      IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

WILMINGTON SAVINGS FUND                      :
SOCIETY, FSB, solely in its capacity as      :
successor Indenture Trustee for the 7.875%   :
Senior Notes Due 2021 Issued by              :
FORESIGHT ENERGY LLC AND                     :
FORESIGHT ENERGY FINANCE                     :
CORPORATION,                                 :
                                             :
      Plaintiff,                             :
                                             :
          v.                                 :     C.A. No. 11059-VCL
                                             :
FORESIGHT ENERGY LLC, FORESIGHT              :
ENERGY FINANCE CORPORATION,                  :
FORESIGHT ENERGY SERVICES LLC,               :
FORESIGHT ENERGY COAL SALES                  :
LLC, FORESIGHT SUPPLY COMPANY                :
LLC, HILLSBORO ENERGY LLC,                   :
MACOUPIN ENERGY LLC, OENEUS                  :
LLC D/B/A SAVATRAN LLC, SUGAR                :
CAMP ENERGY, LLC, WILLIAMSON                 :
ENERGY LLC, AMERICAN CENTURY                 :
MINERAL LLC, AND AMERICAN                    :
CENTURY TRANSPORT LLC,                       :
                                             :
      Defendants.                            :


                            MEMORANDUM OPINION

                         Date Submitted: November 17, 2015
                          Date Decided: December 4, 2015

Martin S. Lessner, James P. Hughes, Jr., Richard J. Thomas, YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; Daniel A. Ross, Jayme T.
Goldstein, Christopher Guhin, STROOCK & STROOCK & LAVAN LLP, New York,
New York; Seth H. Lieberman, Patrick Sibley, PRYOR CASHMAN LLP, New York,
New York; Counsel for Plaintiff Wilmington Savings Fund Society, FSB, solely in its
capacity as successor trustee for the 7.875% Senior Notes due 2021 issued by Foresight
Energy LLC and Foresight Energy Finance Corporation.
M. Duncan Grant, James H.S. Levine, PEPPER HAMILTON LLP, Wilmington,
Delaware; Counsel for Defendants Foresight Energy LLC, Foresight Energy Finance
Corporation, Foresight Energy Services LLC, Foresight Coal Sales LLC, Foresight
Supply Company LLC, Hillsboro Energy LLC, Macoupin Energy LLC, Oeneus LLC d/b/a
Savatran LLC, Sugar Camp Energy, LLC, Williamson Energy LLC, American Century
Mineral LLC, and American Century Transport LLC.

LASTER, Vice Chancellor.




                                      1
       Non-party Foresight Energy, L.P. (―Foresight Parent‖ or the ―Partnership‖) is the

ultimate parent of a family of companies that operate in the coal industry. Foresight

Parent raised debt financing by causing two of its subsidiaries to issue senior notes (the

―Notes‖) pursuant to an indenture dated August 23, 2013 (the ―Indenture‖). Repayment

of principal is due in 2021, but if there has been a contractually defined ―Change of

Control,‖ then the subsidiaries who issued the Notes must offer to redeem them at 101%

of par, plus accrued but unpaid interest.

       Plaintiff Wilmington Savings Fund Society, FSB currently serves as the trustee

under the Indenture (the ―Trustee‖). The Trustee filed suit, contending that a Change of

Control occurred.

       The parties cross moved for judgment on the pleadings. The Trustee‘s motion is

granted as to Count I, which asserts that the defendants breached the Indenture by failing

to redeem the Notes. The Trustee‘s motion also is granted as to Count III, which seeks to

recover the Trustee‘s attorneys‘ fees and expenses. The Trustee‘s motion is denied as to

Count II, which asserts a violation of the implied covenant of good faith and fair dealing.

Because the defendants defaulted under the express language of the Indenture, there is no

need to consider whether they also breached an implied term. In light of the ruling on

Count I, the dispute over Count II is moot. The defendants‘ cross-motion is denied.

                         I.       FACTUAL BACKGROUND

       The facts are drawn from the pleadings, their exhibits, and other documents that

are integral to or incorporated into the pleadings by reference. This decision has

construed the allegations in the light most favorable to the defendants.


                                             2
A.     Foresight Parent and Its Subsidiaries

       Non-party Chris Cline has over thirty years‘ experience in the coal industry. In

2006, he founded the Foresight family of companies, which own and operate mines in

Illinois, Ohio, and West Virginia.

       Foresight Parent is a Delaware limited partnership with common units that trade

on the New York Stock Exchange. As a Delaware limited partnership, Foresight Parent is

governed by the terms of its limited partnership agreement. The currently operative

agreement is the First Amended and Restated Agreement of Limited Partnership (the

―Parent LP Agreement‖).

       Foresight Parent directly owns defendant Foresight Energy, LLC (―Foresight

Energy‖). Foresight Energy in turn owns the other entity defendants, including defendant

Foresight Energy Finance Corporation (―Foresight Finance‖). Together, Foresight Energy

and Foresight Finance issued the Notes (the ―Issuers‖). The remaining entity defendants

are operating subsidiaries of Foresight Energy that guaranteed the Issuers‘ obligations

under the Notes.1 They own the assets that comprise Foresight‘s coal business.

