ capital structure; (b) the ability to obtain adequate liquidity and financing sources; (c) the ability to maintain customers’ confidence in the Debtor’s viability as a continuing entity and to attract and retain sufficient business from them; (d) the ability to retain key employees and (e) the overall strength and stability of general economic conditions of the oil and gas industries, in the United States and global markets generally. The failure of any of these factors could materially adversely affect the successful reorganization of the Debtors’ businesses.

 

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In addition, the feasibility of the Prepackaged Plan for confirmation purposes under the Bankruptcy Code relies on financial projections, including with respect to revenues, EBITDA, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate.

The Debtors expect that its actual financial condition and results of operations may differ, perhaps materially, from what was anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization the Debtors may implement will occur or, even if they do occur, that they will have the anticipated effects on the Debtors and their respective subsidiaries or their businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of the Prepackaged Plan.

11. Projections and Other Forward-Looking Statements Are Not Assured, and Actual Results May Vary. Certain of the information contained in this Disclosure Statement is, by nature, forward-looking, and contains estimates and assumptions which might ultimately prove to be incorrect, and contains projections which may be materially different from actual future experiences. There are uncertainties associated with any projections and estimates, and they should not be considered assurances or guarantees of the amount of funds or the amount of Claims in the various Classes that might be allowed.

12. Claims Could Be More than Projected. There can be no assurance that the estimated Allowed amount of Claims in certain Classes will not be significantly more than projected, which in turn, could cause the value of distributions to be reduced substantially. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results. Therefore, the actual amount of Allowed Claims may vary from estimates included in the Financial Projections set forth in Exhibit F and the Liquidation Analysis attached hereto at Exhibit E, and the variation may be material.

13. Impact of Interest Rates. Changes in interest rates may affect the fair market value of the Reorganized Debtors’ assets and/or the distributions to Holders of Claims under the Prepackaged Plan.

14. The Debtors May Fail to Obtain the Proceeds of the DIP Facility, the Exit Facilities, or the Rights Offering Amount, and the Backstop Commitment Agreement May Terminate. The Debtors’ ability to fund administrative and operating expenses during the Chapter 11 Cases is predicated upon, among other things, obtaining the proceeds of the DIP Facility. Because final documentation relating to the DIP Facility and Exit Facilities has not yet been executed, there can be no assurance that the Debtors will be able to obtain the proceeds of the DIP Facility and Exit Facilities. In addition, under the DIP Facility and Exit Facilities, the DIP Credit Agreement and Exit Credit Agreements, respectively, are expected to establish various conditions precedent to the closing of the DIP Facility and Exit Facilities. If the Company does not receive the proceeds of the DIP Facility and Exit Facilities, the Debtors will not be able to consummate the Prepackaged Plan in its current form.

 

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Moreover, notwithstanding the Backstop Commitment Agreement applicable to the Rights Offering, because the Rights Offering has not yet been completed, there can be no assurance that the Debtors will receive any or all of the proceeds of the Rights Offering Amount. If the Company does not receive the proceeds of the Rights Offering Amount, the Debtors would not be able to consummate the Prepackaged Plan in its current form.

15. Contingencies May Affect Distributions to Holders of Allowed Claims and Interests. The distributions available to Holders of Allowed Claims under the Prepackaged Plan can be affected by a variety of contingencies, including whether the Court orders certain Allowed Claims to be subordinated and turned over to other Allowed Claims. The occurrence of any and all such contingences could affect distributions under the Prepackaged Plan.

16. The Court May Find the Solicitation of Acceptances Inadequate. Usually, votes to accept or reject a plan of reorganization are solicited after the filing of a petition commencing a chapter 11 case. Nevertheless, a debtor may solicit votes prior to the commencement of a chapter 11 case in accordance with sections 1125(g) and 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b). Sections 1125(g) and 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b) require that:

 

(A)

solicitation comply with applicable nonbankruptcy law;

 

(B)

the plan of reorganization be transmitted to substantially all creditors and other interest Holders entitled to vote; and

 

(C)

the time prescribed for voting is not unreasonably short.

In addition, Bankruptcy Rule 3018(b) provides that a Holder of a claim or interest who has accepted or rejected a plan before the commencement of the case under the Bankruptcy Code will not be deemed to have accepted or rejected the plan if the court finds after notice and a hearing that the plan was not transmitted in accordance with reasonable solicitation procedures. Section 1126(b) of the Bankruptcy Code provides that a Holder of a claim or interest that has accepted or rejected a plan before the commencement of a case under the Bankruptcy Code is deemed to have accepted or rejected the plan if (i) the solicitation of such acceptance or rejection was in compliance with applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation; or (ii) there is no such law, rule, or regulation, and such acceptance or rejection was solicited after disclosure to such Holder of adequate information (as defined by section 1125(a) of the Bankruptcy Code). Although the Debtors believe that the requirements of sections 1125(g) and 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b) will be met, there can be no assurance that the Bankruptcy Court will reach the same conclusion.

17. The Debtors May Seek to Amend, Waive or Modify the Prepackaged Plan at Any Time Prior to Confirmation. Subject to and in accordance with the terms of the Restructuring Support Agreement: the Debtors reserve the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to amend or modify the Prepackaged Plan before the entry of the Confirmation Order or waive any conditions thereto if and to the extent such amendments or waivers are necessary or desirable to consummate the Prepackaged Plan. The

 

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potential impact of any such amendment or waiver on the Holders of Claims and Interests cannot presently be foreseen but may include a change in the economic impact of the Prepackaged Plan on some or all of the proposed Classes or a change in the relative rights of such Classes. All Holders of Claims and Interests will receive notice of such amendments or waivers required by applicable law and the Bankruptcy Court. If, after receiving sufficient acceptances, but prior to Confirmation of the Prepackaged Plan, the Debtors seek to modify the Prepackaged Plan, the previously solicited acceptances will be valid only if (1) all classes of adversely affected creditors and interest Holders accept the modification in writing, or (2) the Bankruptcy Court determines, after notice to designated parties, that such modification was de minimis or purely technical or otherwise did not adversely change the treatment of Holders of accepting Claims and Interests, or is otherwise permitted by the Bankruptcy Code.

18. The Debtors May Be Unsuccessful in Obtaining First Day Orders To Permit Them To Pay Their Vendors, Employees, or To Continue To Operate Their Businesses, in the Ordinary Course of Business. The Debtors have tried to address potential concerns of their users, vendors, employees, and other key parties in interest that might arise from the filing of the Prepackaged Plan through a variety of provisions incorporated into or contemplated by the Prepackaged Plan, including the Debtors’ intention to seek appropriate Bankruptcy Court orders to permit the Debtors to pay their prepetition and postpetition accounts payable to parties in interest in the ordinary course. However, there can be no guarantee that the Debtors will be successful in obtaining the necessary approvals of the Bankruptcy Court for such arrangements or for every party in interest the Debtors may seek to treat in this manner, and, as a result, the Debtors’ businesses might suffer.

19. Other Parties in Interest Might Be Permitted to Propose Alternative Plans of Reorganization That May Be Less Favorable to Certain of the Debtors’ Constituencies Than the Prepackaged Plan. Other parties in interest could seek authority from the Bankruptcy Court to propose an alternative plan of reorganization to the Prepackaged Plan. Under the Bankruptcy Code, a debtor in possession initially has the exclusive right to propose and solicit acceptances of a plan of reorganization for a period of 120 days from the Petition Date. However, such exclusivity period can be reduced or terminated upon order of the Bankruptcy Court. If such an order were to be entered, other parties in interest would then have the opportunity to propose alternative plans of reorganization.

If another party in interest were to propose an alternative plan of reorganization following expiration or termination of the Debtors’ exclusivity period, such a plan may be less favorable to existing Holders of Interests and may seek to exclude such Holders from retaining any equity under their proposed plan. An alternative plan of reorganization also may treat less favorably the Claims of a number of other constituencies. The Debtors consider maintaining relationships with their secured creditors, common shareholders, employees, and users as critical to maintaining the value of Pioneer following the Effective Date and have sought to treat those constituencies accordingly. However, proponents of alternative plans of reorganization may not share the Debtors’ assessments and may seek to impair the Claims or Interests of such constituencies to a greater degree. If there were competing plans of reorganization, the Chapter 11 Cases likely would become longer, more complicated, and much more expensive. If this were to occur, or if the Debtors’ employees or other constituencies important to the Debtors’ business were to react adversely to an alternative plan of reorganization, the adverse consequences discussed in the below Article IX.A.20 also could occur.

