INDEPENDENT AUDITORS REPORT
The Board of Directors
Fifth Creek Energy Operating Company,
LLC:
We have audited the accompanying financial statements of Fifth Creek Energy Operating Company, LLC, which comprise the balance sheets
as of December 31, 2016, 2015, and 2014, and the related statements of income, changes in stockholders equity, and cash flows for the years ended December 31, 2016 and 2015 and for the period from April 21, 2014 (inception)
through December 31, 2014, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally
accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fifth Creek
Energy Operating Company, LLC as of December 31, 2016, 2015, and 2014, and the results of its operations and its cash flows for the years ended December 31, 2016 and 2015 and for the period from April 21, 2014 (inception) through
December 31, 2014, in accordance with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
December 15, 2017
F-2
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
BALANCE SHEETS
DECEMBER 31, 2016, 2015 AND 2014
|
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|
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2016
|
|
|
2015
|
|
|
2014
|
|
ASSETS
|
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|
|
|
|
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|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,409,984
|
|
|
$
|
2,414,999
|
|
|
$
|
566,021
|
|
Restricted cash current
|
|
|
155,526
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
|
1,304,220
|
|
|
|
|
|
|
|
|
|
Joint interest and other
|
|
|
140,117
|
|
|
|
|
|
|
|
736
|
|
Other current assets
|
|
|
332,156
|
|
|
|
57,387
|
|
|
|
20,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,342,003
|
|
|
|
2,472,386
|
|
|
|
587,126
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|
|
|
|
|
|
|
|
|
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|
|
|
|
Property and equipment:
|
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|
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|
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|
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|
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Oil and natural gas properties, successful efforts method
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
|
125,229,720
|
|
|
|
|
|
|
|
|
|
Wells in progress
|
|
|
4,387,126
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
|
1,261,694
|
|
|
|
|
|
|
|
|
|
Less accumulated depletion, depreciation and amortization
|
|
|
(1,298,346
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net oil and gas properties
|
|
|
129,580,194
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
|
912,214
|
|
|
|
361,790
|
|
|
|
23,577
|
|
Less accumulated depreciation
|
|
|
(216,890
|
)
|
|
|
(55,870
|
)
|
|
|
(3,363
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total furniture, fixtures and equipment, net
|
|
|
695,324
|
|
|
|
305,920
|
|
|
|
20,214
|
|
Total property and equipment, net
|
|
|
130,275,518
|
|
|
|
305,920
|
|
|
|
20,214
|
|
Restricted cash long-term
|
|
|
|
|
|
|
155,526
|
|
|
|
|
|
Other long-term assets, net
|
|
|
280,741
|
|
|
|
46,742
|
|
|
|
31,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
135,898,262
|
|
|
$
|
2,980,574
|
|
|
$
|
639,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
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Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
8,597,897
|
|
|
$
|
214,049
|
|
|
$
|
52,771
|
|
Oil and gas revenue distribution payable
|
|
|
818,616
|
|
|
|
|
|
|
|
|
|
Mustang Creek payable
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
Related party payable
|
|
|
|
|
|
|
|
|
|
|
56,714
|
|
Short-term gas gathering liability
|
|
|
745,534
|
|
|
|
|
|
|
|
|
|
Derivative instruments, current portion
|
|
|
322,928
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
63,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,548,285
|
|
|
|
714,049
|
|
|
|
109,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term gas gathering liability
|
|
|
7,228,713
|
|
|
|
|
|
|
|
|
|
Derivative instruments, long-term portion
|
|
|
513,655
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation
|
|
|
1,932,809
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
104,315
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|
|
|
61,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
9,779,492
|
|
|
|
61,165
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Commitments and contingencies (Note 12)
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|
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|
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Members equity:
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|
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|
|
|
|
|
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|
|
Contributed capital, net, 11,500,000 units authorized, issued and outstanding as of
December 31, 2016 and 2015, respectively; 1,000,000 units authorized, issued and outstanding as of December 31, 2014
|
|
|
135,048,356
|
|
|
|
16,481,676
|
|
|
|
1,000,000
|
|
Accumulated deficit
|
|
|
(19,477,871
|
)
|
|
|
(14,276,316
|
)
|
|
|
(470,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
115,570,485
|
|
|
|
2,205,360
|
|
|
|
529,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
135,898,262
|
|
|
$
|
2,980,574
|
|
|
$
|
639,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-3
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2016 AND 2015, AND FOR THE PERIOD FROM APRIL 21, 2014
(INCEPTION) THROUGH DECEMBER 31, 2014
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|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
$
|
4,817,192
|
|
|
$
|
|
|
|
$
|
|
|
Natural gas liquids
|
|
|
731,011
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
|
424,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,973,198
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|
|
|
|
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|
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|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
1,219,961
|
|
|
|
|
|
|
|
|
|
Gathering, processing and transportation costs
|
|
|
1,336,125
|
|
|
|
|
|
|
|
|
|
Severance and ad valorem taxes
|
|
|
303,260
|
|
|
|
|
|
|
|
|
|
Depletion, depreciation and amortization
|
|
|
1,459,366
|
|
|
|
52,507
|
|
|
|
3,363
|
|
Accretion expense
|
|
|
73,862
|
|
|
|
|
|
|
|
|
|
Exploration and abandonment
|
|
|
23,408
|
|
|
|
|
|
|
|
|
|
General and administrative expenses, net of reimbursements
|
|
|
4,987,821
|
|
|
|
2,736,576
|
|
|
|
467,108
|
|
Acquisition expenses
|
|
|
942,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
10,345,926
|
|
|
|
2,789,083
|
|
|
|
470,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,372,728
|
)
|
|
|
(2,789,083
|
)
|
|
|
(470,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative loss
|
|
|
(812,737
|
)
|
|
|
|
|
|
|
|
|
Loss from equity method investment in Mustang Creek, including impairment
|
|
|
|
|
|
|
(11,017,797
|
)
|
|
|
|
|
Interest expense
|
|
|
(20,762
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,672
|
|
|
|
893
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(828,827
|
)
|
|
|
(11,016,904
|
)
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,201,555
|
)
|
|
$
|
(13,805,987
|
)
|
|
$
|
(470,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial
statements.
F-4
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF MEMBERS EQUITY
YEARS ENDED DECEMBER 31, 2016 AND 2015, AND FOR THE PERIOD FROM APRIL 21, 2014
(INCEPTION) THROUGH DECEMBER 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
Balance, April 21, 2014 (inception)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of members interest
|
|
|
1,000,000
|
|
|
|
|
|
|
|
1,000,000
|
|
Net loss
|
|
|
|
|
|
|
(470,329
|
)
|
|
|
(470,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
$
|
1,000,000
|
|
|
$
|
(470,329
|
)
|
|
$
|
529,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of members interest net of issuance costs
|
|
|
15,481,676
|
|
|
|
|
|
|
|
15,481,676
|
|
Net loss
|
|
|
|
|
|
|
(13,805,987
|
)
|
|
|
(13,805,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
16,481,676
|
|
|
$
|
(14,276,316
|
)
|
|
$
|
2,205,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of members interest net of issuance costs
|
|
|
118,566,680
|
|
|
|
|
|
|
|
118,566,680
|
|
Net loss
|
|
|
|
|
|
|
(5,201,555
|
)
|
|
|
(5,201,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
135,048,356
|
|
|
$
|
(19,477,871
|
)
|
|
$
|
115,570,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-5
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016 AND 2015, AND FOR THE PERIOD FROM APRIL 21, 2014
(INCEPTION) THROUGH DECEMBER 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,201,555
|
)
|
|
$
|
(13,805,987
|
)
|
|
$
|
(470,329
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
1,459,366
|
|
|
|
52,507
|
|
|
|
3,363
|
|
Accretion expense
|
|
|
73,862
|
|
|
|
|
|
|
|
|
|
Exploration and abandonment
|
|
|
23,408
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
56,982
|
|
|
|
|
|
Derivative fair value loss
|
|
|
836,583
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
8,818
|
|
|
|
|
|
|
|
|
|
Amortization of gas gathering liability
|
|
|
(467,753
|
)
|
|
|
|
|
|
|
|
|
Loss on investment in Mustang Creek, including impairment
|
|
|
|
|
|
|
11,017,797
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,389,733
|
)
|
|
|
(56,246
|
)
|
|
|
(736
|
)
|
Accounts receivable for derivative settlement
|
|
|
(23,846
|
)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(255,298
|
)
|
|
|
(37,018
|
)
|
|
|
(20,369
|
)
|
Other long-term assets
|
|
|
|
|
|
|
(46,742
|
)
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
4,236,902
|
|
|
|
192,790
|
|
|
|
21,259
|
|
Related party payable
|
|
|
|
|
|
|
(49,969
|
)
|
|
|
49,969
|
|
Other long-term liabilities
|
|
|
43,150
|
|
|
|
61,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(656,096
|
)
|
|
|
(2,614,721
|
)
|
|
|
(416,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of oil and gas properties
|
|
|
(107,826,573
|
)
|
|
|
|
|
|
|
|
|
Exploration and development of oil and gas properties
|
|
|
(7,811,875
|
)
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(508,320
|
)
|
|
|
(344,958
|
)
|
|
|
(16,832
|
)
|
Purchase of equity method investment
|
|
|
|
|
|
|
(10,527,780
|
)
|
|
|
(304
|
)
|
Payment of equity method activity overage
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from reimbursement of due diligence cost from MCEP
|
|
|
|
|
|
|
10,287
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
(155,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(116,646,768
|
)
|
|
|
(11,017,977
|
)
|
|
|
(17,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Member contributions
|
|
|
120,580,372
|
|
|
|
15,763,639
|
|
|
|
1,000,000
|
|
Equity issuance cost
|
|
|
(2,013,692
|
)
|
|
|
(281,963
|
)
|
|
|
|
|
Debt issuance costs related to credit facility
|
|
|
(268,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
118,297,849
|
|
|
|
15,481,676
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
994,985
|
|
|
|
1,848,978
|
|
|
|
566,021
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,414,999
|
|
|
|
566,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
3,409,984
|
|
|
$
|
2,414,999
|
|
|
$
|
566,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
4,872,146
|
|
|
$
|
|
|
|
$
|
|
|
Asset retirement obligations
|
|
$
|
1,858,947
|
|
|
$
|
|
|
|
$
|
|
|
Change in related party payable to property and equipment
|
|
$
|
|
|
|
$
|
(6,745
|
)
|
|
$
|
6,745
|
|
Accrual of equity method investment transactional costs
|
|
$
|
|
|
|
$
|
(31,512
|
)
|
|
$
|
31,512
|
|
Accrual of Mustang Creek operational overage
|
|
$
|
|
|
|
$
|
500,000
|
|
|
$
|
|
|
See accompanying notes to financial statements.
F-6
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016, 2015 and 2014
NOTE 1 Organization, Operations and Basis of Presentation
Fifth Creek Energy Operating Company, LLC (also known as Fifth Creek Management Company, LLC herein referred to as Fifth Creek
Energy or the Company), a Delaware limited liability company was formed on April 21, 2014. Fifth Creek Energy is engaged in the leasing, acquisition, exploration, production, development, processing, gathering, marketing and
transporting of oil, gas and natural gas liquids in the Rocky Mountain region, primarily in the Northern Denver-Julesburg Basin of Colorado. On January 22, 2015 all of the Companys units were contributed to Fifth Creek Energy Company,
LLC, a Delaware limited liability company formed on October 10, 2014.