       Foresight Energy GP, LLC (the ―General Partner‖) is a privately held Delaware

limited liability company that owns a non-economic general partner interest in Foresight

Parent and serves as its general partner. Under the Parent LP Agreement, the General




       1
        The guarantors are Foresight Energy Services LLC, Foresight Coal Sales LLC,
Foresight Supply Company LLC, Hillsboro Energy LLC, Macoupin Energy LLC,
Oeneus LLC d/b/a Savatran LLC, Sugar Camp Energy, LLC, Williamson Energy LLC,
American Century Mineral LLC, and American Century Transport LLC


                                            3
Partner controls the business and affairs of Foresight Parent. Through its control over

Foresight Parent, the General Partner controls the business and affairs of Foresight

Parent‘s many subsidiaries. The General Partner owns all of Foresight Parent‘s incentive

distribution rights (the ―Parent IDRs‖), which entitle the General Partner to an increasing

share of the distributable cash flow from Foresight Parent after holders of Foresight

Parent‘s common units receive certain minimum distributions.

       As a Delaware limited liability company, the General Partner is governed by its

operating agreement. Before the events giving rise to this litigation, Foresight Reserves

and Michael J. Beyer, the CEO of the General Partner and Foresight Parent, were the sole

members of the General Partner. Foresight Reserves owned 99% of the membership

interests in the General Partner and Beyer owned the remaining one percent. Cline owned

100% of Foresight Reserves. Through Foresight Reserves, Cline controlled the General

Partner, Foresight Parent, and all of its subsidiaries.

B.     The Notes

       In 2013, the coal industry faced challenges, including environmental concerns and

price competition from other energy sources. Cline saw an opportunity to acquire

additional assets at discounted valuations. To finance his planned acquisitions, he caused

the Issuers to issue the Notes. The face amount of the Notes is $600 million. Under the

Indenture, the Issuers agreed to pay interest quarterly at a rate of 7.875% per annum and

repay principal in 2021.

       Section 4.11 of the Indenture obligates the Issuers to redeem the Notes at 101% of

par in the event that Foresight Parent undergoes a Change of Control. It states:


                                               4
      Not later than 30 days following a Change of Control, the Issuers shall
      make an Offer to Purchase for all outstanding Notes at a purchase price
      equal to 101% of the principal amount of the Notes plus accrued and
      unpaid interest to (but excluding) the date of purchase . . . .

Indenture § 4.11 (the ―Redemption Clause‖).

      The Indenture defines a Change of Control, in pertinent part, as

      the consummation of any transaction (including, without limitation, any
      merger or consolidation), in one or a series of related transactions, the result
      of which is that any ―person‖ (as that term is used in Section 13(d)(3) of the
      [Securities Exchange Act of 1934]), excluding [Cline and his affiliates],
      becomes the Beneficial Owner, directly or indirectly, of more than 35% of
      the Voting Stock of [the General Partner], measured by voting power rather
      than number of shares, units or the like . . . .

Indenture at 10 (the ―Change of Control Definition‖). The Indenture defines ―Voting

Stock‖ as securities that have the power to ―vote for the election of‖ directors or

managers of the General Partner, ―to control the election of directors or managers‖ of the

General Partner, or simply the power to ―control‖ the General Partner. Indenture at 34.

The Indenture defines ―Beneficial Owner‖ as having ―the meaning assigned to such term

in Rule 13d-3‖ of the Securities Exchange Act of 1934. Id. at 8.

C.    The Original Deal

      Sometime before March 2015, Robert Murray approached Cline about potentially

acquiring control of the Foresight family of companies. Murray is the CEO of Murray

Energy Corporation, one of the largest coal companies in the United States.

      On March 13, 2015, Murray Energy and Foresight Reserves announced that

Murray Energy would purchase a controlling stake in Foresight Parent. Murray Energy

would pay an aggregate purchase price of $1.395 billion and receive in return (i) an 80%




                                             5
voting interest in the General Partner, (ii) a 77.5% economic interest in the General

Partner, and (iii) a mix of common units and subordinated units in Foresight Parent

representing, in the aggregate, not more than a 51% limited partnership interest in

Foresight Parent (the ―Original Deal‖).

      If the Original Deal had closed, it would have constituted a Change of Control

under the Indenture and triggered the Redemption Clause. To avoid having to pay $606

million to redeem the Notes, the Issuers solicited consents from holders of the Notes to

waive the Redemption Clause in return for a fee equal to 8% of the face amount of the

Notes, or $48 million. Payment of the fee was conditioned on the closing of the Original

Deal. Holders of a majority of the Notes gave their consent.

      To finance the Original Deal, Murray Energy and Foresight Reserves had to raise

approximately $4.8 billion. By early April 2015, it became clear that they would fall

short. Pursuant to a Termination Agreement dated April 7, 2015, Murray Energy and

Foresight Reserves agreed that they could not raise the necessary financing and

terminated the transaction agreements governing the Original Deal. Because the Original

Deal was abandoned, the holders of the Notes did not receive a fee for consenting to

waive the Redemption Clause.