 

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20. The Debtors Cannot Predict the Amount of Time Spent in Bankruptcy for the Purpose of Implementing the Prepackaged Plan, and a Lengthy Bankruptcy Proceeding Could Disrupt the Debtors’ Businesses, as Well as Impair the Prospect for Reorganization on the Terms Contained in the Prepackaged Plan. The Debtors estimate that the process of obtaining Confirmation of the Prepackaged Plan by the Bankruptcy Court will last approximately thirty-six (36) days from the Petition Date, but it could last considerably longer if, for example, Confirmation is contested or the conditions to Confirmation or Consummation are not satisfied or waived. Although the Prepackaged Plan is designed to minimize the length of the bankruptcy proceedings, it is impossible to predict with certainty the amount of time that the Debtors may spend in bankruptcy, and the Debtors cannot be certain that the Prepackaged Plan will be confirmed. Even if confirmed on a timely basis, a bankruptcy proceeding to confirm the Prepackaged Plan could itself have an adverse effect on the Debtors’ businesses. There is a risk, due to uncertainty about the Debtors’ futures that, among other things:

 

(1)

customers could move to the Debtors’ competitors;

 

(2)

employees could be distracted from performance of their duties or more easily attracted to other career opportunities; and

 

(3)

business partners could terminate their relationship with the Debtors or demand financial assurances or enhanced performance, any of which could impair the Debtors’ prospects.

A lengthy bankruptcy proceeding also would involve additional expenses and divert the attention of management from the operation of the Debtors’ businesses, as well as create concerns for employees, suppliers, and other parties with whom the Debtors interact.

The disruption that the bankruptcy process would have on the Debtors’ businesses could increase with the length of time it takes to complete the Chapter 11 Cases. If the Debtors are unable to obtain Confirmation of the Prepackaged Plan on a timely basis, because of a challenge to the Prepackaged Plan or otherwise, the Debtors may be forced to operate in bankruptcy for an extended period of time while they try to develop a different plan of reorganization that can be confirmed. A protracted bankruptcy case could increase both the probability and the magnitude of the adverse effects described above.

The Debtors will also be required to seek approvals of the Bankruptcy Court and certain federal and state regulators in connection with certain actions in the Chapter 11 Cases, including with respect to the Prepackaged Plan, and certain parties may intervene and protest approval, absent the imposition of conditions to resolve their concerns. The approvals by governmental entities may be denied, conditioned or delayed.

21. Foreign Proceedings. Neither the Debtors nor the non-Debtor affiliates are subject to bankruptcy, insolvency or other creditor protection proceedings in other foreign jurisdictions. Accordingly, there can be no assurance that the Chapter 11 Cases will be recognized in other foreign jurisdictions. There can also be no assurance that the confirmation and consummation of

 

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the Prepackaged Plan will be fully recognized in other foreign jurisdictions, or that creditors in such jurisdictions will not seek to enforce any of their rights and remedies in such jurisdictions. In the event such a creditor seeks to enforce rights and remedies in another foreign jurisdiction, there can be no assurance that the courts and other authorities in such foreign jurisdictions will make factual findings or legal determinations or otherwise take positions that are consistent with the Prepackaged Plan or that do not have a material adverse effect on the Debtors or the Prepackaged Plan.

B. Risks Relating to the Company’s Business

3. Post-Effective Date Indebtedness. Following the Effective Date, the Reorganized Debtors will seek to enter into the Exit Facilities, resulting in outstanding indebtedness of approximately $78.125 million of New Secured Bonds and $75 million under the Exit ABL Facility. The Reorganized Debtors’ ability to service their debt obligations will depend on, among other things, their future operating performance, which depends partly on economic, financial, competitive, and other factors beyond the Reorganized Debtors’ control. The Reorganized Debtors may not be able to generate sufficient cash from operations to meet their debt service obligations as well as fund necessary capital expenditures and investments in sales and marketing. In addition, if the Reorganized Debtors need to refinance their debt, obtain additional financing, or sell assets or equity, they may not be able to do so on commercially reasonable terms, if at all.

4. The Company Derives Its Revenues From Companies in the Oil and Gas Exploration and Production Industry, a Historically Cyclical Industry With Levels Of Activity That are Significantly Affected By The Levels and Volatility of Oil and Gas Prices. As a provider of contract land drilling services and oil and gas production services, the Company’s business depends on the level of exploration and production activity in the geographic markets where it operates. The oil and gas exploration and production industry is a historically cyclical industry characterized by significant changes in the levels of exploration and development activities.

Oil and gas prices, and market expectations of potential changes in those prices, significantly affect the levels of those activities. Oil and gas prices have been volatile historically and the Debtors believe such volatility will likely continue in the future. Worldwide political, economic, and military events, as well as natural disasters, have contributed to oil and gas price volatility historically, and are likely to continue to do so in the future. Many factors beyond the Company’s control affect oil and gas prices, including:

 

•

the worldwide supply and demand for oil and gas;

 

•

the cost of exploring for, producing and delivering oil and gas;

 

•

the discovery rate of new oil and gas reserves;

 

•

the rate of decline of existing and new oil and gas reserves;

 

•

available pipeline and other oil and gas transportation capacity;

 

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•

the levels of oil and gas storage;

 

•

the ability of oil and gas exploration and production companies to raise capital;

 

•

economic conditions in the United States and elsewhere;

 

•

actions by the Organization of Petroleum Exporting Countries;

 

•

political instability in oil and gas producing regions;

 

•

governmental regulations, both domestic and foreign;

 

•

domestic and foreign tax policy;

 

•

weather conditions in the United States and elsewhere;

 

•

the pace adopted by foreign governments for the exploration, development and production of their national reserves, or their investments in oil and gas reserves located in other countries; and

 

•

the price of foreign imports of oil and gas.

Additionally, the above factors can also be affected by technological advances affecting energy consumption and the supply and demand within the market for renewable energy resources.

5. Oil and Natural Gas Prices, and Market Expectations of Potential Changes in These Prices, Significantly Impact the Level of Worldwide Drilling and Production Services Activities. Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas generally results in lower prices for these commodities and often impacts the economics of planned drilling projects and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending declines, both dayrates and utilization historically decline as well.

If the reduction in the overall level of exploration and development activities, whether resulting from changes in oil and gas prices or otherwise, continues or worsens, it could materially and adversely affect us further by negatively impacting:

 

•

the Company’s revenues, cash flows and profitability;

 

•

the fair market value of the Company’s drilling and production services fleets;

 

•

the Company’s ability to maintain or increase its borrowing capacity;

 

•

the Company’s ability to obtain additional capital to finance its business or make acquisitions, and the cost of that capital;

 

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•

the collectability of the Company’s receivables; and

 

•

the Company’s ability to retain skilled operations personnel.

6. Reduced Demand For or Excess Capacity of Drilling Services or Production Services Could Adversely Affect the Company’s Profitability. The Company’s profitability in the future will depend on many factors, but largely on pricing and utilization rates for its drilling services and production services. A reduction in the demand for drilling rigs or an increase in the supply of drilling rigs, whether through new construction or refurbishment, could decrease the dayrates and utilization rates for drilling services, which would adversely affect the Company’s revenues and profitability. Likewise, an increase or oversupply of well servicing rigs, wireline units and coiled tubing units, without increased demand, could further decrease the pricing and utilization rates of the Company’s production services and adversely affect its revenues and profitability.

7. The Company Operates in a Highly Competitive, Fragmented Industry in Which Price Competition Could Reduce Its Profitability. The Company encounters substantial competition from other drilling contractors and other oilfield service companies. Its primary market areas are highly fragmented and competitive. The fact that drilling and production services equipment are mobile and can be moved from one market to another in response to market conditions heightens the competition in the industry and may result in an oversupply of equipment in an area. Contract drilling companies and other oilfield service companies compete primarily on a regional basis, and the intensity of competition may vary significantly from region to region at any particular time. If demand for drilling or production services improves in a region where the Company operates, the Company’s competitors might respond by moving in suitable rigs and production services equipment from other regions. An influx of equipment from other regions could rapidly intensify competition, reduce profitability and make any improvement in demand for the Company’s services short-lived.

Most drilling services contracts and production services contracts are awarded on the basis of competitive bids, which also results in price competition. In addition to pricing and equipment availability, the following factors are also important to the Company’s clients in determining which drilling services or production services provider to select:

 

•

the type, capability and condition of each of the competing drilling rigs, well servicing rigs, wireline units and coiled tubing units;

 

•

the mobility and efficiency of the equipment;

 

•

the quality of service and experience of the crews;

 

•

the reputation and safety record of the company providing the services;

 

•

the offering of integrated and/or ancillary services; and

 

•

the ability to provide drilling and production services equipment adaptable to, and personnel familiar with, new technologies and drilling and production techniques.

 

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While the Company is competitive in its pricing, its competitive strategy generally emphasizes the quality of the Company’s equipment, its safety record, its ability to offer ancillary services, the experience of the Company’s crews and the quality of service it provides to differentiate the Company from its competitors. This strategy is less effective when lower demand for drilling and production services intensifies price competition and makes it more difficult for the Company to compete on the basis of factors other than price. In all of the markets in which the Company competes, an oversupply of drilling rigs or production services equipment generally causes greater price competition and reduced profitability.