These financial statements and related notes are presented in
accordance with GAAP. Preparation in accordance with GAAP requires us to (1) adopt accounting policies within accounting rules set by the Financial Accounting Standards Board (FASB) and (2) make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management believes the major
estimates and assumptions impacting our financial statements are the following:
|
|
|
estimates of proved reserves of natural gas and oil, which affect the calculations of depreciation, depletion and amortization, as well as the calculation for impairment of capitalized costs of natural gas and oil
properties;
|
|
|
|
estimates of asset retirement obligations;
|
|
|
|
estimates of the fair value of natural gas and oil properties that Fifth Creek Energy owns, including properties that we have not yet explored, or fully explored by drilling and completing wells;
|
|
|
|
estimates of revenue accruals;
|
|
|
|
impairment reviews of undeveloped properties and other assets;
|
|
|
|
impairment of equity investments;
|
|
|
|
estimates of fair value of derivative instruments;
|
|
|
|
acquisition accounting estimates and assignment of fair value of assets and liabilities acquired;
|
|
|
|
estimates and assumptions used in the disclosure of commitments and contingencies
|
Although
management believes these estimates are reasonable, actual results may differ from estimates and assumptions of future events and these revisions could be material. Future production may vary materially from estimated oil and natural gas proved
reserves. Actual future prices may vary significantly from price assumptions used for determining proved reserves and for financial reporting.
NOTE
2 Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments, with original maturities of three months or less. The Company may at times have
balances in excess of federally insured limits.
Restricted Cash
In 2015, Fifth Creek Energy entered into a letter of credit in the amount of approximately $155,000 with Wells Fargo Bank to comply with the
Companys office lease requirement. As a result of the letter of credit,
F-7
Fifth Creek Energy was required to secure the letter of credit with a deposit of approximately $155,000 into a certificate of deposit. The letter of credit matured on September 30, 2016 and
automatically extended in
one-year
periods. The requirement expired on March 31, 2017 and the letter of credit matured on September 30, 2017, at which time the deposit was transferred to the
available cash of the Company. The deposit was classified as restricted cash and recorded in current assets as of December 31, 2016 and long-term assets as of December 31, 2015.
Accounts Receivable
The
Companys accounts receivable are generated primarily from the sale of oil, natural gas and NGLs to various customers, and from the billing of working interest partners for work on wells the Company operates. The Company monitors the financial
strength of its customers, partners, and counterparties. For the years ended December 31, 2016, 2015 and the period from April 21, 2014 (inception) through December 21, 2014, the Company had no bad debt expense related to trade
receivables.
Accounts Receivable, Related Party
The Company accrued for reimbursement of services provided by Fifth Creek Energy employees to Mustang Creek Energy Company, LLC. The services
charged to Mustang Creek are based on hourly rates derived from salary and benefits of each employee working on Mustang Creek Energy Company, LLC and the number of hours spent. The related party receivables are periodically reviewed by management
for collectability and appropriate actions are taken on past due amounts, if any. The receivables are not collateralized. For the year ended December 31, 2016, the Company had no bad debt expense. As of December 31, 2015, the Company had
allowance for uncollectible accounts from a related party of approximately $57,000. For the period from April 21, 2014 (Inception) through December 31, 2014, the Company had no bad debt expense.
Other Current Assets and Accounts Payable and Accrued Expenses
The components of other current assets and accounts payable and accrued expenses are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
265,164
|
|
|
$
|
57,387
|
|
|
$
|
20,369
|
|
Inventory
|
|
|
66,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other current assets
|
|
$
|
332,156
|
|
|
$
|
57,387
|
|
|
$
|
20,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
4,872,146
|
|
|
$
|
|
|
|
$
|
|
|
Trade accounts payable
|
|
|
2,620,251
|
|
|
|
211,414
|
|
|
|
52,771
|
|
Production and other taxes payable
|
|
|
477,440
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
628,060
|
|
|
|
2,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
8,597,897
|
|
|
$
|
214,049
|
|
|
$
|
52,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory of Oilfield Equipment
Inventory consists of material and supplies used in connection with the Companys drilling program. These inventories are stated at the
lower of cost or market, which approximates fair value.
F-8
Oil and Gas Producing Activities
Proved Oil and Natural Gas Properties
The Company accounts for its oil and natural gas exploration and development costs using the successful efforts method. Under this method, all
costs incurred related to the acquisition of oil and natural gas properties and the costs of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed if and when the
well is determined not to have recoverable reserves in commercial quantities. Other items charged to expense generally include geological and geophysical costs, delay rentals and lease and well operating costs. At December 31, 2016 the Company
had three exploratory wells in the process of being drilled or completed. Capitalized exploratory well costs are recorded in the wells in progress line on the accompanying balance sheets. All three wells were completed in 2017 as successful
development wells.
Capitalized leasehold costs attributable to proved properties are depleted using the
units-of-production
method based on proved reserves on a field basis. Capitalized well costs, including asset retirement costs, are depleted based on proved developed reserves on a field basis. For the year
ended December 31, 2016, the Company recorded depletion for oil and natural gas properties of $1.3 million. Depletion expense is included in depletion, depreciation and amortization expense on the accompanying statements of operations.
Proved oil and natural gas properties are reviewed for impairment when facts and circumstances indicate their carrying value may not be
recoverable. The Company estimates the expected future cash flows of oil and natural gas properties and compares these undiscounted cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is
recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will write down the carrying amount of the oil and natural gas properties to estimated fair value. The factors used to determine fair value may
include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, estimated future capital expenditures and a commensurate discount rate. These assumptions and estimates represent Level 3 inputs. The
Company did not record any impairment expenses associated with its proved properties during the year ended December 31, 2016. The Company did not have any reserves prior to 2016.
The Company records the fair value of an asset retirement obligation as an asset and a liability when there is a legal obligation associated
with the retirement of a long-lived asset and the amount can be reasonably estimated. The increase in carrying value is included in proved properties in the accompanying balance sheets. The Company depletes the amount added to proved properties and
recognizes expense in connection with accretion of the discounted liability over the remaining estimated economic lives of the properties. The liability value recorded associated with the ARO is an estimate of the costs, based on todays
estimates of reclamation, inflated to a future value and then discounted to a present value utilizing an estimate of a credit-adjusted risk-free discount rate. For additional discussion, please refer to Note 4 Asset Retirement
Obligations.
Unproved Oil and Natural Gas Properties
Unproved oil and natural gas properties consist of costs to acquire undeveloped leases and unproved reserves, and are capitalized when
incurred. When a successful well is drilled on an undeveloped leasehold or reserves are otherwise attributed to a property, unproved property costs are transferred to proved properties.
Unproved properties are periodically assessed for impairment on a
property-by-property
basis. The Company evaluates significant unproved properties for impairment based on remaining lease term, drilling results, reservoir performance,
seismic interpretation or future plans to develop acreage, and records impairment expense for any decline in value.
Furniture, Fixtures and
Equipment
Furniture, fixtures and equipment consists primarily of office furniture, equipment and leasehold improvements. Renewals
and betterments, which substantially extend the useful lives of the assets, are
F-9
capitalized. Maintenance and repairs are expensed when incurred. Property and equipment, and software are depreciated using the straight-line method over 3 to 5 years. Leasehold improvements are
depreciated using the straight-line method over the life of the office lease. Depreciation expense for December 31, 2016, 2015 and for the period from April 21, 2014 (inception) through December 31, 2014 was $161,020, $52,507, and
$3,363 respectively.
Furniture, fixtures and equipment consists of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Computer software and equipment
|
|
$
|
614,830
|
|
|
$
|
125,087
|
|
|
$
|
11,054
|
|
Leasehold improvements
|
|
|
91,508
|
|
|
|
85,942
|
|
|
|
|
|
Furniture and fixtures
|
|
|
205,876
|
|
|
|
150,761
|
|
|
|
12,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
912,214
|
|
|
|
361,790
|
|
|
|
23,577
|
|
Accumulated depreciation
|
|
|
(216,890
|
)
|
|
|
(55,870
|
)
|
|
|
(3,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total furniture, fixtures and equipment
|
|
$
|
695,324
|
|
|
$
|
305,920
|
|
|
$
|
20,214
|
|
Equity Investments
In 2015, the Company acquired a 33.3% investment in Mustang Creek Energy Partners, LLC (MCEP) a joint venture with NexGen Oil & Gas,
LLC (NexGen) formed on January 15, 2015. Equity investments in which the Company exercises significant influence but does not control are accounted for using the equity method. Under the equity method, the Companys share of
investees earnings or loss, after elimination of intra-company profit or loss, is recognized in the statement of operations. The Company reviews its investments to determine if a loss in value which is other than a temporary decline has
occurred. If such loss has occurred, the Company would recognize an impairment charge on the equity investment. At December 31, 2015, the Company recognized an other than temporary impairment of approximately $11 million for its entire
equity investment in Mustang Creek Energy, LLC.
Other Long-Term Assets
As of December 31, 2016, other long-term assets included capitalized costs incurred in connection with the issuance of the revolving
credit facility in the amount of $260,014, net of accumulated amortization, and other long-term deposits. As of December 31, 2015, other long-term assets included miscellaneous long-term deposits. At December 31, 2014, other long-term
assets included the Companys equity investment.
Revenue Recognition
Revenue is recognized when production is delivered to a purchaser at a fixed and/or determinable price, title has transferred and the
collectability of the revenue is reasonably assured. At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price the Company will receive. The Company factors in historical performance, quality
and transportation differentials, commodity prices, and other factors when deriving revenue estimates. Oil, natural gas and NGL revenue is recorded using the sales method. Under the sales method, revenues are based on actual sales volumes of
commodities sold to purchasers.
Significant Customers
The Companys oil, natural gas and NGL production is sold to a relatively small number of customers. For the year ended December 31,
2016, two purchasers each accounted for more than 10% of the Companys total production revenue, 83% and 12% respectively. The Company had no oil and gas sales revenue in 2015 and 2014. The loss of any single purchaser could materially and
adversely affect our revenues in the short-term; however, the Company believes that the loss of any of its purchasers would not have a long-term material adverse effect on its financial condition and results of operations as oil and natural gas are
fungible products with well-established markets and numerous purchasers.
F-10
Income Taxes
The Company is not a taxable entity for federal income tax purposes. As such, the Company does not directly pay federal income tax.
Accordingly, the accompanying financial statements do not include a provision or liability for income taxes. The Companys taxable income or loss, which may vary substantially from the net income or loss reported in the statement of operations,
is includable in the federal income tax returns of each member based on their allocated share.
The Company found no uncertain tax
positions in 2016, 2015 or from the period beginning April 21, 2014 through December 31, 2014 under the provisions of Accounting Standards Codification (ASC) 740,
Accounting for
Uncertainty in Income Taxes
. The Companys
policy is to recognize accrued interest related to unrecognized tax benefits in interest expense, and to recognize tax penalties in operating expense. As of December 31, 2016, 2015 and 2014, the Company made no provision for interest or
penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various states. There are currently no federal or state income tax examinations underway for these jurisdictions and tax returns
for the periods from 2014 to 2016 are still open to examination.
Derivative Instruments
The Company uses commodity derivative instruments to manage its exposure to oil and natural gas price volatility. All of the commodity
derivative instruments are utilized to manage price risk attributable to the Companys expected oil and natural gas production, and the Company does not enter into such instruments for speculative trading purposes. The Company does not
designate any derivative instruments as hedges for accounting purposes. The Company records all derivative instruments on the balance sheet as either assets or liabilities measured at their estimated fair value. The Company records gains and losses
from the change in fair value of derivative instruments in current earnings as they occur.