D.    The Revised Deal

      Murray Energy and Foresight Reserves subsequently agreed on modified terms for

their transaction (the ―Revised Deal‖). The terms of the Revised Deal are memorialized

in a Purchase and Sale Agreement between and among Murray Energy, Foresight

Reserves, and Beyer dated April 7, 2015. The Revised Deal closed on April 16, 2015.


                                            6
      Under the terms of the Revised Deal, Murray Energy paid $1.37 billion and

received in return (i) a 34% voting interest in the General Partner, (ii) a 77.5% economic

interest in the General Partner, and (iii) a mix of common units and subordinated units in

Foresight Parent representing, in the aggregate, not more than a 51% limited partnership

interest in Foresight Parent. In addition, Murray Energy received an option to acquire an

additional 46% voting interest in the General Partner for $25 million exercisable at any

point during a five-year period (the ―GP Option‖).

      The critical difference between the Original Deal and the Revised Deal was that

under the latter, Murray Energy only received a 34% voting interest in the General

Partner rather than an 80% voting interest. By only acquiring a 34% voting interest in the

General Partner, Murray Energy came in just below the 35% figure referenced in the

Change of Control Definition, which defines a Change of Control as any person other

than Cline or his affiliates becoming ―the Beneficial Owner, directly or indirectly, of

more than 35% of the Voting Stock of [the General Partner].‖ The defendants concede

that the Revised Deal set Murray Energy‘s voting interest at 34% and incorporated the

GP Option to avoid the 35% ownership threshold.

      Through the GP Option, Murray Energy gained the right to pay $25 million to

acquire another 46% voting interest in the General Partner, which would result in Murray

Energy owning the full 80% voting interest that it would have purchased under the

Original Deal. The defendants concede that they structured the terms of the GP Option in

an effort to permit Murray Energy to disclaim Beneficial Ownership of the 46% voting




                                            7
interest that is subject to the GP Option. To support that position, Murray Energy and

Foresight Reserves built two conditions into the GP Option.

       The first condition requires that Murray Energy give Foresight Reserves 61 days

advance notice before it can exercise the GP Option (the ―Notice Condition‖). The

drafters of the GP Option chose this time period because Rule 13d-3(d)(1)(i) provides

generally that a person may be considered the beneficial owner of a security if that person

has the right to acquire the security within 60 days. See 17 C.F.R. § 240.13d-3(d)(1)(i).

The defendants concede that they picked 61 days to contract around Rule 13d-3(d)(1)(i).

       The second condition requires that before Murray Energy can exercise the GP

Option, Foresight Parent must have refinanced both the Notes and its outstanding credit

on terms ―reasonably acceptable to‖ Foresight Reserves such that the exercise of the GP

Option will not cause a Change of Control either for purposes of the Notes or the

Foresight Parent‘s other credit facilities (the ―Refinancing Condition‖). This condition

assists on the Beneficial Ownership front because cases have held that if the fulfillment

of a condition lies outside the option holder‘s control, then the holder does not have the

right to acquire the shares until the condition is fulfilled. The Refinancing Condition

makes explicit what Murray Energy and Foresight Reserves were trying to accomplish by

using the GP Option structure, viz., avoiding a Change of Control.

       As part of the Revised Deal, Murray Energy received a number of governance

rights under a new operating agreement for the General Partner, officially titled the

Second Amended and Restated Limited Liability Company Agreement of Foresight

Energy GP LLC (the ―New GP Agreement‖). The original operating agreement only


                                            8
authorized a single type of member unit. The New GP Agreement split the units in two

by authorizing (i) Voting Units, which have the power to vote but do not give the holder

an economic interest in the General Partner, and (ii) GP IDR Units, which lack the power

to vote but which give the holder an economic interest in the General Partner. The parties

agreed on the following ownership table as of the closing of the Revised Deal:

                     Member             IDR Units         Voting Units
               Murray Energy                775,000             340,000
               Foresight Reserves           222,750             653,400
               Beyer                          2,250               6,600
               Total                      1,000,000           1,000,000

       Section 6.2(a) of the New GP Agreement provides that the business and affairs of

the General Partner are governed by a board of directors (the ―GP Board‖). Section 6.1

provides that GP Board shall have at least three and no more than twelve members.

Under Section 6.1(a) the New GP Agreement, Murray Energy has the right to elect ―such

number of directors as is close as possible to, but not exceeding, its and its Affiliates‘

proportionate percentage (based on the number of Voting Units outstanding, with a

fraction rounded down) of the total number of directors.‖ This decision refers to the

directors that Murray Energy appoints as the ―Murray Directors.‖ Foresight Reserves has

the right to appoint the remaining number of directors.