8. The Company Faces Competition From Many Competitors With Greater Resources. Some of the Company’s competitors have greater financial, technical and other resources than it does. Their greater capabilities in these areas may enable them to better withstand industry downturns, compete more effectively on the basis of price and technology, retain skilled personnel, and build new rigs or acquire and refurbish existing rigs and place them into service more quickly that the Company in periods of high drilling demand.

9. Technological Advancements and Trends in the Company’s Industry Affect the Demand For Certain Types of Equipment and Can Affect the Overall Demand For the Services That Drilling and Production Services Companies Provide. Technological advancements and trends in the Company’s industry also affect the demand for certain types of equipment, and can affect the overall demand for the services that the industry provides. Enhanced directional and horizontal drilling techniques have allowed exploration and production operators to drill increasingly longer lateral wellbores which enable higher hydrocarbon production per well, and reduce the overall number of wells needed to achieve the desired production. This trend toward longer lateral wellbores also increases demand for the more specialized equipment, such as high-spec drilling rigs, higher horsepower well servicing rigs equipped with taller masts, larger diameter coiled tubing units, and other higher power ancillary equipment, which is needed in order to drill, complete and provide services to the full length of the wellbore.

The Company’s domestic drilling and production services fleets are highly capable and designed for operation in today’s long lateral, pad-oriented environment. Although the Company takes measures to ensure that it uses advanced technologies for drilling and production services equipment, changes in technology or improvements in its competitors’ equipment could make the Company’s equipment less competitive or require significant capital investments to keep its equipment competitive, which could have an adverse effect on the Company’s financial condition and operating results.

10. The Company Derives a Significant Portion of Its Revenue From a Limited Number of Major Clients, and Its Business, Financial Condition and Results of Operations Could Be Materially Adversely Affected If It is Unable to Maintain Relationships With These Clients, or If Their Demand For the Company’s Services Decreases. In the past, the Company has derived a significant portion of its revenue from a limited number of major clients. For the years ended December 31, 2018, 2017 and 2016, the Company’s drilling and production services to its top three clients accounted for approximately 20%, 20%, and 26%, respectively, of its revenue. The loss of one or more of the Company’s major clients, or their decrease in demand for its services, could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

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11. The Company’s Operations Involve Operating Hazards, Which, If Not Insured or Indemnified Against, Could Adversely Affect the Company’s Results of Operations and Financial Condition. Many of the Company’s services are carried out in potentially hazardous environments inherent in exploration and production activity, including blowouts, cratering, fires and explosions, loss of well control, collapse of the borehole, damage or lost drilling equipment, and damage or loss from natural disasters. Any of these hazards could result in substantial liabilities or losses to the Company, from, among other things:

 

•

suspension of operations;

 

•

damage to, or destruction of, the Company’s property and equipment and that of others;

 

•

personal injury and loss of life;

 

•

damage to producing or potentially productive oil and gas formations through which the Company drills; and

 

•

environmental damage.

The Company seeks to protect itself from some but not all operating hazards through insurance coverage. However, some risks are either not insurable or insurance is available only at rates that the Company considers uneconomical. Those risks include, among other things, pollution liability in excess of relatively low limits. Depending on competitive conditions and other factors, the Company may attempt to obtain contractual protection against uninsured operating risks from its clients. However, the Company’s clients that provide contractual indemnification protection may not in all cases maintain adequate insurance or otherwise have the financial resources necessary to support their indemnification obligations.

The Company’s insurance or indemnification arrangements may not adequately protect it against liability or loss from all the hazards of its operations. The occurrence of a significant event that the Company has not fully insured or indemnified against or the failure of a client to meet its indemnification obligations to the Company could materially and adversely affect the Company’s results of operations and financial condition. Furthermore, the Company may be unable to maintain adequate insurance in the future at rates it considers reasonable.

12. The Company Could Be Adversely Affected If Shortages of Equipment, Supplies or Personnel Occur. From time to time, there have been shortages of drilling and production services equipment and supplies during periods of high demand, which could recur. Additionally, trade and economic sanctions or other restrictions imposed by the United States or other countries could also affect the supply of equipment and supplies which are needed in the Company’s operations. Shortages could result in increased prices for equipment or supplies that the Company may be unable to pass on to clients and could substantially lengthen the delivery times for equipment and supplies. Any significant delays in the Company’s obtaining equipment or supplies could limit its operations and jeopardize its relations with clients and could delay and adversely affect its ability to obtain new contracts for its rigs. Any of the above could have a material adverse effect on the Company’s financial condition and results of operations.

 

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The Company’s strategy of constructing drilling rigs during periods of peak demand requires that it maintains an adequate supply of drilling rig components to complete its rig building program. The Company’s suppliers may be unable to provide it the needed drilling rig components if their manufacturing sources are unable to fulfill their commitments.

The Company’s operations require the services of employees having the technical training and experience necessary to achieve proper operational results. As a result, its operations depend, to a considerable extent, on the continuing availability of such personnel. Shortages of qualified personnel have occurred in the Company’s industry. If the Company should suffer any material loss of personnel to competitors or be unable to employ additional or replacement personnel with the requisite level of training and experience to adequately operate its equipment, its operations could be materially and adversely affected. A significant increase in the wages paid by other employers could result in a reduction in its workforce, increases in wage rates, or both. The occurrence of either of these events for a significant period of time could have a material adverse effect on the Company’s financial condition and results of operations. 

13. The Company is Dependent on Its Senior Personnel. The Company depends on the continued services of its senior personnel, including its directors and senior management. The Company’s existing directors and senior managers possess marketing, engineering, project management, financial, compliance and administrative skills that are important to the operation of the Company’s business.

The loss or an extended interruption in the services of a substantial number of the Company’s directors or senior managers, or the inability to attract or develop a new generation of senior management, could have a material adverse effect on its business, financial condition or results of operations.

14. The Company’s Long-Term Strategy For Growth Through Acquisitions Could Expose It to Various Risks, Including Those Relating to Difficulties in Identifying Suitable Acquisition Opportunities and Integrating Businesses, Assets and Personnel, as well as Difficulties In Obtaining Financing For Targeted Acquisitions and the Potential For Increased Leverage or Debt Service Requirements. A component of the Company’s long-term business strategy is a pursuit of acquisitions of complementary assets and businesses, subject to the limitations imposed by its Exit Facilities. This acquisition strategy in general involves numerous inherent risks, including:

 

•

unanticipated costs and assumption of liabilities and exposure to unforeseen liabilities of acquired businesses, including environmental liabilities;

 

•

difficulties in integrating the operations and assets of the acquired business and the acquired personnel;

 

•

limitations on the Company’s ability to properly assess and maintain an effective internal control environment over an acquired business in order to comply with applicable periodic reporting requirements;

 

•

potential losses of key employees and clients of the acquired businesses;

 

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•

risks of entering markets in which the Company has limited prior experience; and

 

•

increases in the Company’s expenses and working capital requirements.

The process of integrating an acquired business may involve unforeseen costs and delays or other operational, technical and financial difficulties that may require a disproportionate amount of management attention and financial and other resources. The Company’s failure to achieve consolidation savings, to incorporate the acquired businesses and assets into its existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on the Company’s financial condition and results of operations.

In addition, the Company may not have sufficient capital resources to complete additional acquisitions. Historically, the Company has funded business acquisitions and the growth of its fleets through a combination of debt and equity financing. The Company may incur substantial additional indebtedness to finance future acquisitions and also may issue equity securities or convertible securities in connection with such acquisitions. Debt service requirements could represent a significant burden on the Company’s results of operations and financial condition and the issuance of additional equity or convertible securities could be dilutive to Holders of New Equity. Furthermore, the Company may not be able to obtain additional financing on satisfactory terms or at all.

Even if the Company has access to the necessary capital, it may be unable to continue to identify additional suitable acquisition opportunities, negotiate acceptable terms or successfully acquire identified targets.

15. The Company’s Cash and Cash Equivalents Could Be Adversely Affected If the Financial Institutions in Which It Holds Its Cash and Cash Equivalents Fail. The Company maintains cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit. While the Company monitors the cash balances in the operating accounts and adjust the balances as appropriate, it may incur a loss to the extent such loss exceeds the insurance limitation, and there could be a material impact on the Company’s business, if one or more of the financial institutions with which it deposits fails or is subject to other adverse conditions in the financial or credit markets and bank regulators elect to impose losses on uninsured depositors. To date, the Company has experienced no loss or lack of access to its invested cash or cash equivalents. However, in the future, the Company’s invested cash and cash equivalents could be adversely affected by adverse conditions in the financial and credit markets.

