| Item 1.01 | Entry into a Material Definitive Agreement. |
Indentures, 8.375% Senior Notes due 2028, and 8.750% Senior
Notes due 2031
On June 29, 2023, Civitas Resources, Inc. (the
“Company”), completed its previously announced offering (the “Offering”) of $1,350,000,000 aggregate principal
amount of 8.375% Senior Notes due 2028 (the “2028 Notes”) and $1,350,000,000 aggregate principal amount of 8.750% Senior Notes
due 2031 (the “2031 Notes” and, together with the 2028 Notes, the “Notes”). The Company expects to use the net
proceeds from the Offering, together with cash on hand and borrowings under the Company’s credit facility, to fund a portion of
the consideration for the transactions contemplated by (i) the Membership Interest Purchase Agreement, dated June 19, 2023, by and among
the Company, Hibernia Energy III Holdings, LLC, a Delaware limited liability company (“HE3 Holdings”), and Hibernia Energy
III-B Holdings, LLC, a Delaware limited liability company (“HE3-B Holdings” and, together with HE3 Holdings, “Hibernia”)
(such transaction, the “Hibernia Acquisition”) and (ii) the Membership Interest Purchase Agreement, dated June 19, 2023, by
and among the Company, Tap Rock Resources Legacy, LLC, a Delaware limited liability company (“Tap Rock I Legacy”), Tap Rock
Resources Intermediate, LLC, a Delaware limited liability company (“Tap Rock I Intermediate”), Tap Rock Resources II Legacy,
LLC, a Delaware limited liability company (“Tap Rock II Legacy”), Tap Rock Resources II Intermediate, LLC, a Delaware limited
liability company (“Tap Rock II Intermediate”), Tap Rock NM10 Legacy Holdings, LLC, a Delaware limited liability company (“NM10
Legacy”), and Tap Rock NM10 Holdings Intermediate, LLC, a Delaware limited liability company (“NM10 Intermediate”),
solely in its capacity as the sellers’ representative, Tap Rock I Legacy, and solely for the limited purposes set forth therein,
Tap Rock Resources, LLC, a Delaware limited liability company (“Tap Rock Resources” and, together with Tap Rock I Legacy,
Tap Rock I Intermediate, Tap Rock II Legacy, Tap Rock II Intermediate, NM10 Legacy, and NM10 Intermediate, “Tap Rock”) (such
transaction, the “Tap Rock Acquisition” and, together with the Hibernia Acquisition, the “Acquisitions”).
The Notes are subject to a special mandatory redemption
such that: (A) if (i) the consummation of the Hibernia Acquisition does not occur on or before October 31, 2023 or (ii) prior thereto,
the Company notifies Computershare Trust Company, N.A., the trustee of the Notes (the “Trustee”), that it will not pursue
the consummation of the Hibernia Acquisition, it will be required to redeem $850.0 million of the aggregate principal amount of each series
of Notes then outstanding (such redemption, the “Hibernia Special Mandatory Redemption”) at a redemption price equal to 100%
of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the date of the Hibernia Special
Mandatory Redemption, (B) if (i) the consummation of the Tap Rock Acquisition does not occur on or before October 31, 2023 or (ii) prior
thereto, the Company notifies the Trustee that it will not pursue the consummation of the Tap Rock Acquisition, it will be required to
redeem $600.0 million of the aggregate principal amount of each series of Notes then outstanding (such redemption, the “Tap Rock
Special Mandatory Redemption”) at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued
and unpaid interest to, but excluding, the date of the Tap Rock Special Mandatory Redemption, and (C) if (i) neither Acquisition is consummated
on or before the October 31, 2023 or (ii) prior thereto, the Company notifies the trustee that the Company will not pursue the consummation
of both Acquisitions, it will be required to redeem 100% of the aggregate principal amount of each series of Notes then outstanding (such
redemption, the “Combined Special Mandatory Redemption”) at a redemption price equal to 100% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest to, but excluding, the date of the Combined Special Mandatory Redemption.
The 2028 Notes were issued by the Company pursuant
to an indenture, dated June 29, 2023 (the “2028 Notes Indenture”), among the Company, the guarantors party thereto, and the
Trustee, and the 2031 Notes were issued by the Company pursuant to an indenture, dated June 29, 2023 (the “2031 Notes Indenture”
and, together with the 2028 Notes Indenture, the “Indentures”), among the Company, the guarantors party thereto, and the Trustee.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of the Company’s existing subsidiaries and
are expected to be guaranteed by the entities that will become subsidiaries of the Company upon consummation of the Acquisitions, as well
as by certain other future subsidiaries that may be required to guarantee the Notes. The following is a brief description of the material
provisions of the Indentures and the Notes.
The 2028 Notes and the 2031 Notes will mature on
July 1, 2028 and July 1, 2031, respectively. Interest on the 2028 Notes and the 2031 Notes will accrue at the rate of 8.375% per annum
and 8.750% per annum, respectively, and will be payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January
1, 2024.
Optional Redemption.