       Section 6.6(d) of the New GP Agreement provides that as long as Murray Energy

owns at least 10% of the Voting Units, the General Partner cannot engage in a list of

actions without either (i) the prior approval of a Murray Director, for matters that require

GP Board approval or (ii) the prior approval of Murray Energy for matters that require




                                             9
member approval (collectively, the ―Blocking Rights‖). Under Section 6.4(c), a quorum

for valid action by the GP Board requires the presence of at least one Murray Director.

       The actions covered by the Blocking Rights include:

●      Reducing the amount of the Foresight Parent‘s quarterly distribution.

●      Consummating any merger that would result in more than 50% of the Voting
       Units of the General Partner or 50% of the common units of Foresight Parent
       being acquired or otherwise beneficially owned by any person other than Murray
       Energy, Cline, or their affiliates.

●      Changing the tax classification of Foresight Parent.

●      Issuing additional membership interests of the General Partner or partnership
       interests in Foresight Parent with rights senior to the common units.

●      Proposing amendments to the Parent LP Agreement.

●      Selling, assigning, or otherwise disposing of any Parent IDRs.

●      Entering into transactions between the General Partner, Foresight Parent, or any of
       its subsidiaries and Cline that exceed a given threshold.

●      Removing, replacing, or diminishing the duties of the General Partner‘s CEO.

       Section 6.6(b) of the New GP Agreement backstops the Blocking Rights by

ensuring that certain extraordinary actions require member approval, giving Murray

Energy the ability to exercise its Blocking Rights at both the GP Board and member

levels. Section 6.6(b) provides that approval of the members is required for ―any

extraordinary matter that would have, or would reasonably be expected to have, a

material effect, directly or indirectly, on the Members‘ interests in the Company.‖ Under

Section 6.6(b), extraordinary matters include, but are not be limited to:

●      The commencement of any action relating to bankruptcy or insolvency of the
       General Partner, Foresight Parent, or a material subsidiary.



                                             10
●     A merger, consolidation, recapitalization or similar transaction involving the
      General Partner, Foresight Parent, or a material subsidiary.

●     A sale, exchange, or other transfer not in the ordinary course of business of a
      substantial portion of the assets of Foresight Parent or a material subsidiary.

●     Dissolution or liquidation of the General Partner or Foresight Parent,.

●     A material amendment to the Partnership Agreement.

      Through the Blocking Rights, Murray Energy obtained the ability to veto—and,

hence, control—the fate of transactions falling outside the ordinary course of business at

either the General Partner or Foresight Parent. Through other provisions, Murray Energy

obtained day-to-day operational control over the General Partner and Foresight Parent.

As part of the Revised Deal, Beyer resigned as the CEO of the General Partner and

Foresight Parent. He was replaced by Robert Moore, who is the nephew of Robert

Murray and who also serves as the CFO and COO of Murray Energy. Because replacing

the CEO is one of the extraordinary matters covered by the Blocking Rights, Moore

cannot be replaced without Murray Energy‘s consent.

      Relatedly, the General Partner and Murray American Coal, Inc., a wholly-owned

subsidiary of Murray Energy, entered into a management services agreement dated April

30, 2015 (the ―Management Services Agreement‖). Pursuant to Section 3.3(a)(i) of that

agreement, Murray American has authority to ―manage, administer and oversee all

aspects of the operation of [Foresight‘s coal mining, processing, and transportation

facilities], including without limitation, the day-to-day operation, maintenance and

business of [those facilities]‖ through December 31, 2022.




                                           11
       Finally, Section 6.6(e)(v) of the New GP Agreement pre-authorizes various

categories of related-party transactions between Murray Energy and Foresight Parent.

The only requirement for transactions in the covered categories is that ―Mr. Moore shall

provide prior written notice to the [GP] Board and [Foresight Reserves] of any proposed

[related-party transaction] with an estimated dollar value in excess of $10,000,000.‖

E.     This Litigation

       When Foresight Reserves announced the Revised Deal on April 7, 2015, it took

the position that the Revised Deal would not result in a Change of Control under the

Indenture. Foresight Reserves stated that it therefore would not offer to redeem the Notes.

In response to this announcement, holders of a majority of the Notes retained counsel and

took the position that the closing of the Revised Deal would constitute a Change of

Control and trigger the Redemption Clause.

       The Trustee filed this action on May 22, 2015. The defendants answered the

Complaint, and the parties cross moved for judgment on the pleadings.

                             II.      LEGAL ANALYSIS

       After the closing of the pleadings, but within such time as not to delay trial, a party

may move for judgment on the pleadings. Ct. Ch. R. 12(c). ―In determining a motion

under Court of Chancery Rule 12(c) for judgment on the pleadings, a trial court is

required to view the facts pleaded and the inferences to be drawn from such facts in a

light most favorable to the non-moving party.‖ Desert Equities, Inc. v. Morgan

Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205 (Del. 1993) (footnote




                                             12
omitted). ―A motion for judgment on the pleadings may be granted only when no

material issue of fact exists and the movant is entitled to judgment as a matter of law.‖ Id.