16. The Company’s International Operations are Subject to Foreign Governmental Regulations and Political, Economic And Other Uncertainties Not Generally Encountered In Its Domestic Operations. The Company is subject to local rules and regulations in the countries in which it conducts business. Such rules and regulations may require the Company to obtain consent from local government or regulators to enter into contracts or may include rules and regulations that promote or incentivize, among other things, the awarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Such regulations could adversely affect the Company’s ability to compete.

 

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Changes to existing laws and regulations may be difficult to predict and may result in more restrictive requirements or additional costs of compliance. Any one or more of these factors could materially adversely affect the Company’s business, financial condition or results of operations.

In addition, the Company’s international drilling operations have been and may in the future be susceptible to political, social and economic instability, civil disturbances or similar events, which may lead to:

 

•

risks of war, terrorism, civil unrest and kidnapping of employees;

 

•

employee strikes, work stoppages, labor disputes and other slowdowns;

 

•

expropriation, confiscation or nationalization of the Company’s assets;

 

•

renegotiation or nullification of contracts;

 

•

foreign taxation, such as the tax for equality and the net-worth tax in Colombia;

 

•

the inability to repatriate earnings or capital due to laws limiting the right and ability of foreign subsidiaries to pay dividends and remit earnings to affiliated companies;

 

•

changing political conditions and changing laws and policies affecting trade and investment;

 

•

trade and economic sanctions or other restrictions imposed by the United States or other countries;

 

•

concentration of clients;

 

•

regional economic downturns;

 

•

the overlap of different tax structures;

 

•

the burden of complying with multiple and potentially conflicting laws;

 

•

the risks associated with the assertion of foreign sovereignty over areas in which the Company’s operations are conducted;

 

•

the risks associated with any actual or alleged lack of compliance with the Foreign Corrupt Practices Act of 1977 or other anticorruption laws, including substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, reputational damage, and the costs and time of detecting, investigating and resolving such actual or alleged violations;

 

•

the risks associated with fluctuating currency values, hard currency shortages and controls of foreign currency exchange, and higher rates of inflation as compared to the Company’s domestic operations;

 

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•

difficulty in collecting international accounts receivable; and

 

•

potentially longer payment cycles.

17. The Company’s Operations are Subject to Various Laws and Governmental Regulations That Could Restrict Its Future Operations and Increase Its Operating Costs. Many aspects of the Company’s operations are subject to various federal, state and local laws and governmental regulations, including, for example, laws and regulations governing:

 

•

environmental quality;

 

•

pollution control;

 

•

remediation of contamination;

 

•

preservation of natural resources;

 

•

transportation; and

 

•

worker safety.

Government regulations control and often limit access to potential markets and impose extensive requirements concerning employee safety, environmental protection, pollution control and remediation of environmental contamination. The Company may be liable for damages resulting from violations of these requirements.

Although the Company seeks to have sufficient safety measures in place for its operations and maintain a system for identifying causes of accidents, the nature of its business is such that accidents may occur. Moreover, while the Company strives to reduce its fatality and injury rates by implementing high safety standards at the locations where it conducts its operations, there can be no assurance that accidents will not occur in the future.

The Company has invested financial and managerial resources to maintain compliance with all applicable laws and regulations and expect to continue to make appropriate similar investments in the future. However, it is possible that changes in these laws and regulations, or interpretations thereof, may have a material adverse impact on the Company’s business, financial condition or results of operations.

A discussion of the environmental protection and transportation laws and regulations that affect the Company’s operations is set forth in the Annual Report for the fiscal year ended December 31, 2018, and in other reports, which are available at the Company’s website at https://www.pioneeres.com.

18. Federal and State Legislative and Regulatory Initiatives Related To Hydraulic Fracturing Could Result In Operating Restrictions or Delays In The Completion of Oil And Natural Gas Wells That May Reduce Demand For the Company’s Drilling and Well Servicing Activities and Could Adversely Affect the Company’s Financial Position, Results Of Operations and Cash Flows. Hydraulic fracturing is a commonly used process that involves

 

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injection of water, sand and a minor amount of certain chemicals to fracture the hydrocarbon-bearing rock formation to allow flow of hydrocarbons into the wellbore. Federal and state agencies have adopted new rules that impose additional requirements on the practice of hydraulic fracturing. Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition, including litigation, to oil and gas production activities using hydraulic fracturing techniques.

Additional legislation or regulation could also lead to operational delays or increased operating costs in the production of oil and natural gas, including from the developing shale plays, incurred by the Company’s clients. The adoption of any federal, state or local laws or the implementation of regulations or ordinances restricting or increasing the costs of hydraulic fracturing could cause a decrease in the completion of new oil and natural gas wells and an associated decrease in demand for the Company’s drilling and well servicing activities, any or all of which could adversely affect the Company’s financial position, results of operations and cash flows.

A discussion of rules, laws, regulations and ordinances that federal and state agencies have adopted, or are considering adopting, is set forth in the Annual Report for the fiscal year ended December 31, 2018, and in other reports, which are available at the Company’s website at https://www.pioneeres.com.

19. The Company’s Operations are Subject to Cybersecurity Risks. The Company’s operations are increasingly dependent on information technologies and services. Threats to information technology systems associated with cybersecurity risks and cyber incidents or attacks continue to grow, and include, among other things, storms and natural disasters, terrorist attacks, utility outages, theft, viruses, malware, design defects, human error or complications encountered as existing systems are maintained, repaired, replaced or upgraded. Risks associated with these threats include, among other things:

 

•

loss, corruption, or misappropriation of intellectual property, or other proprietary or confidential information (including client, supplier, or employee data);

 

•

disruption or impairment of the Company’s and its customers’ business operations and safety procedures;

 

•

loss or damage to the Company’s worksite data delivery systems; and

 

•

increased costs to prevent, respond to or mitigate cybersecurity events.

Although the Company utilizes various procedures and controls to mitigate its exposure to such risk, cybersecurity attacks and other cyber events are evolving and unpredictable. Moreover, the Company does not have control over the information technology systems of its clients, suppliers, and others with which its systems may connect and communicate. As a result, the occurrence of a cyber incident could go unnoticed for a period time. Any such incident could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

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20. If The Company Implements an Enterprise Resource Planning System, Such Implementation Could Expose It to Certain Risks Commonly Associated with the Conversion Of Existing Data and Processes to a New System. The Company is currently in the selection and evaluation phase of implementing a company-wide enterprise resource planning (“ERP”) system to upgrade, replace and integrate certain existing business, operational and financial processes and systems, upon which the Company relies. ERP implementations are complex and time-consuming projects that require transformations of business and finance processes in order to reap the benefits of an integrated ERP system. Any such project involves certain risks inherent in the conversion, including loss of information and potential disruption to normal operations and finance functions. Additionally, if the ERP system is not effectively implemented as planned, or the system does not operate as intended, the effectiveness of the Company’s internal control over financial reporting could be adversely affected or the Company’s ability to assess those controls adequately could be delayed. In addition, if the Company experiences interruptions in service or operational difficulties and is unable to effectively manage its business during or following the implementation of the ERP system, its business and results of operations could be adversely impacted.

21. Complaints or Litigation From Customers and Other Third Parties Could Adversely Affect the Company. The Company is currently, and may become in the future, involved in legal proceedings initiated by its customers, employees and other third parties. These current or potential future proceedings, whether individually or in the aggregate, could involve substantial claims for damages or other payments, and, even if successfully disposed of without direct adverse financial effect, could have a material adverse effect on its reputation and divert its financial and management resources from more beneficial uses. If the Company were to be found liable under any such claims, the Company’s business, financial condition or results of operations could be materially adversely affected.

22. Additional Risks to Business and Operations. A discussion of additional risks to the Company’s operations, businesses and financial performance is set forth in the Annual Report for the fiscal year ended December 31, 2018, and in other reports, which are available at the Company’s website at https://www.pioneeres.com.

C. Factors Relating to Securities to Be Issued Under the Prepackaged Plan Generally

3. The Reorganized Debtors’ New Equity Will Be Publicly Traded. There can be no assurance that an active market for the New Equity will develop, nor can any assurance be given as to the prices at which such shares might be traded. Under the Registration Rights Agreement and subject to further revision by the Required Consenting Noteholders in consultation with Reorganized Pioneer, a majority of holders of shares of New Equity and Stapled Special Voting Stock can require Reorganized Pioneer to use its reasonable best efforts to list the New Equity for trading on Nasdaq or the New York Stock Exchange acceptable to the Debtors and the Required Consenting Noteholders by notice, with such listing to be effective as soon as practical after delivery of such notice.