Fair Value of Financial Instruments
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value
measurements, the fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in accordance with ASC Topic 820.
The carrying amount of cash equivalents, receivables, other current assets, accounts payable and accrued expenses approximate fair value
because of the short-term nature of those instruments.
Comprehensive Income
The Company has no elements of comprehensive income other than net loss.
Recent Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update (ASU)
2014-09,
Revenue from
Contracts with Customers (Topic 606)
, which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new guidance will require a company to recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The new standards are
F-11
effective for the Company on January 1, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2016. The Company intends to adopt this standard on
January 1, 2019, but has not yet selected a transition method. The Company is still assessing the effects of adoption of the new standard on its financial statements.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU
2015-03,
Interest-Imputation of Interest, Simplifying the
Presentation of Debt Issuance Costs
and ASU
2015-15,
Interest-Imputation of Interest-Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit
Arrangements
in August 2015. These ASUs simplify the presentation of debt issuance costs by requiring such costs (except for those related to revolving credit facilities) to be presented in
the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than as an asset. These ASUs are effective for the Company on January 1, 2016, and are required to be adopted retrospectively. Early adoption
is permitted. The Company adopted these ASUs at December 31, 2016. Through December 31, 2016, the Companys debt was comprised solely of obligations under our revolving credit facility. Accordingly, the debt issuance costs related to
the revolving credit facility continue to be classified as assets on the Companys balance sheets.
Leases
On February 25, 2016, the Financial Accounting Standards Board (FASB) issued ASU
2016-02,
Leases (ASU
2016-02).
ASU
2016-02
will require lessees to present
right-of-use
assets and lease liabilities on their balance sheets.
ASU
2016-02
is effective for annual and interim periods beginning January 1, 2020. Early adoption
of ASU
2016-02
is permitted. Upon adoption of ASU
2016-02,
the Company is required to recognize and measure leases at the beginning of the earliest period presented in
Fifth Creek Energys financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that the Company may elect to apply. The Company has not yet decided when
Fifth Creek Energy will adopt ASU
2016-02
or which practical expedient options we will elect. Fifth Creek Energy is currently evaluating and assessing the impact ASU
2016-02
will have on Fifth Creek Energys financial statements. As of the date of this report, the Company cannot provide any estimate of the impact of adopting ASU
2016-02.
NOTE 3 Acquisition
On July 15, 2016, Fifth Creek Energy acquired proved and unproved oil, NGL and natural gas properties from the Seller (the
Properties). The oil, NGL and natural gas properties are located in the DJ Basin located in Weld County in Colorado. The Properties acquired were approximately 51,641 net acres. The aggregate purchase price totaled approximately
$108 million in cash. Transaction costs were $942,000 and were recorded as an operating expense in the statement of operations.
Acquisitions are accounted for under the acquisition method of accounting in accordance with ASC Topic 805,
Business Combinations
(ASC Topic 805). An acquisition may result in the recognition of goodwill or a bargain purchase gain based on the measurement of the fair value of the assets acquired at the acquisition date as compared to the fair value of consideration
transferred, adjusted for purchase price adjustments. Any such gain would be recognized in current period earnings and classified in other income and expense in the accompanying statement of operations. The Company did not recognize goodwill or
bargain purchase as a result of the acquisition of the Properties.
The results of operations of the Properties acquired have been
included in the financial statements since the Closing Date.
F-12
The fair value measurements of natural gas, oil and NGL properties, other assets, and other
liabilities are based upon inputs that are not observable in the market and therefore represent Level 3 inputs. The preliminary fair values of natural gas, oil and NGL properties, other assets and liabilities, and ARO were measured using
valuation techniques that convert future cash flows to a single discounted amount. The estimated proved reserves and the associated future net revenues were discounted using a market-based weighted average cost of capital. Significant inputs to the
valuation of natural gas, oil and NGL properties include estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and a market-based weighted average cost of capital rate. ARO assumptions
include inputs such as estimated plugging, abandonment and reclamation costs, assumptions about inflation factors, an estimate of a credit-adjusted risk-free interest rate and the expected economic recoveries of natural gas, oil and NGLs and time to
abandonment. These inputs require significant judgments and estimates by management at the time of the preliminary valuation and are subject to change.
The following table summarizes estimates of the fair value of identifiable assets acquired and liabilities assumed as of the Closing Date
(rounded):
|
|
|
|
|
Purchase price
|
|
|
|
|
Consideration given
|
|
|
|
|
Cash
|
|
$
|
108,000,000
|
|
|
|
|
|
|
Total consideration given
|
|
$
|
108,000,000
|
|
|
|
|
|
|
Allocation of purchase price
|
|
|
|
|
Proved oil and gas properties
|
|
$
|
117,665,000
|
|
Unproved properties
|
|
|
563,000
|
|
Asset retirement obligation
|
|
|
(1,785,000
|
)
|
|
|
|
|
|
Total fair value of oil and gas properties acquired
|
|
$
|
116,443,000
|
|
Gas gathering liability
|
|
|
(8,443,000
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
108,000,000
|
|
|
|
|
|
|
At the time of the transaction, a valuation of the ARO liability was determined and the Company recorded an
ARO asset and liability of $1.8 million. The ARO asset has been included within the proved natural gas and oil properties and is subject to the
units-of-production
amortization applied to the proved property base.
As part of the transaction, the Company acquired a gas gathering agreement with Summit
Midstream Partners, LP (formerly Bear Tracker Energy, LLC) (the Agreement). Under the provisions of the Agreement, the Company is committed to sell its produced volumes at a predetermined fee, that as of the date of the Acquisition, was
below market. Based on estimated future production, the Company estimates that, under the terms of the Agreement it will incur unfavorable expenses due to the current market conditions, therefore, we have accounted for this agreement under the
accounting guidance in ASC Topic 805 as an unfavorable contract. The Company estimated the future payments over the term of the commitment period and discounted those payments using a market-based cost of debt rate and determined the fair value of
$8.4 million. These inputs require significant judgments and estimates by management. The liability associated with the Agreement is referred to as the gas gathering liability throughout these financial statements and is presented
as current and noncurrent accrued liabilities within the balance sheet and will be subsequently amortized ratably over the
11-year
term.
NOTE 4 Asset Retirement Obligations
The Company recognizes an estimated liability for future costs to abandon its oil and gas properties. The time associated with the estimates of
our ARO liability occur over the operating lives of the assets, estimated to range from less than one year to 30 years. Estimated cash flows have been discounted at our credit-adjusted risk-
F-13
free rate of 8.0%, and adjusted for inflation using a rate of 2.25%. Our credit-adjusted risk-free rate is calculated based on our cost of borrowing adjusted for the effect of our credit standing
and specific industry and business risk.
The Company considers the inputs to the ARO valuation to be Level 3, as fair value is
determined using discounted cash flow methodologies based on standardized inputs that are not readily observable in public markets.
The
AROs as of December 31, 2016, reported on our balance sheet and the changes in the AROs were as follows:
|
|
|
|
|
|
|
December 31,
2016
|
|
Balance at December 31, 2015
|
|
$
|
|
|
Liabilities incurred or acquired
|
|
|
1,858,947
|
|
Liabilities settled
|
|
|
|
|
Revisions in estimated cash flows
|
|
|
|
|
Accretion expense
|
|
|
73,862
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,932,809
|
|
|
|
|
|
|
NOTE 5 Derivative Instruments
In December 2016, the Company entered into a commodity derivative contract to mitigate a portion of its exposure to potentially adverse market
changes in commodity prices and the associated impact on cash flows. The contract is indexed to the NYMEX WTI price which has a high degree of correlation with actual prices received by the Company, before differentials.
The Company has not designated its commodity derivative contract as a hedging instrument for financial reporting purposes. Accordingly,
commodity derivative instrument is marked to market at period end, with the change in fair value during the reporting period currently recognized as loss in Derivative loss in the statements of operations. The Companys derivative
instruments are carried at fair value on the balance sheets. The Company estimates the fair value using risk adjusted discounted cash flow calculations. Cash flows are based on published future commodity price curves for the underlying commodity as
of the date of the estimate. Due to the volatility of commodity prices, the estimated fair values of the Companys derivative instruments are subject to fluctuation from period to period, which could result in significant differences between
the current estimated fair value and the ultimate settlement price.
The following table summarizes the Companys derivative contract
as of December 31, 2016:
|
|
|
|
|
|
|
|
|
Contract Period
|
|
Volumes
(Bbls)
|
|
|
Price
($/Bbl)
|
|
Oil Swap(1):
|
|
|
|
|
|
|
|
|
Year ending December 31, 2017
|
|
|
140,269
|
|
|
$
|
54.00
|
|
Year ending December 31, 2018
|
|
|
121,175
|
|
|
$
|
54.00
|
|
Year ending December 31, 2019
|
|
|
106,716
|
|
|
$
|
54.00
|
|
(1)
|
The index price for the oil swap is based on the NYMEX WTI monthly average futures price.
|
F-14
The following table presents the amounts and classifications of the Companys derivative
liabilities as of December 31, 2016.
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Fair value
|
|
Derivative Assets
|
|
|
|
|
|
|
Commodity contracts
|
|
Current assets
|
|
$
|
|
|
Commodity contracts
|
|
Noncurrent assets
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
$
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
Commodity contracts
|
|
Current liabilities
|
|
$
|
322,928
|
|
Commodity contracts
|
|
Long-term liabilities
|
|
$
|
513,655
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
836,583
|
|
|
|
|
|
|
|
|
The Company did not have any derivative contracts as of December 31, 2015 or 2014.
The Company recognized the following gains (losses) in earnings for the year ended December 31, 2016:
|
|
|
|
|
|
|
2016
|
|
Change in fair value
|
|
$
|
(836,583
|
)
|
Derivative settlement gain
|
|
|
23,846
|
|
|
|
|
|
|
Total derivative loss
|
|
$
|
(812,737
|
)
|
|
|
|
|
|
The Companys counterparty credit exposure related to commodity derivative instruments is represented by
contracts at the reporting date. These outstanding instruments, if any, expose the Company to credit risk in the event of nonperformance by the counterparties to the agreements. Should the creditworthiness of the Companys counterparties
decline, its ability to mitigate nonperformance risk is limited to a counterparty agreeing to either a voluntary termination and subsequent cash settlement or a novation of the derivative contract to a third party. In the event of a counterparty
default, the Company may sustain a loss and its cash receipts could be negatively impacted. The counterparty under the existing agreement is a member of a syndicate and we have a legal right to offset assets and liabilities at settlement or in the
event of default similar to a master netting agreement. The Company and its counterparties routinely exercise the contractual right to offset gains and losses at settlement.
NOTE 6 Fair Value Measurements
The Company follows fair value measurement authoritative guidance, which defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and expands disclosures about fair value measurements. The authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Companys assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels
based on the reliability of the inputs as follows:
|
|
|
Level 1: Quoted prices are available in active markets for identical assets or liabilities
|
|
|
|
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are
observable or whose significant value drivers are observable
|
|
|
|
Level 3: Significant inputs to the valuation model are unobservable
|
F-15
Financial and
non-financial
assets and liabilities are to
be classified based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation
of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The Company recognizes transfers between the levels of fair value hierarchy at the end of the reporting period.