A.     Count I: Breach of Contract

       Count I asserts a claim for breach of contract. Under Section 6.01 of the Indenture,

―[a]n ‗Event of Default‘ occurs with respect to the Notes if: . . . (3) an Issuer fails to make

an Offer to Purchase and thereafter accept and pay for Notes tendered when and as

required pursuant to [the Redemption Clause].‖ Indenture § 6.01 (underlining of defined

term omitted). The Redemption Clause is triggered by a Change of Control.

       As noted, the Change of Control Definition turns on whether someone other than

Cline and his affiliates has become the Beneficial Owner of more than 35% of the Voting

Units. The Change of Control Definition incorporates the definition of Beneficial Owner

from Rule 13d-3. That definition states, in relevant part:

              (a) . . . [A] beneficial owner of a security includes any person who,
       directly or indirectly, through any contract, arrangement, understanding,
       relationship, or otherwise has or shares:

                      (1) Voting power which includes the power to vote, or to
       direct the voting of, such security; and or,

                      (2) Investment power which includes the power to dispose, or
       to direct the disposition of, such security.

              (b) Any person who, directly or indirectly, creates or uses a trust,
       proxy, power of attorney, pooling arrangement or any other contract,
       arrangement, or device with the purpose of effect of divesting
       such person of beneficial ownership of a security or preventing the vesting
       of such beneficial ownership . . . shall be deemed for purposes of such
       sections to be the beneficial owner of such security.

              ....




                                              13
                 (d) Notwithstanding the provisions of paragraphs (a) and (c) of this
       rule:

                      (1)(i) A person shall be deemed to be the beneficial owner of
       a security, subject to the provisions of paragraph (b) of this rule, if
       that person has the right to acquire beneficial ownership of such security, .
       . . within sixty days, including but not limited to any right to acquire: (A)
       Through the exercise of any option . . . ; provided, however,
       any person who acquires a security or power specified in paragraph[]
       (d)(1)(i)(A) . . . of this section, with the purpose or effect of changing or
       influencing the control of the issuer, or in connection with or as a
       participant in any transaction having such purpose or effect, immediately
       upon such acquisition shall be deemed to be the beneficial owner of
       the securities which may be acquired through the exercise or conversion of
       such security or power.

17 C.F.R. § 240.13d-3(a)–(d).

       The Trustee maintains that Murray Energy qualifies as a Beneficial Owner of 35%

or more of the General Partner‘s Voting Units under four different parts of Rule 13d-3:

(a)(1), (a)(2), (b), and (d)(1)(i). The Trustee is right under parts (a)(2) and (b), so there is

no need to address whether Murray Energy also is a Beneficial Owner under parts (a)(1)

and (d)(1)(i).

                 1.    Rule 13d-3(a)(2): Shared Investment Power

       Under Rule 13d-3(a)(2), a Beneficial Owner includes a person who ―directly or

indirectly, through any contract, arrangement, understanding, relationship, or otherwise

has or shares . . . (1) [i]nvestment power which includes the power to dispose, or to direct

the disposition of, such security.‖ Under Section 10.4(a) of the New GP Agreement,

Foresight Reserves cannot transfer any of its Voting Units in the General Partner to a

third party without Murray Energy‘s consent. The New GP Agreement is a contract, and




                                              14
Murray Energy therefore ―through [a] contract . . . shares . . . the power to dispose‖ of

Foresight Reserves‘ Voting Units.

       According to a leading treatise on the Williams Act, ―the investment power

clause‖ in Rule 13d-3(a)(2) ―parallels the voting power clause [in Rule 13d-3(a)(1)] with

some exactitude. Therefore, our observations regarding the voting power clause can be

imported‖ to the investment power clause. Arnold S. Jacobs, The Williams Act—Tender

Offers and Stock Accumulations § 2:12 (2015 ed.). The treatise‘s ―observations regarding

the voting power clause‖ include that ―a power to veto a vote would be a shared power to

vote. Thus, both the person who makes the decision subject to a veto and the person who

can exercise the veto power shares the power, and both beneficially own the shares.‖ Id.

Imported to the investment power clause, the power to veto a transfer of shares is a

shared power to transfer. The person who makes the initial decision to transfer and the

person who can exercise a veto over that decision share the power to transfer, so both

beneficially own the shares.

       Consistent with the treatise, the SEC has expressed its view in a no-action letter

that a veto power over the disposition of shares may confer beneficial ownership over the

shares for purposes of Rule 13d-3(a)(2). See BankAmerica Capital Corp., SEC No-

Action Letter, 1979 WL 13099 (Apr. 6 1979). The no-action letter is not binding

precedent, but it provides additional persuasive authority.

       Section 10.4(a) of the New GP Agreement states, in pertinent part:

       [N]o Member may directly or indirectly transfer any of his/her/its Voting
       Units or IDR Units in [the General Partner] to a non-Member without the
       express written consent of [Murray Energy] and [Foresight Reserves],


                                            15
       which consent may be withheld in [Murray Energy‘s] and/or [Foresight
       Reserves‘] sole and absolute discretion, except for any Permitted Transfer.