 

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4. The Subscription Rights, the Management Commitment Convertible Bonds, the Rights Offering Convertible Bonds, the Management Commitment Stapled Special Voting Stock, the Rights Offering Stapled Special Voting Stock, the Premium Convertible Bonds and the Premium Stapled Special Voting Stock Have Not Been Registered and They and Certain Section 1145 Securities Will Be Subject to Resale Restrictions. The New Convertible Bonds to be issued have not been registered under the Securities Act, any state securities laws or the laws of any other jurisdiction. The Subscription Rights and the New Convertible Bonds are being issued and sold pursuant to an exemption from registration under the applicable securities laws. Accordingly, such securities will be subject to resale restrictions and may be resold, exchanged, assigned or otherwise transferred only pursuant to registration, or an applicable exemption from registration, under the Securities Act and other applicable law. In addition, Holders of New Equity issued pursuant to Section 1145(a) of the Bankruptcy Code who are deemed to be “underwriters” under Section 1145(b) of the Bankruptcy Code will also be subject to resale restrictions. See Article VII of this Disclosure Statement for a further discussion of the transfer restrictions applicable to the Securities.

5. Potential Dilution. The ownership percentage represented by New Equity will be subject to dilution from any other shares that may be issued post-emergence, including by the New Equity issued upon conversion of the New Convertible Bonds and the Employee Incentive Plan, and the conversion or exercise of any other options, warrants, convertible securities, exercisable securities, or other securities that may be issued post-emergence.

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

6. The Estimated Valuation of the Reorganized Debtors and the New Equity and the Estimated Recoveries to Holders of Allowed Claims Are Not Necessarily Representative of the Private or Public Sale Values of the New Equity. The Debtors’ estimated recoveries to Holders of Allowed Claims are not intended to represent the private or public sale values of Reorganized Pioneer’s securities. The estimated recoveries are based on numerous assumptions (the realization of many of which are beyond the control of the Reorganized Debtors), including, without limitation: (a) the successful reorganization of the Debtors; (b) an assumed date for the occurrence of the Effective Date; (c) the Debtors’ ability to achieve the operating and financial results included in the Financial Projections; and (d) the Debtors’ ability to maintain adequate liquidity to fund operations.

7. Small Number of Holders or Voting Blocks May Control the Reorganized Debtors. Consummation of the Prepackaged Plan may result in a small number of Holders owning a significant percentage of the New Equity or the Stapled Special Voting Stock. These Holders may, among other things, exercise a controlling influence over the Reorganized Debtors and have the power to elect directors and approve significant transactions.

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

 

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9. Risk of Recharacterization of New Convertible Bonds. Recharacterization of a debt obligation to a capital contribution is an equitable remedy a bankruptcy court may direct if it determines, upon an objection raised by a party in interest, a purported debt obligation is more properly characterized as a capital contribution. In making such a determination, bankruptcy courts consider, among other things, whether the parties intended to create a debt obligation and the nature of the instrument evidencing the obligation. Although the Debtors believe, and intend, the New Convertible Bonds to be a bona fide debt obligation, there can be no assurance a bankruptcy court would agree with the Debtors’ interpretation.

10. The New Convertible Bonds May Not Be Rated or May Receive a Lower Rating than Anticipated. It is not expected that the Reorganized Debtors will seek a rating on the New Convertible Bonds. If, however, one or more rating agencies rates the New Convertible Bonds and assigns them a rating lower than the rating expected by investors, or reduces its rating in the future, the market price of the New Convertible Bonds, and/or the New Equity could be reduced.

11. Insufficient Cash Flow to Meet Debt Obligations. The Reorganized Debtors’ earnings and cash flow may vary significantly from year to year. Additionally, the Reorganized Debtors’ future cash flow may be insufficient to meet their debt obligations and commitments, including its obligations under the Exit Facilities and the New Convertible Bonds, increasing the risk that they may default on such debt obligations. Any insufficiency could negatively impact the Reorganized Debtors’ business. A range of economic, competitive, business, and industry factors will affect the Reorganized Debtors’ future financial performance and, as a result, their ability to generate cash flow from operations and to pay their debt. Many of these factors are beyond the Reorganized Debtors’ control.

If the Reorganized Debtors do not generate enough cash flow from operations to satisfy their debt obligations, they may have to undertake alternative financing plans, such as:

 

•

refinancing or restructuring debt;

 

•

selling assets;

 

•

reducing or delaying capital investments; or

 

•

seeking to raise additional capital.

It cannot be assured, however, that undertaking alternative financing plans, if necessary, would allow the Reorganized Debtors to meet their debt obligations. An inability to generate sufficient cash flow to satisfy their debt obligations or to obtain alternative financing could materially and adversely affect the Reorganized Debtors’ ability to make payments on the Exit Facilities, as well as the Reorganized Debtors’ business, financial condition, results of operations, and prospects.

12. Defects in Collateral Securing the Exit Facilities. The indebtedness under the Exit Facilities will be secured. Such indebtedness may be subject to certain exceptions and permitted liens, as applicable, by security interests in the principal assets of the Debtors (henceforth, the “Collateral”). The Collateral securing this secured debt may be subject to exceptions, defects, encumbrances, liens and other imperfections. Accordingly, it cannot be

 

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assured that the remaining proceeds from a sale of the Collateral would be sufficient to repay Holders of the secured funded debt securities all amounts owed under them. The fair market value of the Collateral is subject to fluctuations based on factors that include, among others, the ability to sell Collateral in an orderly manner, general economic conditions, the availability of buyers, the Reorganized Debtors’ failure to implement their business strategy, and similar factors. The amount received upon a sale of Collateral would be dependent on numerous factors, including, but not limited to, the actual fair market value of the Collateral at such time, and the timing and manner of the sale. By its nature, portions of the Collateral may be illiquid and may have no readily ascertainable market value. In the event of a subsequent foreclosure, liquidation, bankruptcy, or similar proceeding, it cannot be assured that the proceeds from any sale or liquidation of the Collateral will be sufficient to pay the Reorganized Debtors’ obligations under the new secured funded debt, in full or at all. There can also be no assurance that the Collateral will be saleable, and, even if saleable, the timing of its liquidation would be uncertain. Accordingly, there may not be sufficient Collateral to pay all or any of the amounts due on the Reorganized Debtors’ new secured funded debt.

13. Failure to Perfect Security Interests in Collateral. The failure to properly perfect liens on the Collateral could adversely affect the collateral agent’s ability to enforce its rights with respect to the Collateral for the benefit of the Holders of the Reorganized Debtors’ secured funded debt. In addition, applicable law requires that certain property and rights acquired after the grant of a general security interest or lien can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the collateral agent will monitor, or that the Reorganized Debtors will inform the trustee or the collateral agent of, the future acquisition of property and rights that constitute Collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired Collateral. The collateral agent has no obligation to monitor the acquisition of additional property or rights that constitute Collateral or the perfection of any security interests therein. Such failure may result in the loss of the practical benefits of the liens thereon or of the priority of the liens securing the notes against third parties.

14. Casualty Risk of Collateral. The Reorganized Debtors will be obligated under the various secured funded debt documents and instruments to maintain adequate insurance or otherwise insure against hazards as is customarily done by companies having assets of a similar nature in the same or similar localities. There are, however, certain losses that may either be uninsurable or not economically insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate the Reorganized Debtors fully for losses. If there is a total or partial loss of any of the pledged Collateral, the insurance proceeds received may be insufficient to satisfy the secured obligations of the Reorganized Debtors.

15. Any Future Pledge of Collateral Might Be Avoidable in a Subsequent Bankruptcy by the Reorganized Debtors. Any future pledge of Collateral in favor of the collateral agent, including pursuant to security documents delivered after the date of the Exit Facilities, might be avoidable by the pledgor (as a subsequent debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the securities under the secured funded debt to receive a greater recovery than if the pledge had not been given, and a U.S. bankruptcy case in respect of the pledgor is commenced within ninety (90) days following the pledge, or, in certain circumstances, a longer period. Similar or longer reachback periods may exist if a case or proceeding is commenced under the insolvency laws of a non-U.S. jurisdiction with similar legal principles.

 

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D. Additional Factors

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

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

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

6. No Legal or Tax Advice Is Provided by this Disclosure Statement. The contents of this Disclosure Statement should not be construed as legal, business or tax advice. Each Creditor should consult its own legal counsel and accountant as to legal, tax, and other matters concerning its Claim. This Disclosure Statement may not be relied upon for any purpose other than to determine how to vote on the Prepackaged Plan or object to confirmation of the Prepackaged Plan.

7. No Representation Made. Nothing contained herein or in the Prepackaged Plan shall constitute a representation of the tax or other legal effects of the Prepackaged Plan on the Debtors or Holders of Claims.

8. Certain Tax Consequences. For a discussion of certain tax considerations to the Debtors and certain Holders of Claims in connection with the implementation of the Prepackaged Plan, see Article VII.A hereof.

ARTICLE X.

VOTING PROCEDURES AND REQUIREMENTS

Before voting to accept or reject the Prepackaged Plan, each Holder of a Notes Claim and/or Pioneer Interest as of the Record Date (an “Eligible Holder”) should carefully review the Prepackaged Plan attached hereto as Exhibit A. All descriptions of the Prepackaged Plan set forth in this Disclosure Statement are subject to the terms and conditions of the Prepackaged Plan.