At any time prior to July 1, 2025, the Company
may redeem all or part of the 2028 Notes, in whole or in part, at a redemption price equal to the sum of (i) the principal amount thereof,
plus (ii) the “make-whole” premium at the redemption date, plus (iii) accrued and unpaid interest, if any, to, but excluding,
the date of redemption (subject to the right of the noteholders on the relevant record date to receive interest on the relevant interest
payment date). On or after July 1, 2025, the Company may redeem all or part of the 2028 Notes at redemption prices (expressed as percentages
of the principal amount redeemed) equal to (i) 104.188% for the twelve-month period beginning on July 1, 2025; (ii) 102.094% for the twelve-month
period beginning on July 1, 2026; and (iii) 100.000% for the period beginning July 1, 2027 and at any time thereafter, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date (subject to the right of the noteholders on the relevant record date to
receive interest on the relevant interest payment date).
At any time prior to July 1, 2026, the Company
may redeem all or part of the 2031 Notes, in whole or in part, at a redemption price equal to the sum of (i) the principal amount thereof,
plus (ii) the “make-whole” premium at the redemption date, plus (iii) accrued and unpaid interest, if any, to, but excluding,
the date of redemption (subject to the right of the noteholders on the relevant record date to receive interest on the relevant interest
payment date). On or after July 1, 2026, the Company may redeem all or part of the 2031 Notes at redemption prices (expressed as percentages
of the principal amount redeemed) equal to (i) 104.375% for the twelve-month period beginning on July 1, 2026; (ii) 102.188% for the twelve-month
period beginning on July 1, 2027; and (iii) 100.000% for the period beginning July 1, 2028 and at any time thereafter, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date (subject to the right of the noteholders on the relevant record date to
receive interest on the relevant interest payment date).
The Company may redeem up to 35% of the aggregate
principal amount of the 2028 Notes or 2031 Notes at any time prior to July 1, 2025 or 2026, respectively, with an amount not to exceed
the net cash proceeds from certain equity offerings at a redemption price equal to 108.375%, with respect to the 2028 Notes, and 108.750%,
with respect to the 2031 Notes, of the principal amount of such series of Notes redeemed, plus accrued and unpaid interest, if any, thereon
to, but excluding, the redemption date, provided, however, that (i) at least 65.0% of the aggregate principal amount of Notes of such
series originally issued on the issue date (but excluding Notes of such series held by the Company and its subsidiaries) remains outstanding
immediately after the occurrence of such redemption (unless all such Notes are redeemed substantially concurrently) and (ii) the redemption
occurs within 180 days after the date of the closing of such equity offering.
Change of Control.
If a change of control (as defined in each Indenture)
occurs with respect to a series of Notes, holders of such Notes will have the right to require the Company to repurchase all or any part
of their Notes of such series at a purchase price equal to 101% of the aggregate principal amount of the Notes repurchased, plus accrued
and unpaid interest, if any, to, but excluding, the date of purchase.
Certain Covenants.
The Indentures governing the Notes contain covenants
that limit, among other things, the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness;
create liens securing indebtedness; pay dividends on or redeem or repurchase stock or subordinated debt; make specified types of investments
and acquisitions; enter into or permit to exist contractual limits on the ability of the Company’s subsidiaries to pay dividends
to the Company; enter into transactions with affiliates; and sell assets or merge with other companies. These covenants will not, however,
restrict the activities of the entities that will be acquired in connection with the Acquisitions prior to the consummation of the Acquisitions.
These covenants are subject to a number of important limitations and exceptions.
Events of Default.
The Indentures also provide for certain customary
events of default, including, among others, nonpayment of principal or interest, failure to pay final judgments in excess of a specified
threshold, failure of a guarantee to remain in effect, bankruptcy and insolvency events, and cross acceleration, which would permit the
principal, premium, if any, interest and other monetary obligations on all the then outstanding Notes to be declared due and payable immediately.
If an event of default with respect to a series of Notes occurs and is continuing, the Trustee or holders of at least 25% in aggregate
principal amount of the then outstanding Notes of such series may declare the principal of, and the accrued and unpaid interest, if any,
on, all then outstanding Notes to be due and payable immediately. These events of default are subject to a number of important qualifications,
limitations, and exceptions that are described in the Indentures.
The Notes were offered and sold to persons reasonably
believed to be qualified institutional buyers in the United States pursuant to Rule 144A and outside the United States pursuant to Regulation
S under the Securities Act of 1933, as amended (the “Securities Act”). The Notes have not been registered under the Securities
Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act and applicable state laws. This Current Report on Form 8-K shall not constitute an
offer to sell or a solicitation of an offer to purchase the Notes or any other securities, and shall not constitute an offer, solicitation
or sale in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful.
Certain of the initial purchasers and their respective
affiliates have provided, and may in the future provide, investment banking, commercial banking and other financial services for the Company
and the Company’s affiliates for which services they received, and may in the future receive, customary fees. BofA Securities, Inc.,
one of the initial purchasers, is serving as our financial advisor in connection with the Acquisitions, J.P. Morgan Securities LLC, one
of the initial purchasers, is serving as financial advisor to Hibernia and Zions Direct, Inc., one of the initial purchasers, and its
affiliates have credit relationships with Hibernia and Tap Rock.
The foregoing description of the Indentures and
the Notes does not purport to be complete and is qualified in its entirety by reference to the full text of those documents, which are
attached as Exhibits 4.1, 4.2, 4.3, and 4.4 to this Form 8-K and are incorporated herein by reference.