As is customary, a Permitted Transfer is defined under Section 10.4(b) to include

transfers to an affiliate or for purposes of estate planning. As to other transfers of Voting

Units, Foresight Reserves only can dispose of its Voting Units if Murray Energy gives

consent, which Murray Energy can withhold in its ―sole and absolute discretion.‖

       New York law governs the Indenture. See Indenture § 12.08. Under New York

law, ―courts ordinarily to give the words and phrases employed their plain and

commonly-accepted meanings.‖ Law Debenture Tr. Co. of N.Y. v. Petrohawk Energy

Corp., 2007 WL 2248150, at *6 (Del. Ch. Aug. 1, 2007) (Strine, V.C.) (citing Laba v.

Carey, 29 N.Y.2d 302, 308 (N.Y. 1971)). Under the plain language of Rule 13d-3(a)(2)

and the New GP Agreement, Murray Energy‘s veto right over Foresight Reserves‘ ability

to transfer its Voting Units makes Murray Energy the Beneficial Owner of the Voting

Units owned by Foresight Reserves. Murray Energy, therefore, is the Beneficial Owner

of both the 34% voting interest represented by its Voting Units and the 66% voting

interest held by Foresight Reserves.

       In an attempt to avoid this outcome, the defendants rely on the word ―the.‖

According to the defendants, the Indenture excluded the possibility of shared Beneficial

Ownership by stating that a Change of Control only would occur if a person other than

Foresight Reserves became ―the Beneficial Owner‖ of more than 35% of the Voting

Units in the General Partner. In other words, despite incorporating a definition which

contemplated that Beneficial Ownership could arise through shared control, the Indenture



                                             16
overrode those concepts by using the definite article ―the‖ rather than the indefinite

article ―a.‖ In support of this reading, the defendants rely on a decision in which this

court observed that, in general usage, ―placing the article ‗the‘ in front of a word

connotes the singularity of the word, whereas using ‗a‘ implies that the modified noun is

but one of several of that kind.‖ ION Geophysical Corp. v. Fletcher Int’l, Ltd., 2010 WL

4378400, at *8 (Del. Ch. Nov. 5, 2010).

      Rejecting the defendants‘ argument threatens no violence to the general principle

correctly identified in ION Geophysical. Under the plain language of Rule 13d-3, a

person can become ―the‖ Beneficial Owner of 35% or more of the Voting Units through

shared control, and that singular person remains ―the‖ Beneficial Owner of 35% or more

of the Voting Units even if another person also is or becomes ―the‖ Beneficial Owner of

35% or more of the Voting Units.

      This interpretation comports with how the SEC itself applies Rule 13d-3. For

example, Item 403(a) of Regulation S-K requires that a registrant provide the following

information:

             (a) Security ownership of certain beneficial owners. Furnish the
      following information . . . with respect to any person . . . who is known to
      the registrant to be the beneficial owner of more than five percent of any
      class of the registrant‘s voting securities.

               ....

            2. For the purposes of this Item, beneficial ownership shall be
      determined in accordance with Rule 13d-3 under the Exchange Act
      (§240.13d-3 of this chapter). Include . . . amounts as to which the beneficial
      owner has (A) sole voting power, (B) shared voting power, (C) sole
      investment power, or (D) shared investment power.



                                           17
17 C.F.R. § 229.403 (emphasis added). As used in Item 403(a), the term ―the beneficial

owner‖ includes both ―shared voting power‖ and ―shared investment power.‖ It thus uses

the term ―the beneficial owner‖ despite the possibility that there could be multiple

beneficial owners.

       The same is true in ordinary English. A person may be called ―the owner,‖ even if

that person is not necessarily ―the sole owner.‖ George Steinbrenner was often referred to

as ―the owner‖ of the New York Yankees, when in fact he was one of the owners. See

Parks v. Steinbrenner, 131 A.D.2d 60, 61-62 (N.Y. App. Div. 1st Dep‘t 1987) (describing

Steinbrenner as ―the owner of an embattled team‖ while acknowledging that he was the

principal owner rather than the exclusive owner).

       Ultimately, ―the essence of proper contract interpretation‖ under New York law is

―to enforce a contract in accordance with the true expectations of the parties in light of

the circumstances existing at the time of the formation of the contract.‖ Reiss v. Fin.

Performance Corp., 279 A.D.2d 13, 19 (N.Y. App. Div. 1st Dep‘t 2000). As counsel to

the defendants recognized at oral argument, ―the underlying purpose of the [Change of

Control Definition] is for the noteholders to be assured that Mr. Cline is basically in

charge.‖ Dkt. 64 at 15. By any reasonable reading of the New GP Agreement, Cline is no

longer basically in charge. Murray Energy is now basically in charge.

       After taking into account the underlying purpose of the Change of Control

Definition, the text and application of Rule 13d-3, and the plain meaning of the

Indenture, it is not possible to interpret the use of the definite article ―the‖ before the term

Beneficial Owner as excluding shared control. Murray Energy‘s veto right over Foresight


                                              18
Reserves‘ ability to transfer its Voting Units makes Murray Energy the Beneficial Owner

of the Voting Units owned by Foresight Reserves.