 

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A. Voting Instructions and Voting Deadline

All Eligible Holders have been sent a Ballot together with this Disclosure Statement. Such Holders should read the Ballot carefully and follow the instructions contained therein. Please use only the Ballot that accompanies this Disclosure Statement to cast your vote.

The Debtors have engaged Epiq Corporate Restructuring, LLC as their voting agent (the “Voting Agent”) to assist in the transmission of voting materials and in the tabulation of votes with respect to the Prepackaged Plan. IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT ON OR BEFORE THE VOTING DEADLINE OF 5:00 P.M., CENTRAL TIME, ON APRIL 3, 2020, IF YOU ARE A HOLDER OF CLASS 5 NOTES CLAIMS AND/OR A HOLDER OF CLASS 10 PIONEER INTERESTS, UNLESS EXTENDED BY THE DEBTORS. PLEASE RETURN YOUR VOTE IN ACCORDANCE WITH THE INSTRUCTIONS RECEIVED WITH YOUR BALLOT

IF A BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT THE VOTING AGENT AT THE NUMBER SET FORTH BELOW TO RECEIVE A REPLACEMENT BALLOT. ANY BALLOT THAT IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE A VOTE FOR ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN WILL NOT BE COUNTED.

IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING AGENT, AT THE TELEPHONE NUMBER INDICATED ON YOUR BALLOT, OR AT ONE OF THE BELOW NUMBERS:

Epiq Corporate Restructuring, LLC

Telephone: 1-833-991-0977 (Domestic, Toll Free) or 1-503-5977679 (International)

Questions (but not documents) may be directed to tabulation@epiqglobal.com (please reference “Pioneer” in the subject line).

Additional copies of this Disclosure Statement are available at https://dm.epiq11.com/pioneerenergy, or upon request made to the Voting Agent at the telephone numbers or e-mail address set forth immediately above.

B. Voting Procedures

The Debtors are providing copies of this Disclosure Statement (including all exhibits thereto), related materials, and a Ballot (collectively, a “Solicitation Package”) to record holders of the Notes Claims and/or the Pioneer Interests. Any Eligible Holder of the Notes Claims and/or the Pioneer Interests who has not received a Ballot should contact the Voting Agent.

Holders of Notes Claims and/or Pioneer Interests should provide all of the information requested by the Ballot and return all Ballots in accordance with the instructions provided with the Ballot.

 

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The Record Date for determining which Holders are entitled to vote on the Prepackaged Plan is February 27, 2020.

C. Parties Entitled to Vote

Pursuant to the provisions of the Bankruptcy Code, only Holders of allowed claims or equity interests in classes of claims or equity interests that are impaired and that are not deemed to have rejected a proposed plan are entitled to vote to accept or reject such proposed plan. Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless (i) the plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof; or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default. Classes of claims or equity interests in which the Holders of claims or equity interests are unimpaired under a chapter 11 plan are deemed to have accepted such plan and are not entitled to vote to accept or reject the plan. For a detailed description of the treatment of Claims under the Prepackaged Plan, see ARTICLE V of this Disclosure Statement.

The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the claims that cast ballots for acceptance or rejection of the plan. Pursuant to section 1126(d) of the Bankruptcy Code and except as otherwise provided in section 1126(e) of the Bankruptcy Code, an impaired class of equity interests has accepted a plan if the holders of at least two-thirds (2/3) in amount of the allowed equity interests that cast ballots in such class actually have voted to accept the plan.

The Debtors will request confirmation of the Prepackaged Plan pursuant to section 1129(b) of the Bankruptcy Code as necessary. Section 1129(b) of the Bankruptcy Code permits the confirmation of a chapter 11 plan notwithstanding the rejection of such plan by one or more impaired classes of claims or equity interests. Under section 1129(b), a plan may be confirmed by a bankruptcy court if it does not “discriminate unfairly” and is “fair and equitable” with respect to each rejecting class. For a more detailed description of the requirements for confirmation of a nonconsensual plan, see ARTICLE IX.A.3 of this Disclosure Statement.

The Claims in Class 5 and Interests in Class 10 are impaired under the Prepackaged Plan and entitled to vote to accept or reject the Prepackaged Plan. Class 5 includes the Notes Claims and Class 10 includes the Pioneer Interests.

D. Miscellaneous

All Ballots must be signed by the Holder of record of the Notes Claims and the Pioneer Interests, as applicable, or any person who has obtained a properly completed Ballot proxy from the record holder of the Notes Claims or the Pioneer Interests, as applicable, on such date. For purposes of voting to accept or reject the Prepackaged Plan, the Eligible Holders of the Notes Claims and the Pioneer Interests will be deemed to be the “Holders” of such Claims. Unless otherwise ordered by the Bankruptcy Court, Ballots that are signed, dated, and timely received,

 

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but on which a vote to accept or reject the Prepackaged Plan has not been indicated, will not be counted. The Debtors, in their sole discretion, may request that the Voting Agent attempt to contact such voters to cure any such defects in the Ballots. Any Ballot marked to both accept and reject the Prepackaged Plan will not be counted. If you return more than one Ballot voting different Notes Claims and/or Pioneer Interests, the Ballots are not voted in the same manner, and you do not correct this before the Voting Deadline, those Ballots will not be counted. An otherwise properly executed Ballot that attempts to partially accept and partially reject the Prepackaged Plan will likewise not be counted.

The Ballots provided to Eligible Holders will reflect the principal amount of such Eligible Holder’s Claim; however, when tabulating votes, the Voting Agent may adjust the amount of such Eligible Holder’s Claim by multiplying the principal amount by a factor that reflects all amounts accrued between the Record Date and the Petition Date including, without limitation, interest.

Under the Bankruptcy Code, for purposes of determining whether the requisite votes for acceptance have been received, only Holders of the Notes Claims and/or the Pioneer Interests who actually vote will be counted. The failure of a Holder to deliver a duly executed Ballot to the Voting Agent will be deemed to constitute an abstention by such Holder with respect to voting on the Prepackaged Plan and such abstentions will not be counted as votes for or against the Prepackaged Plan.

Except as provided below, unless a Ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such Ballot, the Debtors may, in their sole discretion, reject such Ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Prepackaged Plan.

E. Fiduciaries and Other Representatives

If a Ballot is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or another, acting in a fiduciary or representative capacity, such person should indicate such capacity when signing and, if requested, must submit proper evidence satisfactory to the Debtors of authority to so act. Authorized signatories should submit the separate Ballot of each Eligible Holder for whom they are voting.

UNLESS A BALLOT IS SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE, SUCH BALLOT WILL BE REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN; PROVIDED, HOWEVER, THAT THE DEBTORS RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST THE BANKRUPTCY COURT TO ALLOW ANY SUCH BALLOT(S) TO BE COUNTED.

F. Agreements Upon Furnishing Ballots

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

 

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G. Change of Vote

Except as provided in the Restructuring Support Agreement, any party who has previously submitted to the Voting Agent prior to the Voting Deadline a properly completed ballot may revoke such ballot and change its vote by submitting to the Voting Agent prior to the Voting Deadline a subsequent, properly completed ballot for acceptance or rejection of the Prepackaged Plan.

H. Waivers of Defects, Irregularities, etc.

Unless otherwise directed by the Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance and revocation or withdrawals of ballots will be determined by the Voting Agent and/or the Debtors, as applicable, in their sole discretion, which determination will be final and binding. The Debtors reserve the right to reject any and all ballots submitted by any of their respective creditors not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, as applicable, be unlawful. The Debtors further reserve their respective rights to waive any defects or irregularities or conditions of delivery as to any particular ballot by any of their creditors. The interpretation (including the ballot and the respective instructions thereto) by the applicable Debtor, unless otherwise directed by the Court, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with deliveries of ballots must be cured within such time as the Debtors (or the Court) determines. Neither the Debtors nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of ballots nor will any of them incur any liabilities for failure to provide such notification. Unless otherwise directed by the Court, delivery of such ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated.

I. Miscellaneous

The Debtors, in their sole discretion, may request that the Voting Agent attempt to contact such voters to cure any such defects in the ballots. If you return more than one ballot voting different Voting Claims, the ballots are not voted in the same manner and you do not correct this before the Voting Deadline, the last ballot submitted will be the ballot counted. An otherwise properly executed ballot that attempts to partially accept and partially reject the Prepackaged Plan will likewise not be counted.

The ballots provided to Holders of Notes Claims and/or Pioneer Interests will reflect the principal amount of such Holder’s Claim; however, when tabulating votes, the Voting Agent may adjust the amount of such Holder’s Claim by multiplying the principal amount by a factor that reflects all amounts accrued between the Voting Record Date and the Petition Date including, without limitation, interest.