The following table is a listing of the Companys assets and liabilities that were measured at fair value on a recurring basis as of
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets from commodity derivative contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities from commodity derivative contracts
|
|
$
|
|
|
|
$
|
836,583
|
|
|
$
|
|
|
The Company did not have any assets and liabilities measured at fair value on a recurring basis at
December 31, 2015 or 2014.
The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its
nonfinancial assets and liabilities, such as the acquisition or impairment of proved and unproved oil and gas properties and the inception value of asset retirement obligations. These assets and liabilities are subject to fair value adjustments only
in certain circumstances and are not subject to recurring revaluations. See further discussion in Note 3 Acquisition.
The Company reviews its proved oil and natural gas properties for impairment whenever facts and circumstances indicate their carrying value
may not be recoverable. In such circumstances, the income approach is used to determine the fair value of proved oil and natural gas reserves. Under this approach, the Company estimates the expected future cash flows of oil and natural gas
properties and compares these undiscounted cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the
Company will write down the carrying amount of the oil and natural gas properties to estimated fair value. The factors used to determine fair value may include, but are not limited to, estimates of reserves, future commodity prices, future
production estimates, estimated future capital expenditures and a commensurate discount rate. These assumptions and estimates represent Level 3 inputs. No impairments were recorded on proved properties during the years ended December 31,
2016 or 2015, or during the period from April 21, 2014 (Inception) through December 31, 2014.
Unproved oil and natural gas
property costs are evaluated for impairment and reduced to fair value when there is an indication that the carrying costs may not be recoverable. To measure the fair value of the unproved properties, the Company uses a market approach, and takes
into account future development plans, remaining lease term, drilling results, and reservoir performance. The Company recorded impairment of unproved oil and gas properties expense of $23,408 for the year ended December 31, 2016 resulting from
lease expirations. The Company did not record any impairments of unproved oil and gas properties during the year ended December 31, 2015 or for the period from April 21, 2014 (Inception) through December 31, 2014. These assumptions
and estimates represent Level 3 inputs.
The inception value of the Companys AROs and gas gathering liability are also measured
at fair value on a nonrecurring basis. The inputs used to determine such fair value are based primarily on the present value of estimated future cash inflows and outflows. Given the unobservable nature of these inputs, they represent Level 3
inputs.
NOTE 7 Revolving Credit Facility
In November 2016, the Company entered into a five-year $250 million secured revolving credit facility (the credit facility).
The credit facility has an initial borrowing base of $20.0 million and has semiannual borrowing
F-16
base redeterminations by April 1 and October 1 each year. Future borrowing bases will be determined at the discretion of the lending syndicate based on proved oil and natural gas
reserves, hedge positions and estimated future cash flow from those reserves, as well as any other outstanding debt.
At December 31,
2016, borrowings under the credit facility were to bear interest at the alternate base rate plus the applicable margin or at the adjusted London Interbank Offered (LIBO) rate. The alternate base rate is defined as the greatest of
(a) the prime rate in effect, (b) the federal funds rate in effect plus one half of 1.0%, or (c) the monthly LIBO rate, plus 1%. The applicable margins associated with the prime rate or the federal funds rate vary based on the
utilization percentage of the credit facility, and will be 1.5% to 2.5% for base rate loans and 2.5% to 3.5% for LIBOR loans. The Company also pays an annual commitment fee of 0.5% based on the unused portion of the outstanding borrowing base. For
the year ended December 31, 2016 the Company recorded $20,762 in interest expense comprised of $8,818 in debt issuance amortization expense and $11,944 in commitment fees.
The credit facility is secured by oil and natural gas properties representing at least 85% of the value of the Companys proved reserves.
The credit facility contains certain covenants, including among others, restrictions on indebtedness, restrictions on liens, restrictions on investments, restrictions on mergers, restrictions on sales of assets, restrictions on dividends and
payments to the Companys capital interest holders, and restrictions on the Companys hedging activity. The financial covenants require the Company to maintain compliance with the following financial ratios:
|
|
|
a current ratio, which is the ratio of the Companys current assets (including unused commitments under the credit facility and excluding noncash assets related to asset retirement obligations and derivatives) to
current liabilities (excluding the current portion of long-term debt under the credit agreement and noncash liabilities related to asset retirement obligations and derivatives), as of the last day of each fiscal quarter, of not less than 1.0 to 1.0;
and
|
|
|
|
a leverage ratio, which is the ratio of debt (as defined in our credit agreement) as of the last day of any rolling period, to annualized EBITDAX for the rolling period (as defined in the credit agreement) ending on the
last day of the rolling period, of not greater than 4.0 to 1.0.
|
The financial covenants took effect on March 31, 2017.
As of December 31, 2016, the Company had a zero outstanding balance under the credit facility.
NOTE 8 Mustang Creek Energy Partners, LLC
On January 27, 2015, Fifth Creek Energy agreed to purchase from MCEP 10,400,000 units, or 33.3% equity ownership, including a
noncompensatory option to purchase additional units for $100,000 for a total of $10.5 million. MCEP is focused on the exploration and development in the southern Colorado DJ basin. Under FASB ASC 323,
Investments-Equity Method and Joint
Ventures
, the Company uses the equity method of accounting for the investment in MCEP, with earnings or losses, reported in the loss from equity investment line on the Statements of Operations. The funds received by MCEP from Fifth Creek
Energys investment were used for an operational program including oil and gas exploration and lease acreage development operated by MCEP. During 2015, MCEP incurred operational costs that exceed the initial $10.5 million funded by the
Company. Due to the overage, Fifth Creek Energy agreed to pay for the first $500,000 of MCEPs operational overage with the remainder being paid by the joint venture partner. The payment of $500,000 to MCEP did not result in additional units or
an increase in ownership in MCEP for the Company. At December 31, 2015, Fifth Creek Energy had fully accrued the Companys $500,000 funding of the overage to MCEP as a payable. The payable to MCEP was paid in 2016.
Based on the results of MCEPs operational program, Fifth Creek Energy determined to discontinue further investment in MCEP since the
acreage did not fit the type of oil and gas play that the Company is looking to
F-17
develop into a long-term asset. In addition, the acreage was not economical at current market prices. The Company determined the MCEP investment had an other than temporary loss and fully
impaired the investment at December 31, 2015. The evaluation for the impairment was based on current market conditions, expiration of leases within the next 12 months and the result of the drilling program finding minimal resource play
potential in the existing acreage. As a result, the Company incurred a noncash impairment charge of approximately $11 million to write off the carrying amount of the MCEP investment to zero at December 31, 2015. The Company has no
remaining capital commitments to MCEP.
NOTE 9 Members Equity
On April 21, 2014, Fifth Creek Energy Operating Company, LLC was formed by the management members. During 2014, the management members
contributed $1 million for 1 million units in Fifth Creek Energy Operating Company, LLC. On January 22, 2015, the management members contributed all the Fifth Creek Energy Operating Company, LLC units into Fifth Creek Energy Company,
LLC.
The Company received $10.5 million from the issuance of 10.5 million units to Fifth Creek Energy Company, LLC on
January 22, 2015. During the remainder of 2015 the Company received an additional $4,981,676 of capital contributions from Fifth Creek Energy Company, LLC, net of issuance costs. As of December 31, 2016, the Company has not issued any
additional units.
Fifth Creek Energy received contributions from Fifth Creek Energy Company, LLC of $118.6 million, net of issuance
costs, during 2016.
As of December 31, 2016, Fifth Creek Energys operations are governed by the provisions of the limited
liability company agreement dated January 22, 2015. Pursuant to this agreement, the liability of the member is limited to the members contributed capital. Net income and loss are allocated to the member based on a hypothetical liquidation
as outlined in the LLC agreement.
NOTE 10 Related Parties
The Company pays management fees to Fifth Creek Energy Company, LLC. During 2016 and 2015, Fifth Creek Energy paid $30,000 and $25,000 in
management fees to Fifth Creek Energy Company, LLC, respectively. The Company did not pay management fees during 2014.
Fifth Creek Energy
received a reimbursement from MCEP for time that employees of the Company spent on the operation of Mustang Creek Energy Partners, LLP. As of December 31, 2015, the Company was reimbursed for services rendered to MCEP in the amount of
approximately $437,000. At December 31, 2015, the Company had an outstanding receivable for time reimbursement and other expenses related to work performed for MCEP in the amount of approximately $57,000 which had been offset with an allowance
for doubtful accounts. This allowance was written off in 2016.
During 2015, Wood Creek Energy, LLC an owner of Fifth Creek Energy
Company, LLC was managed by one of the members of the Company. As of December 31, 2016 and 2015, Wood Creek Energy, LLC or any of its investors do not hold any membership interest in the Fifth Creek Energy Company, LLC.
At December 31, 2014, the Company had an accrued reimbursement of expenses to the management members for expenses associated with
potential acquisitions and purchase of equipment in the amount of approximately $56,700.
NOTE 11 Employee Benefit Plan
During 2015, the Company setup and maintained a retirement plan intended to provide benefits under Section 401(k) of the Internal Revenue
Code, under which employees are allowed to contribute portions of their
F-18
compensation to a
tax-qualified
retirement account. Fifth Creek Energys 401(k) plan provides a safe harbor matching contributions of up to 6% of
employees base compensation that is contributed to the plan. As of December 31, 2016 and 2015, the Company contributed a matching contribution to the 401(k) plan of approximately $171,000 and $97,000, respectively. At December 31,
2014, the Company did not have a retirement plan.
NOTE 12 Commitments and Contingencies
Contractual Obligations
A summary
of our contractual obligations as of December 31, 2016 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office lease (1)
|
|
|
Gas gathering
liability (2)
|
|
|
Total
|
|
2017
|
|
$
|
371,296
|
|
|
$
|
745,500
|
|
|
$
|
1,116,796
|
|
2018
|
|
|
263,256
|
|
|
|
911,100
|
|
|
|
1,174,356
|
|
2019
|
|
|
242,072
|
|
|
|
964,000
|
|
|
|
1,206,072
|
|
2020
|
|
|
207,120
|
|
|
|
957,300
|
|
|
|
1,164,420
|
|
2021
|
|
|
|
|
|
|
987,000
|
|
|
|
987,000
|
|
Thereafter
|
|
|
|
|
|
|
3,409,300
|
|
|
|
3,409,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,083,744
|
|
|
$
|
7,974,200
|
|
|
$
|
9,057,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company leases office space and equipment from third parties under arrangements accounted for as operating leases. Minimum rent payments are recognized on a straight-line basis over the term of the lease.
|
(2)
|
Relates to the gas gathering agreement with Summit Midstream Partners, LP to sell produced volumes at a predetermined fee. See further discussion in Note 3.
|
The company recognized $204,700 and $89,700 in rent expense for the years ended December 31, 2016 and 2015, respectively. For the period
from April 21, 2014 (Inception) to December 31, 2014, the Company did not have any rent expense.
Financial Advisor
During 2014, the Company engaged Rivington Holdings, LLC (Rivington) to perform financial advisor services in connection with or in respect to
the Companys strategic transactions. On March 2, 2015, the Company and Rivington Holdings, LLC entered into a compensation agreement based on completion of the equity commitments that occurred in March of 2015. The Company agrees to pay
Rivington a fee in the amount equal to 1.67% of investment proceeds received by the Company on and after March 2, 2015; however, the fee will not exceed a total of $5 million. For the years ended as of December 31, 2016 and 2015, the
Company paid approximately $2,013,000 and $282,000, respectively, in fees to Rivington based on this agreement recorded as a reduction to capital contributions on the balance sheet and the statement of members equity. For the period from
April 21, 2014 (Inception) through December 31, 2014, no fees were paid to Rivington.