              2.     Rule 13d-3(b): The Anti-Evasion Language

       The parties debated at length in their briefs whether Murray Energy is the

Beneficial Owner of the Voting Units that it has the right to acquire under the GP Option.

As discussed in the Factual Background, the defendants admit that Murray Energy and

Foresight Reserves sought to contract around the ownership triggers in Rule 13d-3 by

incorporating the Notice Condition and the Refinancing Condition. The Notice Condition

uses 61 days rather than 60 days as the relevant time period because, generally speaking,

a person is only considered the beneficial owner of a security if that person has the right

to acquire the security through the exercise of an option within 60 days. 17 C.F.R. §

240.13d-3(d)(1)(i). The Refinancing Condition requires that any refinancing must be

―reasonably acceptable to‖ Foresight Reserves because cases have held that if a condition

is outside the option holder‘s control, then the option holder lacks the power to acquire

the shares until the condition is met. See, e.g., Transcon Lines v. A.G. Becker, Inc., 470 F.

Supp. 356, 370-71 (S.D.N.Y. 1979) (holding that a party‘s right to acquire a security did

not make that party the beneficial owner of the security because such a right was

contingent on the occurrence of external events).

       In the abstract, efforts to structure a transaction to avoid tripping the terms of an

indenture are perfectly permissible. ―Issuers of corporate debt do not breach their

contractual obligations by structuring transactions to avoid triggering a mandatory




                                             19
redemption provision in favor of Noteholders.‖2 But contract drafters can respond. In an

ever-evolving contractual arms race, sophisticated parties can anticipate efforts to evade

the terms of an agreement. One means of responding is by expanding the literal terms.

Another is through provisions triggered by efforts to evade the literal terms.

       In this case, the drafters of the Indenture chose a definition of Beneficial Owner

that contains anti-evasion language. Rule 13d-3(b) provides, in relevant part:

       Any person who, directly or indirectly, creates or uses a . . . contract,
       arrangement, or device with the purpose or effect of divesting such person
       of beneficial ownership of a security or preventing the vesting of such
       beneficial ownership . . . shall be deemed . . . to be the beneficial owner of
       such security.

17 C.F.R. § 240.13d-3(b). At oral argument, and consistent with the plain language of the

Indenture, the defendants‘ counsel agreed that the definition of Beneficial Owner in the

Indenture incorporated the anti-evasion aspects of Rule 13d-3. See Dkt. 64 at 22.

       The defendants concede that they carefully attempted to evade the Change of

Control Definition. In their opening brief, they stated: ―The parties to the Option

Agreement structured the option exercise period carefully to avoid running afoul of the

beneficial ownership requirements of Rule 13d-3 . . . .‖ Dkt. 42 at 33. At the same time,

they took steps to vest Murray Energy with practical control over the General Partner,




       2
         Law Debenture Trust, 2007 WL 2248150, at *7; accord Concord Real Estate
CDO 2006-1, Ltd. v. Bank of Am. N.A., 996 A.2d 324, at 339 (Del. Ch. 2010); see
Mangano v. Pericor Therapeutics, Inc., 2009 WL 4345149, at *5 & n.49 (Del. Ch. Dec.
1, 2009) (noting that the Court will not redraft a contract because one of the parties
structured a transaction through a ―loophole‖ in contractual language that the parties
could have addressed).


                                             20
both in terms of extraordinary transactions, where the Blocking Rights apply, and

ordinary course of business operations, where Murray Energy runs the show through

Moore and the Management Services Agreement. For purposes of the Change of Control

Definition, this is sufficient to trigger the anti-evasion aspect of Rule 13d-3(b).

       The pricing of the Revised Deal reflects the fact that Murray Energy acquired de

facto control. In the Original Deal, Murray Energy would have paid $1.395 billion to

acquire a package of securities that included 80% of Voting Units. In the Revised Deal,

Murray Energy paid $1.37 billion to acquire the same package of securities, but only 34%

of the Voting Units. The exercise price for the GP Option is $25 million, reflecting the

difference in the purchase price. If Murray Energy truly did not gain control over the

General Partner and Foresight Parent in the Revised Deal, then it means that Cline, a

savvy businessman with over 30 years‘ experience in the coal industry, extracted a

control premium in the Original Deal of just 1.8%. That is preposterous.3 In fact, Murray




       3
          In contrast to the purported 1.8% control premium, a number of studies have
found that control premia in mergers and acquisitions typically range between 30 and
50%. See, e.g., FactSet Mergerstat, Control Premium Study 1st Quarter 2012 2 (2012)
(finding 12-month median control premia of between 34 and 44% for each quarter from
the     first   quarter     of   2009     until    the   first  quarter    of    2012),
http://www.bvmarketdata.com/pdf/CPS1q12Sample.pdf; Jens Kengelbach & Alexander
Roos, The Boston Consulting Group, Riding the Next Wave in M&A: Where Are the
Opportunities to Create Value? 10 (2011) (finding an average acquisition premium of
36%        in     mergers      and     acquisitions    from     2008      to     2011),
https://www.bcg.com/documents/file78141.pdf; G. William Schwert, Markup Pricing in
Mergers and Acquisitions, 41 J. Fin. Econ., 153, 162 (1996) (finding an average control
premium of 37% for successful mergers and acquisitions between 1975 and 1991).