 

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Under the Bankruptcy Code, for purposes of determining whether the requisite acceptances have been received, only Holders of the Voting Claims, as applicable, who actually vote will be counted.

Except as provided below, unless the ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such ballot, the Debtors may, in their sole discretion, reject such ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Prepackaged Plan.

ARTICLE XI.

CONFIRMATION OF THE PREPACKAGED PLAN

A. Confirmation Hearing

Section 1128(a) of the Bankruptcy Code requires the Court to hold a confirmation hearing upon appropriate notice to all required parties. Notice of the Confirmation Hearing will be provided to all known creditors or their representatives. The Confirmation Hearing may be adjourned from time to time by the Court without further notice except for the announcement of the continuation date made at the Confirmation Hearing, at any subsequent continued Confirmation Hearing, or pursuant to a notice filed on the docket for the Chapter 11 Cases.

B. Objections to Confirmation

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

 

1.		The Debtors at:
		Pioneer Energy Services Corp. 1250 N. E. Loop 410
		Suite 1000
		San Antonio, Texas 78209
		Attention: Bryce Seki (VP & General Counsel)
		Email: bseki@pioneeres.com
2.		Counsel to the Debtors at:
		Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas
		New York, NY 10019-6064

 

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		Fax: +1 212 492 0545
		E-mail:             bhermann@paulweiss.com
		emccolm@paulweiss.com
		bbolin@paulweiss.com
		epark@paulweiss.com
		ghotz@paulweiss.com
		Attention:        Brian S. Hermann
		Elizabeth R. McColm
		Brian Bolin
		Eugene Y. Park
		Grace Hotz
		- and –
		Norton Rose Fulbright US LLP
		1301 McKinney Street, Suite 5100
		Houston, TX 77010
		Facsimile: +1 713 651 5246
		E-mail:         william.greendyke@nortonrosefulbright.com
		jason.boland@nortonrosefulbright.com
		bob.bruner@nortonrosefulbright.com
		julie.harrison@nortonrosefulbright.com
		Attention:   William R. Greendyke
		Jason L. Boland
		Robert B. Bruner
		Julie Goodrich Harrison
3.		Counsel to the Consenting Noteholders:
		Davis Polk & Wardwell LLP
		450 Lexington Avenue
		New York, NY 10017
		Fax: +1 212 701 5800
		E-mail:             damian.schaible@davispolk.com
		natasha.tsiouris@davispolk.com
		erik.jerrard@davispolk.com
		Attention:        Damian S. Schaible
		Natasha Tsiouris
		Erik Jerrard
4.		If to the Ad Hoc Group of Term Lenders:
		Vinson & Elkins LLP
		The Grace Building, 1114 Avenue of the Americas, 32nd Floor

 

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		New York, New York 10036
		Fax: + 917-849-5358
		Email: dmeyer@velaw.com
		pheath@velaw.com
		kheverin@velaw.com
		Attention:        David S. Meyer
		Paul Heath
		Kevin Heverin

 

C. Requirements for Confirmation of the Prepackaged Plan

3. Requirements of Section 1129(a) of the Bankruptcy Code

e. General Requirements. At the Confirmation Hearing, the Court will determine whether the confirmation requirements specified in section 1129(a) of the Bankruptcy Code have been satisfied including, without limitation, whether:

 

i.

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

 

ii.

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

 

iii.

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

 

iv.

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

 

v.

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

 

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vi.

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

 

vii.

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

 

viii.

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

 

ix.

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

 

x.

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

 

xi.

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

f. Best Interests Test.

As noted above, with respect to each impaired class of claims and equity interests, confirmation of a plan requires that each such Holder either (i) accept the plan or (ii) receive or retain under the plan property of a value, as of the effective date of the plan, that is not less than the value such Holder would receive or retain if the debtors were liquidated under chapter 7 of the Bankruptcy Code. This requirement is referred to as the “best interests test.”

 

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

A liquidation analysis (the “Liquidation Analysis”) has been prepared solely for purposes of estimating proceeds available in a liquidation under chapter 7 of the Bankruptcy Code (“Chapter 7”) of the Debtor’s estates and is attached as Exhibit E to this Disclosure Statement. The Liquidation Analysis is based on a number of estimates and assumptions that are inherently subject to significant economic, competitive and operational uncertainties and contingencies that are beyond the control of the Debtors or a trustee under Chapter 7. Further, the actual amounts of claims against the Debtors’ estates could vary materially from the estimates set forth in the Liquidation Analysis, depending on, among other things, the claims asserted during Chapter 7. Accordingly, while the information contained in the Liquidation Analysis is necessarily presented with numerical specificity, the Debtors cannot assure you that the values assumed would be realized or the claims estimates assumed would not change if the Debtors were in fact liquidated, nor can assurances be made that the Court would accept this analysis or concur with these assumptions in making its determination under section 1129(a) of the Bankruptcy Code.

As set forth in detail on the Liquidation Analysis, the Debtors believe that the Prepackaged Plan will produce a greater recovery for the Holders of Claims than would be achieved in a Chapter 7 liquidation. Consequently, the Debtors believe that the Prepackaged Plan, which provides for the continuation of the Debtors’ businesses, will provide a substantially greater ultimate return to the Holders of Claims than would a Chapter 7 liquidation.

g. Feasibility.

Pursuant to section 1129(a)(11) of the Bankruptcy Code, among other things, the Court must determine that confirmation of the Prepackaged Plan is not likely to be followed by the liquidation or need for further financial reorganization of the Debtors or any successors to the Debtors under the Prepackaged Plan. This condition is often referred to as the “feasibility” of the Prepackaged Plan. The Debtors believe that the Prepackaged Plan satisfies this requirement.

For purposes of determining whether the Prepackaged Plan meets this requirement, the Debtors’ management prepared a projected financial outlook. These financial outlooks, and the assumptions on which they are based, are annexed hereto as Exhibit F (the “Financial Projections”) and reflects, among other things, the Company’s substantially deleveraged balance sheet. Based upon the Financial Projections, the Debtors believe that the Reorganized Debtors will be able to make all payments required pursuant to the Prepackaged Plan, and therefore, that confirmation of the Prepackaged Plan is not likely to be followed by liquidation or the need for further reorganization. The Reorganized Debtors also believe that they will be able to repay or refinance on commercially reasonable terms any and all of the indebtedness under the Prepackaged Plan at or prior to the maturity of such indebtedness.

 

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The Financial Projections should be read in conjunction with the assumptions, qualifications, and explanations set forth in this Disclosure Statement and in the Prepackaged Plan in their entirety, and the historical consolidated financial statements (including the notes and schedules thereto) and other financial information set forth in the Annual Report for the fiscal year ended December 31, 2018, and other reports filed by the Debtors prior to the Court’s approval of this Disclosure Statement. These documents are available by visiting the Company’s website at https://www.pioneeres.com under the “Investors” link.

The Debtors prepared the Financial Projections based upon, among other things, the anticipated future financial condition and results of operations of the Reorganized Debtors.

THE FINANCIAL PROJECTIONS WERE NOT PREPARED TO COMPLY WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE FINANCIAL ACCOUNTING STANDARDS BOARD. THE DEBTORS’ INDEPENDENT ACCOUNTANTS HAVE NEITHER EXAMINED NOR COMPILED THE ACCOMPANYING FINANCIAL PROJECTIONS AND ACCORDINGLY DO NOT EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THE FINANCIAL PROJECTIONS, ASSUME NO RESPONSIBILITY FOR THE FINANCIAL PROJECTIONS AND DISCLAIM ANY ASSOCIATION WITH THE FINANCIAL PROJECTIONS. EXCEPT AS MAY OTHERWISE BE PROVIDED IN THE PREPACKAGED PLAN OR THIS DISCLOSURE STATEMENT, THE DEBTORS DO NOT INTEND TO UPDATE OR OTHERWISE REVISE THESE FINANCIAL PROJECTIONS TO REFLECT EVENTS OR CIRCUMSTANCES EXISTING OR ARISING AFTER THE DATE OF THIS DISCLOSURE STATEMENT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

THE FINANCIAL PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, IS NECESSARILY BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS THAT, THOUGH CONSIDERED REASONABLE BY THE DEBTORS, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE, INDUSTRY, REGULATORY, MARKET AND FINANCIAL UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH WILL BE BEYOND THE COMPANY AND THE REORGANIZED DEBTORS’ CONTROL. THE DEBTORS CAUTION THAT NO REPRESENTATIONS CAN BE OR ARE MADE AS TO THE ACCURACY OF THE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTORS’ ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL BE INCORRECT. MOREOVER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED, OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE MANNER. THE FINANCIAL PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR. SEE ARTICLE IX, “CERTAIN RISK FACTORS TO BE CONSIDERED.”

IN DECIDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PREPACKAGED PLAN, HOLDERS OF CLAIMS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH ASSUMPTIONS AND THE RELIABILITY OF THE FINANCIAL PROJECTIONS AND SHOULD CONSULT WITH THEIR OWN ADVISORS.