Government and Environmental Regulation
Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in all areas in which
the Company has operations. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various
other matters, including taxation. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of December 31, 2016, the Company has not been fined or
cited for any violations of governmental or environmental regulations that would have a material adverse effect upon the financial condition, capital expenditures, earnings, or competitive position of the Company.
F-19
Legal Proceedings
Fifth Creek is party to lawsuits arising in the ordinary course of our business. The Company cannot predict the outcome of any such lawsuits
with certainty, but management believes it is remote that pending or threatened legal matters will have a material adverse impact on our financial condition.
NOTE 13 Oil and Gas Activities
Costs incurred in oil and natural gas producing activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
|
|
|
117,665,000
|
|
|
|
|
|
|
|
|
|
Unproved
|
|
|
1,285,102
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
9,101,753
|
|
|
|
|
|
|
|
|
|
Development costs
|
|
|
2,850,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
130,901,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total excluding asset retirement obligation
|
|
|
129,043,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net changes in capitalized exploratory well costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance at January 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to capitalized exploratory well costs pending determination of proved reserves
|
|
|
9,101,753
|
|
|
|
|
|
|
|
|
|
Reclassifications to wells, facilities and equipment based on determination of proved
reserves
|
|
|
(5,281,556
|
)
|
|
|
|
|
|
|
|
|
Capitalized exploratory well costs charged to expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31
|
|
|
3,820,197
|
|
|
|
|
|
|
|
|
|
The Company had no oil and natural gas producing activities in 2015 and 2014.
NOTE 14 Supplemental Oil and Gas Information (Unaudited)
The reserves at December 31, 2016 presented below were prepared by Netherland Sewell & Associates (NSAI). Estimates
of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors. The reserves are located in the DJ Basin in Weld
County, Colorado.
Guidelines prescribed in FASB ASC Topic 932
Extractive Industries
Oil
and Gas
(ASC Topic 932) have been followed for computing a standardized measure of future net cash flows and changes therein related to estimated proved reserves. Future cash inflows and future production and development costs are
determined by applying prices and costs, including transportation, quality, and basis differentials, to the
period-end
estimated quantities of oil, natural gas and NGLs to be produced in the future. The
resulting future net cash flows are reduced to present value amounts by applying a ten percent annual discount factor. Future operating costs are determined based on estimates of expenditures to be incurred in producing the proved oil and gas
reserves in place at the end of the period using
period-end
costs and assuming continuation of existing economic conditions, plus overhead incurred. Future development costs are determined based on estimates
of capital expenditures to be incurred in developing proved oil and gas reserves.
F-20
The assumptions used to compute the standardized measure are those prescribed by the FASB and the
SEC. These assumptions do not necessarily reflect managements expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations since these reserve quantity estimates are the basis for the valuation process. Reserve estimates are inherently imprecise, and estimates of new discoveries and undeveloped
locations are more imprecise than estimates of established proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available.
The following table sets forth information for the year ended December 31, 2016 with respect to changes in the proved reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Bbl)
Crude Oil
|
|
|
(Mcf)
Natural Gas
|
|
|
(Bbl)
NGLS
|
|
January 1, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions
|
|
|
655,237
|
|
|
|
977,689
|
|
|
|
170,787
|
|
Extensions
|
|
|
80,707,548
|
|
|
|
79,375,809
|
|
|
|
14,123,910
|
|
Acquisition
|
|
|
1,235,068
|
|
|
|
1,757,705
|
|
|
|
301,743
|
|
Production
|
|
|
(108,153
|
)
|
|
|
(149,904
|
)
|
|
|
(28,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
82,489,700
|
|
|
|
81,961,300
|
|
|
|
14,568,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves, included above
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
2,159,820
|
|
|
|
2,956,920
|
|
|
|
510,500
|
|
Proved Undeveloped Reserves, included above
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
80,329,880
|
|
|
|
79,004,380
|
|
|
|
14,057,800
|
|
At December 31, 2015 and 2014 the Company had no oil and gas reserves. In 2016 the Company acquired
1,235,068 Bbls, 1,757,705 Mcf and 301,743 Bbls of proved oil, natural gas and NGL reserves, respectively, located in the DJ Basin in Colorado.
Extensions contributed to the increase of 80,707,548 Bbls of oil, 79,375,809 Mcf of gas and 14,123,910 Bbls of NGLs. Prior to the Stateline
Acquisition, the Stateline Properties did not include any proved undeveloped reserves, as the prior owner did not have any plans to develop the properties. Upon completion of the Stateline Acquisition, however, Fifth Creek prepared a five-year
development plan focused on developing the Stateline Properties in a manner consistent with that of offset operators in the area, which resulted in the addition of proved undeveloped locations and related reserves.
Fifth Creek also had upward revisions of 655,237 Bbls of oil, 977,689 Mcf of natural gas and 170,787 Bbls of NGLs. These upward revisions were
primarily driven by (i) improved well performance due to increased maintenance expenditures resulting in an upward revision of 124,495 Bbls of oil, 185,760 Mcf of gas and 32,450 Bbls of NGLS, (ii) improved commodity prices and oil differentials
resulting in an upward revision of 163,809 Bbls of oil, 244,422 Mcf of gas and 42,697 Bbls of NGLs and (iii) reduced lease operating costs extending the life of existing producing wells resulting in an upward revision of 366,933 Bbls of oil, 547,506
Mcf of gas and 95,641 Bbls of NGLs.
During the year ended December 31, 2016, Fifth Creek experienced a reduction of its proved reserves
of 108,153 Bbls of oil, 149,904 Mcf of gas, and 28,140 Bbls of NGLs related to production of existing wells between July 2016 and December 31, 2016.
As of December 31, 2016, the reserves are comprised of 74.5% crude oil, 12.3% natural gas, and 13.2% NGL on an energy equivalent basis.
The following values for the December 31, 2016 proved reserves were derived based on prices of $40.14 per Bbl of crude oil, $0.29 per Mcf of natural gas, and $15.82 per Bbl of NGL. These prices were based on the
12-month
arithmetic average of the
first-of-month
price from January 2016 through December 2016. The crude oil pricing was based
on the West Texas Intermediate (WTI) price; the natural gas pricing was based on the Henry Hub price; the NGL pricing was 58% of WTI. All prices have been adjusted for transportation, quality and basis differentials.
F-21
The following summary sets forth the future net cash flows related to proved oil and gas reserves
based on the standardized measure prescribed in ASC Topic 932:
|
|
|
|
|
|
|
For the Year Ended
December 31, 2016
|
|
Future oil, NGL and natural gas sales
|
|
|
3,565,514,700
|
|
Future production costs
|
|
|
(1,266,713,200
|
)
|
Future development costs
|
|
|
(1,221,646,900
|
)
|
|
|
|
|
|
Future net cash flows
|
|
|
1,077,154,600
|
|
|
|
|
|
|
10% annual discount
|
|
|
(721,921,200
|
)
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
|
|
|
355,233,400
|
|
|
|
|
|
|
The principal sources of change in the standardized measure of discounted future net cash flows are:
|
|
|
|
|
|
|
For the Year Ended
December 31, 2016
|
|
Balance at beginning of period
|
|
|
|
|
Sales of crude oil, natural gas and NGLs
|
|
|
(2,907,799
|
)
|
Net change in prices and production costs
|
|
|
4,799,997
|
|
Extensions
|
|
|
333,967,000
|
|
Revisions of previous quantity estimates
|
|
|
6,771,766
|
|
Acquisition of reserves
|
|
|
10,684,821
|
|
Accretion of discount
|
|
|
496,290
|
|
Changes in timing and other
|
|
|
1,421,326
|
|
|
|
|
|
|
Balance at end of period
|
|
|
355,233,400
|
|
|
|
|
|
|
NOTE 15 Subsequent Events
In April 2017, the Company entered into an amendment that increased the credit facility borrowing base to $32 million. In September 2017,
the Company entered into an amendment that increased the credit facility borrowing base to $55 million. In November 2017, the Company entered into an amendment that increased the credit facility borrowing base to $70 million. These
amendments had no effect on the Companys compliance with the financial covenants.
In November 2017, the Company entered into an
agreement with Springbok Energy Partners II, LLC, which is owned by NGP, to acquire royalty interests and overrides in the Hereford field.
On December 4, 2017, Fifth Creek Energy Operating Company, LLC entered into an Agreement and Plan of Merger with Bill Barrett
Corporation. Under the terms of the transaction, BBG and Fifth Creek will each become subsidiaries of a newly formed holding company (New BBG), which will become the publicly listed and traded holding company for the combined BBG and
Fifth Creek. In the transaction, BBG stockholders will exchange their BBG common stock for New BBG common stock on a
1-for-1
basis, and Fifth Creeks current sole
owner will receive 100 million shares of the New BBGs common stock.
Subsequent events have been evaluated through
December 15, 2017, which is the date the financial statements were available to be issued.
F-22
INDEPENDENT ACCOUNTANTS REVIEW REPORT
The Board of Directors
Fifth Creek Energy Operating Company,
LLC:
We have reviewed the accompanying balance sheets of Fifth Creek Energy Operating Company, LLC (the Company) as of September 30,
2017 and 2016, the related statements of operations for the three-month and nine-month periods ended September 30, 2017 and 2016, and the related statements of cash flows for the nine-month period ended September 30, 2017 and 2016. This
interim financial information is the responsibility of the Companys management.
We conducted our reviews in accordance with
standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial
information taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying interim financial information for them to be in conformity with United States Generally Accepted Accounting Principles.
/s/ KPMP LLP
Denver,
Colorado
December 15, 2017
F-23
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
September 30,
2017
|
|
|
(audited)
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,007,744
|
|
|
$
|
3,409,984
|
|
Restricted cash current
|
|
|
|
|
|
|
155,526
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
|
7,078,591
|
|
|
|
1,304,220
|
|
Joint interest and other
|
|
|
51,044
|
|
|
|
140,117
|
|
Derivative instruments current
|
|
|
282,715
|
|
|
|
|
|
Other current assets
|
|
|
538,133
|
|
|
|
332,156
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
9,958,227
|
|
|
|
5,342,003
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Oil and gas properties:
|
|
|
|
|
|
|
|
|
Proved properties
|
|
|
168,624,797
|
|
|
|
125,229,720
|
|
Wells in progress
|
|
|
16,402,610
|
|
|
|
4,387,126
|
|
Unproved properties
|
|
|
34,515,479
|
|
|
|
1,261,694
|
|
Less: accumulated depletion & impairments
|
|
|
(9,597,990
|
)
|
|
|
(1,298,346
|
)
|
|
|
|
|
|
|
|
|
|
Net oil and gas properties
|
|
|
209,944,896
|
|
|
|
129,580,194
|
|
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
|
2,137,021
|
|
|
|
912,214
|
|
Less: accumulated depreciation
|
|
|
(582,345
|
)
|
|
|
(216,890
|
)
|
|
|
|
|
|
|
|
|
|
Total furniture, fixtures and equipment, net
|
|
|
1,554,676
|
|
|
|
695,324
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
211,499,572
|
|
|
|
130,275,518
|
|
Other
non-current
assets
|
|
|
|
|
|
|
|
|
Derivative instruments long-term
|
|
|
388,014
|
|
|
|
|
|
Other
non-current
assets, net
|
|
|
458,484
|
|
|
|
280,741
|
|
|
|
|
|
|
|
|
|
|
Total other
non-current
assets
|
|
|
846,498
|
|
|
|
280,741
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
222,304,297
|
|
|
$
|
135,898,262
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial
statements.