                                              21
Energy received de facto control in the Revised Deal, which is why it paid virtually the

same amount as in the Original Deal.

       It follows that Murray Energy and the defendants (as they admit) sought to ―use[]

a . . . contract . . . with the purpose or effect of preventing the vesting of such beneficial

ownership.‖ 17 C.F.R. § 240.13d-3(b). Under Rule 13d-3(b), Murray Energy is therefore

―deemed . . . to be the beneficial owner of such security.‖ Id.

       To avoid this result, the defendants rely on a concurring opinion in a case that

addressed the disclosure obligations of a Schedule 13D filer and construed the

requirements of Rule 13d-3(b) in that context. See CSX Corp. v. Children’s Inv. Fund

Mgmt. (UK) LLP, 654 F.3d 276 (2d Cir. 2011) (Winter, J., concurring). Recognizing that

Rule 13d as a whole is designed to prevent the accumulation of concealed positions,

Judge Winter observed in his concurrence in CSX that for Rule 13d-3(b) to apply, ―the

transaction must include a component that provides a substantial equivalence of the rights

of ownership relevant to control, or include steps that stop short of, or conceal, the

vesting of ownership, while nevertheless ensuring that such ownership will vest at the

signal of the would-be owner.‖ Id. at 305. The defendants correctly observe that the

Revised Deal made no effort to conceal the GP Option or the terms of the New GP

Agreement. In my view, Judge Winter‘s judicial gloss on Rule 13d as requiring an

element of concealment makes perfect sense for purposes of that regulation. But when the

drafters of the Indenture incorporated the concept of Beneficial Ownership into the

Change of Control Definition, I do not believe that they were concerned about

concealment. As the parties agree, they were concerned with whether anyone other than


                                             22
Cline gained the ability to influence the Foresight family of companies. The Change of

Control Definition, when read as part of the Indenture as a whole, does not incorporate

any concealment requirement.

       Under the anti-evasion language of Rule 13d-3(b), which the Indenture

incorporates by reference in the Change of Control Definition, Murray Energy is the

Beneficial Owner of the Voting Units that are subject to the GP Option. The Revised

Deal therefore caused a Change of Control within the meaning of the Indenture.

              3.     An Event of Default Occurred

       A Change of Control occurred on April 16, 2015, when the Revised Deal closed.

Under the Redemption Clause, the Issuers had to offer to redeem the Notes within 30

days. They failed to do so, giving rise to an Event of Default. Under Section 6.01(3), the

Trustee is entitled to an order compelling the Issuers to perform their obligations under

the Redemption Clause.

B.     Count II: Breach Of The Implied Covenant

       Count II asserts a claim for breach of the implied covenant of good faith and fair

dealing. Because of the ruling on Count I, there is no need to reach this claim. The

Trustee is entitled to relief under the express language of the Indenture, rendering it

unnecessary to consider implied obligations. Count II is moot.

C.     Count III: Indemnification

       Count III seeks indemnification for the Trustee‘s reasonable costs and expenses,

including attorneys‘ fees. Section 7.07 of the Indenture states:




                                             23
               The Issuers, jointly and severally, failing which each Guarantor,
        jointly and severally, shall reimburse the Trustee upon request for all
        reasonable out-of-pocket expenses incurred or made by it . . . . Such
        expenses shall include the reasonable compensation and out-of-pocket
        expenses of the Trustee‘s agents and counsel.

                The Issuers, jointly and severally, failing which each Guarantor,
        jointly and severally, shall indemnify the Trustee . . . and hold it and them
        harmless from and against any . . . expense (including attorneys‘ fees and
        expenses) incurred by it or any of them arising out of or in connection with
        the administration of this trust and the acceptance or performance of any of
        its powers or duties hereunder . . . (including the costs and expenses of
        enforcing this Indenture including this Section 7.07) . . . . The Issuers shall
        not reimburse any expense or indemnify against any loss, liability or
        expense incurred by the Trustee through the Trustee‘s own willful
        misconduct or negligence.

Indenture § 7.07. The Trustee brought this action to enforce the Redemption Clause.

There are no allegations that its costs and expenses resulted from its own willful

misconduct or negligence. Under Section 7.07, the Trustee is entitled to its reasonable

costs and expenses, including attorneys‘ fees.

        This decision decides only the issue of liability. It does not establish the specific

amount of reasonable costs and expenses, including attorneys‘ fees, to which the Trustee

is entitled.

                               III.       CONCLUSION

        The Trustee‘s motion for judgment on the pleadings is granted as to Counts I and

III. Count II is moot. The defendants‘ motion for judgment on the pleadings is denied.

The parties shall meet and confer regarding the amount of the Trustee‘s reasonable costs

and expenses. If they cannot agree, the Trustee shall make an application.




                                              24