 

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4. Equitable Distribution of Voting Power. Pursuant to section 1123(a)(6) of the Bankruptcy Code, to the extent applicable to these Chapter 11 Cases, the New Organizational Documents of the Reorganized Debtors will prohibit the issuance of non-voting equity securities.

5. Additional Requirements for Non-Consensual Confirmation. In the event that any impaired Class of Claims does not accept or is deemed to reject the Prepackaged Plan, the Court may still confirm the Prepackaged Plan at the request of the Debtors if, as to each impaired Class of Claims that has not accepted the Prepackaged Plan, the Prepackaged Plan “does not discriminate unfairly” and is “fair and equitable” with respect to such Classes of Claims or Interests, pursuant to section 1129(b) of the Bankruptcy Code. Both of these requirements are in addition to other requirements established by case law interpreting the statutory requirements.

e. Unfair Discrimination Test

The “no unfair discrimination” test applies to Classes of Claims or Interests that are of equal priority and are receiving different treatment under the Prepackaged Plan. A chapter 11 plan does not discriminate unfairly, within the meaning of the Bankruptcy Code, if the legal rights of a dissenting Class are treated in a manner consistent with the treatment of other Classes whose legal rights are substantially similar to those of the dissenting Class and if no Class of Claims or Interests receives more than it legally is entitled to receive for its Claims or Interests. This test does not require that the treatment be the same or equivalent, but that such treatment be “fair.”

The Debtors believe the Prepackaged Plan satisfies the “unfair discrimination” test. Claims of equal priority are receiving comparable treatment and such treatment is fair under the circumstances.

f. Fair and Equitable Test

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

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

 

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ARTICLE XII.

ALTERNATIVES TO CONFIRMATION

AND CONSUMMATION OF THE PREPACKAGED PLAN

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

 

A.	Alternative Plan of Reorganization

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

 

B.	Sale Under Section 363 of the Bankruptcy Code

If the Prepackaged Plan is not confirmed, the Debtors could seek from the Court, after notice and a hearing, authorization to sell their assets under section 363 of the Bankruptcy Code. Holders of Claims in Class 4 would be entitled to credit bid on any property to which their security interest is attached, and to offset their Claims against the purchase price of the property. Alternatively, the security interests in the Debtors’ assets held by Holders of Claims in Class 4 would attach to the proceeds of any sale of the Debtors’ assets. After these Claims are satisfied, the remaining funds could be used to pay Holders of Claims in Class 5. After Claims in Class 5 are satisfied, the remaining funds could be used to pay Holders of Interests in Class 10. Upon analysis and consideration of this alternative, the Debtors do not believe a sale of their assets under section 363 of the Bankruptcy Code would yield a higher recovery for Holders of Claims than the Prepackaged Plan.

 

C.	Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law

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

As noted in the Liquidation Analysis, the Debtors believe that liquidation under Chapter 7 would result in lower distributions to creditors than those provided for under the Prepackaged Plan. Among other things, the value that the Debtors expect to obtain from their assets in a Chapter 7 liquidation, instead of continuing as a going concern as provided in the Prepackaged Plan, would be materially less. A Chapter 7 liquidation would also generate more unsecured claims against the

 

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Debtors’ estates from, among other things, damages related to rejected contracts. In addition, a Chapter 7 liquidation would result in a delay from the conversion of the cases and the additional administrative expenses associated with the appointment of a trustee and the trustee’s retention of professionals, who would be required to become familiar with the many legal and factual issues in the Debtors’ Chapter 11 Cases.

ARTICLE XIII.

MISCELLANEOUS PROVISIONS

 

A.	Immediate Binding Effect

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

 

B.	Additional Documents

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

 

C.	Reservation of Rights

Except as expressly set forth in the Prepackaged Plan, the Prepackaged Plan shall have no force or effect unless the Court shall enter the Confirmation Order. Neither the Prepackaged Plan, any statement or provision contained in the Prepackaged Plan, nor any action taken or not taken by any Debtor with respect to the Prepackaged Plan, the Disclosure Statement, the Confirmation Order or the Plan Supplement waives any rights of the Debtors with respect to the Holders of Claims or Interests prior to the Effective Date.

 

D.	Successors and Assigns

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

 

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E.	Term of Injunctions or Stays

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

 

F.	Entire Agreement

Except as otherwise indicated, the Prepackaged Plan, the Confirmation Order, the Restructuring Documents, the Plan Supplement and documents related thereto supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings and representations on such subjects, all of which have become merged and integrated into the Prepackaged Plan.

 

G.

Exhibits

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

 

H.	Consent Rights of Required Consenting Stakeholders, Required Backstop Parties and Required DIP Lenders

Any and all consent rights of the Required Consenting Stakeholders (or any other Consenting Stakeholder (as defined in the Restructuring Support Agreement), as applicable), the Required Commitment Parties (or any Commitment Party, as applicable), the Required DIP Lenders (or any DIP Lender, as applicable) set forth in the Restructuring Support Agreement with respect to the form and substance of the Prepackaged Plan, the Plan Supplement, and any other Plan Documents are fully enforceable as if stated in full herein until such time as the Restructuring Support Agreement is terminated in accordance with its terms. In case of a conflict between the consent rights of the Required Consenting Stakeholders, Required Commitment Parties or Required DIP Lenders (or any Consenting Stakeholder, Commitment Party or DIP Lender, if applicable) set forth in the Restructuring Support Agreement with the consent rights of the Required Consenting Stakeholders, Required Commitment Parties or Required DIP Lenders (or any Consenting Stakeholder, Commitment Party or DIP Lender) set forth in any Restructuring Document, the consent rights in the Restructuring Support Agreement shall control. In addition, the terms and conditions of the Backstop Commitment Agreement, DIP Credit Agreement and Exit Facilities Documentation, and all related documents shall be consistent with the Restructuring Term Sheet and the exhibits thereto, and any modification, amendment, supplement or waiver of

 

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any term of such documents or of the Prepackaged Plan or Plan Supplement, or of any other document that adversely modifies, amends, supplements or waives any provision relating to the Backstop Commitment Agreement, DIP Credit Agreement and Exit Facilities Documentation shall be subject to the consent rights set forth in the Restructuring Support Agreement.

 

I.	Nonseverability of Prepackaged Plan Provisions

If, prior to Confirmation, any term or provision of the Prepackaged Plan is held by the Court to be invalid, void or unenforceable, the Court, at the request of the Debtors, may alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such terms or provision shall then be applicable as altered or interpreted; provided, however, that any such alteration or interpretation shall be acceptable to the Debtors and the Requisite Consenting Stakeholders and the remainder of the terms and provisions of the Prepackaged Plan will remain in full force and effect and will in no way be affected, impaired, or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Prepackaged Plan, as it may have been altered or interpreted in accordance with the foregoing, is: (1) valid and enforceable pursuant to its terms; (2) integral to the Prepackaged Plan and may not be deleted or modified without the Debtors’ consent; and (3) nonseverable and mutually dependent.

 

J.	Votes Solicited in Good Faith

Upon entry of the Confirmation Order, the Debtors will be deemed to have solicited votes on the Prepackaged Plan in good faith and in compliance with the Bankruptcy Code, and, pursuant to section 1125(e) of the Bankruptcy Code, the Debtors, each of the Consenting Stakeholders and the Backstop Parties and each of their respective Affiliates, agents, representatives, members, principals, equityholders (regardless of whether such interests are held directly or indirectly), officers, directors, partners (including both general and limited partners) managers, employees, advisors (including investment advisers) and attorneys will be deemed to have participated in good faith and in compliance with the Bankruptcy Code in the offer, issuance, sale, and purchase of Securities offered and sold under the Prepackaged Plan, and, therefore, neither any of such parties or individuals or the Reorganized Debtors will have any liability for the violation of any applicable law, rule, or regulation governing the solicitation of votes on the Prepackaged Plan or the offer, issuance, sale, or purchase of the Securities offered and sold under the Prepackaged Plan.

 

K.	Request for Expedited Determination of Taxes.

The Debtors shall have the right to request an expedited determination under section 505(b) of the Bankruptcy Code with respect to tax returns filed, or to be filed, for any and all taxable periods ending after the Petition Date through the Effective Date.

 

L.	Closing of Chapter 11 Cases

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

 

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ARTICLE XIV.

CONCLUSION AND RECOMMENDATION

The Debtors believe the Prepackaged Plan is in the best interests of all stakeholders and urge the Holders of Voting Claims and Voting Interests to vote in favor thereof.

 

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Dated: February 28, 2020				PIONEER ENERGY SERVICES CORP. (for itself and on behalf of each of its subsidiary debtors as Debtors and Debtors in Possession)
				/s/ Lorne E. Phillips
				Name:		Lorne E. Phillips
				Title:		Chief Financial Officer

 

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