F-24
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
September 30,
2017
|
|
|
(audited)
December 31,
2016
|
|
LIABILITIES AND MEMBERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
27,918,199
|
|
|
$
|
8,597,897
|
|
Oil and gas revenue distribution payable
|
|
|
2,780,176
|
|
|
|
818,616
|
|
Short-term gas gathering liability
|
|
|
869,701
|
|
|
|
745,534
|
|
Derivative instruments current portion
|
|
|
978,152
|
|
|
|
322,928
|
|
Other current liabilities
|
|
|
178,620
|
|
|
|
63,310
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,724,848
|
|
|
|
10,548,285
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
14,200,000
|
|
|
|
|
|
Long-term gas gathering liability
|
|
|
6,545,395
|
|
|
|
7,228,713
|
|
Derivative instruments long-term portion
|
|
|
369,037
|
|
|
|
513,655
|
|
Asset retirement obligation
|
|
|
2,340,250
|
|
|
|
1,932,809
|
|
Other long-term liabilities
|
|
|
82,870
|
|
|
|
104,315
|
|
|
|
|
|
|
|
|
|
|
Total
non-current
liabilities
|
|
|
23,537,552
|
|
|
|
9,779,492
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
56,262,400
|
|
|
|
20,327,777
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Members Equity
|
|
|
|
|
|
|
|
|
Contributed capital, net, 11,500,000 units authorized, issued and outstanding as of
September 30, 2017 and December 31, 2016, respectively
|
|
|
183,739,026
|
|
|
|
135,048,356
|
|
Accumulated deficit
|
|
|
(17,697,129
|
)
|
|
|
(19,477,871
|
)
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
166,041,897
|
|
|
|
115,570,485
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members Equity
|
|
$
|
222,304,297
|
|
|
$
|
135,898,262
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial
statements.
F-25
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2017
|
|
|
Three months ended
September 30, 2016
|
|
|
Nine months ended
September 30, 2017
|
|
|
Nine months ended
September 30, 2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
$
|
8,906,317
|
|
|
$
|
2,266,466
|
|
|
$
|
21,897,730
|
|
|
$
|
2,266,466
|
|
Natural gas liquids
|
|
|
1,499,271
|
|
|
|
325,285
|
|
|
|
3,124,662
|
|
|
|
325,285
|
|
Natural gas
|
|
|
541,248
|
|
|
|
194,808
|
|
|
|
1,237,364
|
|
|
|
194,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
10,946,836
|
|
|
|
2,786,559
|
|
|
|
26,259,756
|
|
|
|
2,786,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
1,287,278
|
|
|
|
509,369
|
|
|
|
3,011,157
|
|
|
|
509,369
|
|
Gathering, processing and transportation costs
|
|
|
1,525,108
|
|
|
|
656,250
|
|
|
|
3,686,017
|
|
|
|
656,250
|
|
Severance and ad valorem taxes
|
|
|
871,128
|
|
|
|
156,962
|
|
|
|
1,954,435
|
|
|
|
156,961
|
|
Depreciation, depletion and amortization
|
|
|
3,179,083
|
|
|
|
510,231
|
|
|
|
8,665,100
|
|
|
|
561,771
|
|
Accretion expenses
|
|
|
43,462
|
|
|
|
29,582
|
|
|
|
112,259
|
|
|
|
29,582
|
|
Exploration and abandonment
|
|
|
7,730
|
|
|
|
|
|
|
|
356,205
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,040,579
|
|
|
|
1,449,995
|
|
|
|
5,669,283
|
|
|
|
3,635,473
|
|
Acquisition expenses
|
|
|
1,180,020
|
|
|
|
856,296
|
|
|
|
1,431,887
|
|
|
|
856,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
10,134,388
|
|
|
|
4,168,685
|
|
|
|
24,886,343
|
|
|
|
6,405,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Operations
|
|
|
812,448
|
|
|
|
(1,382,126
|
)
|
|
|
1,373,413
|
|
|
|
(3,619,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(134,940
|
)
|
|
|
|
|
|
|
(378,221
|
)
|
|
|
|
|
Derivative gain (loss)
|
|
|
(2,346,193
|
)
|
|
|
|
|
|
|
785,417
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
2,672
|
|
|
|
133
|
|
|
|
3,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(2,481,133
|
)
|
|
|
2,672
|
|
|
|
407,329
|
|
|
|
3,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(1,668,685
|
)
|
|
$
|
(1,379,454
|
)
|
|
$
|
1,780,742
|
|
|
$
|
(3,615,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial
statements.
F-26
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF MEMBERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
Accumulated
deficit
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
16,481,676
|
|
|
$
|
(14,276,316
|
)
|
|
$
|
2,205,360
|
|
Issuance of members interest, net of issuance costs
|
|
|
118,566,680
|
|
|
|
|
|
|
|
118,566,680
|
|
Net income
|
|
|
|
|
|
|
(5,201,555
|
)
|
|
|
(5,201,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
135,048,356
|
|
|
$
|
(19,477,871
|
)
|
|
$
|
115,570,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of members interest, net of issuance costs
|
|
|
48,690,670
|
|
|
|
|
|
|
|
48,690,670
|
|
Net income
|
|
|
|
|
|
|
1,780,742
|
|
|
|
1,780,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
$
|
183,739,026
|
|
|
$
|
(17,697,129
|
)
|
|
$
|
166,041,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-27
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2017
|
|
|
Nine months ended
September 30, 2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
1,780,742
|
|
|
$
|
(3,615,899
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
8,665,100
|
|
|
|
561,771
|
|
Accretion expense
|
|
|
112,259
|
|
|
|
29,582
|
|
Exploration and abandonment
|
|
|
348,475
|
|
|
|
|
|
Derivative fair value (gain) loss
|
|
|
(785,417
|
)
|
|
|
|
|
Derivative cash settlement
|
|
|
625,295
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
48,945
|
|
|
|
|
|
Amortization of gas gathering liability
|
|
|
(559,151
|
)
|
|
|
(213,817
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,698,894
|
)
|
|
|
(1,781,191
|
)
|
Accounts receivable for derivative settlement
|
|
|
13,596
|
|
|
|
|
|
Prepaid expenses
|
|
|
(256,085
|
)
|
|
|
(128,395
|
)
|
Accounts payable and accrued liabilities
|
|
|
22,221,598
|
|
|
|
1,518,163
|
|
Other long-term liabilities
|
|
|
(21,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
26,495,017
|
|
|
|
(3,629,786
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investment activities
|
|
|
|
|
|
|
|
|
Acquisition of oil and gas properties
|
|
|
(33,602,260
|
)
|
|
|
(107,826,573
|
)
|
Exploration and development of oil and gas properties
|
|
|
(55,933,687
|
)
|
|
|
(6,017
|
)
|
Purchase of property and equipment
|
|
|
(1,224,807
|
)
|
|
|
(354,522
|
)
|
Purchase of equity method investment
|
|
|
|
|
|
|
(500,000
|
)
|
Proceeds from release of restricted cash
|
|
|
155,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(90,605,228
|
)
|
|
|
(108,687,112
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Drawdowns on the line of credit
|
|
|
31,700,000
|
|
|
|
|
|
Repayments on the line of credit
|
|
|
(17,500,000
|
)
|
|
|
|
|
Member contributions
|
|
|
49,517,614
|
|
|
|
120,580,372
|
|
Equity issuance cost
|
|
|
(826,944
|
)
|
|
|
(2,013,692
|
)
|
Deferred financing costs
|
|
|
(182,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
62,707,971
|
|
|
|
118,566,680
|
|
|
|
|
|
|
|
|
|
|
Net Increase/(Decrease) in Cash and Cash Equivalents
|
|
$
|
(1,402,240
|
)
|
|
$
|
6,249,782
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
3,409,984
|
|
|
$
|
2,414,999
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
2,007,744
|
|
|
$
|
8,664,781
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
276,176
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
3,961,695
|
|
|
$
|
192,706
|
|
Asset retirement obligation
|
|
$
|
295,182
|
|
|
$
|
1,807,596
|
|
See accompanying notes to financial statements.
F-28
FIFTH CREEK ENERGY OPERATING COMPANY, LLC
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 Organization, Operations and Basis of Presentation
Fifth Creek Energy Operating Company, LLC (also known as Fifth Creek Management Company, LLC herein referred to as Fifth Creek
Energy or the Company), a Delaware limited liability company was formed on April 21, 2014. Fifth Creek Energy is engaged in the leasing, acquisition, exploration, production, development, processing, gathering, marketing and
transporting of oil, gas and natural gas liquids in the Rocky Mountain region, primarily in the Northern Denver-Julesburg Basin of Colorado. On January 22, 2015 all of the Companys units were contributed to Fifth Creek Energy Company,
LLC, a Delaware limited liability company formed on October 10, 2014.
The unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been or omitted pursuant to those rules and regulations, although the Company believes that the
disclosures made are adequate to make the information not misleading. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected in these financial statements. These
financial statements should be read in conjunction with the Companys annual financial statements for the year ended December 31, 2016, and the related notes thereto.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
NOTE 2 Summary of Significant Accounting Policies
The significant accounting policies followed by the Company are set forth in Note 2 to the Companys financial statements for the year
ended December 31, 2016, and are supplemented by the notes to these financial statements.
Use of Estimates
In the course of preparing the financial statements, management makes various assumptions, judgments and estimates to determine the reported
amounts of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events.
Although management believes these estimates are reasonable, actual results could differ from these estimates and these revisions could be material. Future production may vary materially from estimated oil and natural gas proved reserves. Actual
future prices may vary significantly from price assumptions used for determining proved reserves and for financial reporting.
Management
believes the major estimates and assumptions impacting our financial statements are the following:
|
|
|
estimates of proved reserves of natural gas and oil, which affect the calculations of depreciation, depletion and amortization, as well as the calculation for impairment of capitalized costs of natural gas and oil
properties;
|
|
|
|
estimates of asset retirement obligations;
|
|
|
|
estimates of the fair value of natural gas and oil properties that Fifth Creek Energy owns, including properties that we have not yet explored, or fully explored by drilling and completing wells;
|
|
|
|
estimates of revenue accruals;
|
F-29
|
|
|
impairment reviews of undeveloped properties and other assets;
|
|
|
|
impairment of equity investments;
|
|
|
|
estimates of fair value of derivative instruments;
|
|
|
|
acquisition accounting estimates and assignment of fair value of assets and liabilities acquired; and
|
|
|
|
estimates and assumptions used in the disclosure of commitments and contingencies.
|
Cash and Cash
Equivalents
Cash and cash equivalents consist of highly liquid investments, with original maturities of three months or less. The
Company may at times have balances in excess of federally insured limits.
Restricted Cash
In 2015, Fifth Creek Energy entered into a letter of credit in the amount of approximately $155,000 with Wells Fargo Bank to comply with the
Companys office lease requirement. As a result of the letter of credit, Fifth Creek Energy was required to secure the letter of credit with a deposit of approximately $155,000 into a certificate of deposit. The requirement expired on
March 31, 2017, and the letter of credit matured on September 30, 2017. As of September 30, 2017, upon maturity of the letter of credit and release of restrictions, the deposit was transferred to the available cash of the Company. The
deposit was classified as restricted cash and recorded in current assets as of December 31, 2016.
Accounts Receivable
The Companys accounts receivable are generated primarily from the sale of oil, NGLs and natural gas to various customers, and from the
billing of working interest partners for work on wells the Company operates. The Company monitors the financial strength of its customers, partners, and counterparties. At September 30, 2017 and December 31, 2016, the Company had no
reserve for doubtful accounts.
Accounts Payable and Accrued Expenses
The components of accounts payable and accrued liabilities are shown below:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
Accrued capital expenditures
|
|
$
|
3,961,695
|
|
|
$
|
4,872,146
|
|
Trade accounts payable
|
|
|
19,041,118
|
|
|
|
2,620,251
|
|
Production and ad valorem taxes payable
|
|
|
2,183,973
|
|
|
|
477,440
|
|
Other current liabilities
|
|
|
2,731,413
|
|
|
|
628,060
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
27,918,199
|
|
|
$
|
8,597,897
|
|
|
|
|
|
|
|
|
|
|
Other current assets
The components of other current assets are shown below:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Other current assets
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
477,260
|
|
|
$
|
265,164
|
|
Inventory
|
|
|
60,873
|
|
|
|
66,992
|
|
|
|
|
|
|
|
|
|
|
Total other current assets
|
|
$
|
538,133
|
|
|
$
|
332,156
|
|
|
|
|
|
|
|
|
|
|
F-30
Inventory consists of material and supplies used in connection with the Companys drilling
program. These inventories are stated at the lower of cost or market, which approximates fair value.
Oil and Gas Producing Activities
Proved Oil and Natural Gas Properties
The Company accounts for its oil and natural gas exploration and development costs using the successful efforts method. Under this method, all
costs incurred related to the acquisition of oil and natural gas properties and the costs of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed if and when the
well is determined not to have recoverable reserves in commercial quantities. Other items charged to expense generally include geological and geophysical costs, delay rentals and lease and well operating costs. At September 30, 2017 the Company
had three exploratory wells and one developmental well in the process of being drilled or completed. Capitalized exploratory well costs are recorded in the wells in progress line on the accompanying balance sheets.
Capitalized leasehold costs attributable to proved properties are depleted using the
units-of-production
method based on proved reserves on a field basis. Capitalized well costs, including asset retirement costs, are depleted based on proved developed reserves on a field basis. For the three
and nine months ended September 30, 2017, the Company recorded depletion for oil and natural gas properties of $3.0 million and $8.3 million, respectively. For the three and nine months ended September 30, 2016, the Company
recorded depletion for oil and natural gas properties of $465,700. Depletion expense is included in depletion, depreciation and amortization expense on the accompanying statements of operations.
Proved oil and natural gas properties are reviewed for impairment when facts and circumstances indicate their carrying value may not be
recoverable. The Company estimates the expected future cash flows of oil and natural gas properties and compares these undiscounted cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is
recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will write down the carrying amount of the oil and natural gas properties to estimated fair value. The factors used to determine fair value may
include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, estimated future capital expenditures and a commensurate discount rate. These assumptions and estimates represent Level 3 inputs. The
Company did not record any impairment expenses associated with its proved properties during the three and nine months ended September 30, 2017 and September 30, 2016.
The Company records the fair value of an asset retirement obligation as an asset and a liability when there is a legal obligation associated
with the retirement of a long-lived asset and the amount can be reasonably estimated. The increase in carrying value is included in proved properties in the accompanying balance sheets. The Company depletes the amount added to proved properties and
recognizes expense in connection with accretion of the discounted liability over the remaining estimated economic lives of the properties. The liability value recorded associated with the ARO is an estimate of the costs, based on todays
estimates of reclamation, inflated to a future value and then discounted to a present value utilizing an estimate of a credit-adjusted risk-free discount rate. For additional discussion, please refer to Note 4 Asset Retirement
Obligations.
Unproved Oil and Natural Gas Properties
Unproved oil and natural gas properties consist of costs to acquire undeveloped leases and unproved reserves, and are capitalized when
incurred. When a successful well is drilled on an undeveloped leasehold or reserves are otherwise attributed to a property, unproved property costs are transferred to proved properties.
Unproved properties are periodically assessed for impairment on a
property-by-property
basis. The Company evaluates significant unproved properties for impairment based on remaining lease term, drilling
F-31
results, reservoir performance, seismic interpretation or future plans to develop acreage, and records impairment expense for any decline in value. The Company recorded impairment of unproved oil
and gas properties resulting from lease expirations for the three and nine months ended September 30, 2017 of $0 and $348,475, respectively. The Company recorded no impairment of unproved oil and gas properties during the three and nine months
ended September 30, 2016. Impairment expense is recorded in the exploration and abandonment line on the statement of operations.
Other
Property and Equipment
Other property and equipment consists primarily of office furniture, vehicles, office equipment, field
office equipment and leasehold improvements. Renewals and betterments, which substantially extend the useful lives of the assets, are capitalized. Maintenance and repairs are expensed when incurred. Property and equipment, vehicles, and software are
depreciated using the straight-line method over 3 to 5 years. Leasehold improvements are depreciated using the straight-line method over the life of the office lease. Field office equipment is depreciated using the straight-line method over 20
years. Depreciation expense for the nine months ended September 30, 2017 and 2016 was $365,455 and $96,104, respectively.
Other
property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Computer software and equipment
|
|
$
|
833,335
|
|
|
$
|
614,830
|
|
Vehicles
|
|
|
431,125
|
|
|
|
|
|
Leasehold improvements
|
|
|
91,993
|
|
|
|
91,508
|
|
Furniture and fixtures
|
|
|
230,568
|
|
|
|
205,876
|
|
Field office equipment
|
|
|
226,952
|
|
|
|
|
|
Land
|
|
|
323,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,137,021
|
|
|
|
912,214
|
|
Accumulated depreciation
|
|
|
(582,345
|
)
|
|
|
(216,890
|
)
|
|
|
|
|
|
|
|
|
|
Total other property and equipment, net
|
|
$
|
1,554,676
|
|
|
$
|
695,324
|
|
|
|
|
|
|
|
|
|
|
Equity Investments
In 2015, the Company acquired a 33.3% investment in Mustang Creek Energy Partners, LLC (MCEP) a joint venture with NexGen Oil & Gas,
LLC (NexGen) formed on January 15, 2015. Equity investments in which the Company exercises significant influence but does not control are accounted for using the equity method. Under the equity method, the Companys share of
investees earnings or loss, after elimination of intra-company profit or loss, is recognized in the statement of operations. The Company reviews its investments to determine if a loss in value which is other than a temporary decline has
occurred. If such loss has occurred, the Company would recognize an impairment charge on the equity investment. At December 31, 2015, the Company recognized an other than temporary impairment for its entire equity investment in Mustang Creek
Energy, LLC.
Other Long-Term Assets
As of September 30, 2017 other long-term assets included capitalized costs incurred in connection with the issuance of credit facilities
in the amount of $393,768, net of accumulated amortization, and other long-term deposits. As of December 31, 2016 other long-term assets included capitalized costs incurred in connection with the issuance of the revolving credit facility in the
amount of $260,014, net of accumulated amortization, and other long-term deposits.
Revenue Recognition
Revenue is recognized when production is delivered to a purchaser at a fixed and/or determinable price, title has transferred and the
collectability of the revenue is reasonably assured. At the end of each month, the
F-32
Company estimates the amount of production delivered to the purchaser and the price the Company will receive. The Company factors in historical performance, quality and transportation
differentials, commodity prices, and other factors when deriving revenue estimates. Oil, NGL and natural gas revenue is recorded using the sales method. Under the sales method, revenues are based on actual sales volumes of commodities sold to
purchasers.
Significant Customers
The Companys oil, NGL and natural gas production is sold to a relatively small number of customers. For the three months ended
September 30, 2017, two purchasers each accounted for more than 10% of the Companys total production revenue, 81% and 14%, respectively. For the nine months ended September 30, 2017, two purchasers each accounted for more than 10% of
the Companys total production revenue, 84% and 12%, respectively. For the three and nine months ended September 30, 2016, two purchasers each accounted for more than 10% of the Companys total production revenue, 81% and 12%,
respectively. The loss of any single purchaser could materially and adversely affect our revenues in the short-term; however, the Company believes that the loss of any of its purchasers would not have a long-term material adverse effect on its
financial condition and results of operations as oil and natural gas are fungible products with well-established markets and numerous purchasers.
Income Taxes
The Company is not a
taxable entity for federal income tax purposes. As such, the Company does not directly pay federal income tax. Accordingly, the accompanying financial statements do not include a provision or liability for income taxes. The Companys taxable
income or loss, which may vary substantially from the net income or loss reported in the statement of operations, is includable in the federal income tax returns of each member based on their allocated share.
The Company found no uncertain tax positions during the three and nine months ended September 30, 2017 or 2016 under the provisions of
Accounting Standards Codification (ASC) 740,
Accounting for Uncertainty in Income Taxes
. The Companys policy is to recognize accrued interest related to unrecognized tax benefits in interest expense, and to recognize tax penalties in
operating expense. As of September 30, 2017 and December 31, 2016, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and
various states. There are currently no federal or state income tax examinations underway for these jurisdictions and tax returns for the periods from 2014 to 2016 are still open to examination.
Derivative Instruments
The
Company uses commodity derivative instruments to manage its exposure to oil and natural gas price volatility. All of the commodity derivative instruments are utilized to manage price risk attributable to the Companys expected oil and natural
gas production, and the Company does not enter into such instruments for speculative trading purposes. The Company does not designate any derivative instruments as hedges for accounting purposes. The Company records all derivative instruments on the
balance sheet as either assets or liabilities measured at their estimated fair value. The Company records gains and losses from the change in fair value of derivative instruments in current earnings as they occur.
Fair Value of Other Financial Instruments
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value
measurements, the fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in accordance with ASC Topic 820.
F-33
The carrying amount of cash equivalents, receivables, other current assets, accounts payable and
accrued expenses approximate fair value because of the short-term nature of those instruments.
Comprehensive Income
The Company has no elements of comprehensive income other than net income/loss.
Recent Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update (ASU)
2014-09,
Revenue from
Contracts with Customers (Topic 606)
, which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new guidance will require a company to recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The new standards are effective for the Company on January 1, 2019. Early adoption is permitted for fiscal
years beginning after December 15, 2016. The Company intends to adopt this standard on January 1, 2019, but has not yet selected a transition method. The Company is still assessing the effects of adoption of the new standard on its
financial statements.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU
2015-03,
Interest-Imputation of Interest, Simplifying the
Presentation of Debt Issuance Costs and ASU
2015-15,
Interest-Imputation of Interest-Presentation and Subsequent Measurement of Debt Issuance Costs associated with
Line-of-Credit
Arrangements
in August 2015. These ASUs simplify the presentation of debt issuance costs by requiring such costs (except for those related to revolving credit facilities) to be presented in
the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than as an asset. These ASUs are effective for the Company on January 1, 2016, and are required to be adopted retrospectively. Early adoption
is permitted. The Company adopted these ASUs at December 31, 2016. Through September 30, 2017, the Companys debt was comprised solely of obligations under our revolving credit facility. Accordingly, the debt issuance costs related to
the revolving credit facility continue to be classified as assets on the Companys balance sheets.
Leases
On February 25, 2016, the Financial Accounting Standards Board (FASB) issued ASU
2016-02,
Leases (ASU
2016-02).
ASU
2016-02
will require lessees to present
right-of-use
assets and lease liabilities on their balance sheets.
ASU
2016-02
is effective for annual and interim periods beginning January 1, 2020. Early adoption
of ASU
2016-02
is permitted. Upon adoption of ASU
2016-02,
the Company is required to recognize and measure leases at the beginning of the earliest period presented in
Fifth Creek Energys financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that the Company may elect to apply. The Company has not yet decided when
Fifth Creek Energy will adopt ASU
2016-02
or which practical expedient options we will elect. Fifth Creek Energy is currently evaluating and assessing the impact ASU
2016-02
will have on Fifth Creek Energys financial statements. As of the date of this report, the Company cannot provide any estimate of the impact of adopting ASU
2016-02.
NOTE 3 Acquisition
On July 15, 2016, Fifth Creek Energy acquired proved and unproved natural gas, oil and NGL properties from the Seller (the
Properties). The natural gas, oil and NGL properties are located in the DJ Basin located in
F-34
Weld County in Colorado. The Properties acquired were approximately 51,641 net acres. The aggregate purchase price totaled approximately $108 million in cash. Transaction costs were $942,000
and were recorded as an operating expense in the statement of operations.
Acquisitions are accounted for under the acquisition method of
accounting in accordance with ASC Topic 805,
Business Combinations
(ASC Topic 805). An acquisition may result in the recognition of goodwill or a bargain purchase gain based on the measurement of the fair value of the assets
acquired at the acquisition date as compared to the fair value of consideration transferred, adjusted for purchase price adjustments. Any such gain would be recognized in current period earnings and classified in other income and expense in the
accompanying statement of operations. The Company did not recognize goodwill or bargain purchase as a result of the acquisition of the Properties.
The results of operations of the properties acquired in our acquisition of the Properties have been included in the financial statements since
the Closing Date.
The fair value measurements of natural gas, oil and NGL properties, other assets, and other liabilities are based upon
inputs that are not observable in the market and therefore represent Level 3 inputs. The preliminary fair values of natural gas, oil and NGL properties, other assets and liabilities, and ARO were measured using valuation techniques that convert
future cash flows to a single discounted amount. The estimated proved reserves and the associated future net revenues were discounted using a market-based weighted average cost of capital. Significant inputs to the valuation of natural gas, oil and
NGL properties include estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and a market-based weighted average cost of capital rate. ARO assumptions include inputs such as estimated
plugging, abandonment and reclamation costs, assumptions about inflation factors, an estimate of a credit-adjusted risk-free interest rate and the expected economic recoveries of natural gas, oil and NGLs and time to abandonment. These inputs
require significant judgments and estimates by management at the time of the preliminary valuation and are subject to change.
The
following table summarizes estimates of the fair value of identifiable assets acquired and liabilities assumed as of the Closing Date (rounded):
|
|
|
|
|
Purchase price
|
|
|
|
|
Consideration given
|
|
|
|
|
Cash
|
|
$
|
108,000,000
|
|
|
|
|
|
|
Total consideration given
|
|
$
|
108,000,000
|
|
|
|
|
|
|
Allocation of purchase price
|
|
|
|
|
Proved oil and gas properties
|
|
$
|
117,665,000
|
|
Unproved properties
|
|
|
563,000
|
|
Asset retirement obligation
|
|
|
(1,785,000
|
)
|
|
|
|
|
|
Total fair value of oil and gas properties acquired
|
|
|
116,443,000
|
|
Gas gathering liability
|
|
|
(8,443,000
|
)
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
108,000,000
|
|
|
|
|
|
|
At the time of the transaction, a valuation of the ARO liability was determined and the Company recorded an
ARO asset and liability of $1.8 million. The ARO asset has been included within the proved natural gas and oil properties and is subject to the
units-of-production
amortization applied to the proved property base.
As part of the Transaction, the Company acquired a gas gathering agreement with Summit
Midstream Partners, LP (formerly Bear Tracker Energy, LLC) (the Agreement). Under the provisions of the Agreement, the Company is committed to sell its produced volumes at a predetermined fee, that as of the date of the
F-35
Acquisition, was below market. Based on estimated future production, the Company estimates that, under the terms of the Agreement it will incur unfavorable expenses due to the current market
conditions, therefore, we have accounted for this agreement under the accounting guidance in ASC Topic 805 as an unfavorable contract. The Company estimated the future payments over the term of the commitment period and discounted those payments
using a market-based cost of debt rate and determined the fair value of $8.4 million. These inputs require significant judgments and estimates by management. The liability associated with the Agreement is referred to as the gas gathering
liability throughout these financial statements and is presented as current and noncurrent accrued liabilities within the balance sheet and will be subsequently amortized ratably over the
11-year
term.
NOTE 4 Asset Retirement Obligations
The Company recognizes an estimated liability for future costs to abandon its oil and gas properties. The time associated with the estimates of
our ARO liability occur over the operating lives of the assets, estimated to range from less than one year to 43 years. Estimated cash flows have been discounted at our credit-adjusted risk-free rate of 8.0%, and adjusted for inflation using a rate
of 2.25%. Our credit-adjusted risk-free rate is calculated based on our cost of borrowing adjusted for the effect of our credit standing and specific industry and business risk.
The Company considers the inputs to the ARO valuation to be Level 3, as fair value is determined using discounted cash flow methodologies
based on standardized inputs that are not readily observable in public markets.
The AROs as of September 30, 2017, reported on our
balance sheet and the changes in the AROs were as follows:
|
|
|
|
|
|
|
September 30, 2017
|
|
Balance at December 31, 2016
|
|
$
|
1,932,809
|
|
Liabilities incurred or acquired
|
|
|
295,182
|
|
Liabilities settled
|
|
|
|
|
Revisions in estimated cash flows
|
|
|
|
|
Accretion expense
|
|
|
112,259
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
$
|
2,340,250
|
|
|
|
|
|
|
NOTE 5 Derivative Instruments
The Company hedges a portion of its oil, NGL and natural gas sales through derivative instruments to mitigate volatility in commodity prices.
The Companys commodity derivatives may expose it to the risk of financial loss in certain circumstances. The Companys derivative arrangements provide protection on the hedged volumes if market prices decline below the prices at which
these derivatives are set. If market prices rise above the prices at which the Company has hedged, the Company will receive less revenue on the hedged volumes than it would receive in the absence of hedges. The crude oil contracts are indexed to the
NYMEX WTI price which has a high degree of correlation with actual prices received by the Company, before differentials.
The Company has
not designated its commodity derivative contracts as hedging instruments for financial reporting purposes. Accordingly, commodity derivative instruments are marked to market at period end, with the change in fair value during the reporting period
currently recognized as gain or loss in Derivative gain (loss) in the statements of operations. The Companys derivative instruments are carried at fair value on the balance sheets. The Company estimates the fair value using risk
adjusted discounted cash flow calculations. Cash flows are based on published future commodity price curves for the underlying commodity as of the date of the estimate. Due to the volatility of commodity prices, the estimated fair values of the
Companys derivative instruments are subject to fluctuation from period to period, which could result in significant differences between the current estimated fair value and the ultimate settlement price.
F-36
The following table summarizes the Companys derivative contracts as of September 30,
2017:
|
|
|
|
|
|
|
|
|
Contract Period
|
|
Volumes (Bbls)
|
|
|
Price ($/Bbl)
|
|
Oil Swaps
(1)
:
|
|
|
|
|
|
|
|
|
Quarter ending December 31, 2017
|
|
|
211,733
|
|
|
$
|
50.74
|
|
Year ending December 31, 2018
|
|
|
591,611
|
|
|
$
|
51.19
|
|
Year ending December 31, 2019
|
|
|
361,934
|
|
|
$
|
51.74
|
|
Year ending December 31, 2020
|
|
|
183,000
|
|
|
$
|
50.20
|
|
(1)
|
The index price for the oil swap is based on the NYMEX WTI monthly average futures price.
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (Mmbtu)
|
|
|
Price ($/Mmbtu)
|
|
Gas Swaps
(1)
:
|
|
|
|
|
|
|
|
|
Quarter ending December 31, 2017
|
|
|
82,595
|
|
|
$
|
3.36
|
|
Year ending December 31, 2018
|
|
|
76,127
|
|
|
$
|
3.36
|
|
(1)
|
The index price for the gas swap is based on the NYMEX futures price.
|
|
|
|
|
|
|
|
|
|
|
|
Volumes (Gal)
|
|
|
Price ($/Gal)
|
|
NGL Swaps
(1)
:
|
|
|
|
|
|
|
|
|
Quarter ending December 31, 2017
|
|
|
547,092
|
|
|
$
|
0.69
|
|
(1)
|
The index price for the NGL swap is based on the Mont Belvieu futures price.
|
The following
table presents the amounts and classifications of the Companys derivative assets and liabilities as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
Fair Value
|
|
|
Fair Value
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current assets
|
|
$
|
282,715
|
|
|
$
|
|
|
Commodity contracts
|
|
Noncurrent assets
|
|
|
388,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
$
|
670,729
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Current liabilities
|
|
$
|
978,152
|
|
|
$
|
322,928
|
|
Commodity contracts
|
|
Long-term liabilities
|
|
|
369,037
|
|
|
|
513,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
1,347,189
|
|
|
$
|
836,583
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized the following gains (losses) in earnings for the three and nine months ended
September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2017
|
|
Change in fair value
|
|
$
|
(2,608,252
|
)
|
|
$
|
160,122
|
|
Derivative settlement gain
|
|
|
262,059
|
|
|
|
625,295
|
|
|
|
|
|
|
|
|
|
|
Total derivative (loss) gain
|
|
$
|
(2,346,193
|
)
|
|
$
|
785,417
|
|
|
|
|
|
|
|
|
|
|
The Companys counterparty credit exposure related to commodity derivative instruments is represented by
contracts at the reporting date. These outstanding instruments, if any, expose the Company to credit risk in the event of nonperformance by the counterparties to the agreements. Should the creditworthiness of the Companys counterparties
decline, its ability to mitigate nonperformance risk is limited to a counterparty agreeing to either a
F-37
voluntary termination and subsequent cash settlement or a novation of the derivative contract to a third party. In the event of a counterparty default, the Company may sustain a loss and its cash
receipts could be negatively impacted. The counterparty under the existing agreement is a member of a syndicate and we have a legal right to offset assets and liabilities at settlement or in the event of default similar to a master netting
agreement. The Company and its counterparties routinely exercise the contractual right to offset gains and losses at settlement.
NOTE
6 Fair Value Measurements
The Company follows fair value measurement authoritative guidance, which defines fair
value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The authoritative accounting guidance defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained
from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the
circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
|
|
|
Level 1: Quoted prices are available in active markets for identical assets or liabilities
|
|
|
|
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are
observable or whose significant value drivers are observable
|
|
|
|
Level 3: Significant inputs to the valuation model are unobservable
|
Financial and
non-financial
assets and liabilities are to be classified based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input
to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The Company recognizes transfers between the levels of fair value
hierarchy at the end of the reporting period.
The following table is a listing of the Companys assets and liabilities that were
measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets from commodity derivative contracts
|
|
$
|
|
|
|
$
|
670,729
|
|
|
$
|
|
|
Liabilities from commodity derivative contracts
|
|
$
|
|
|
|
$
|
1,347,189
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets from commodity derivative contracts
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities from commodity derivative contracts
|
|
$
|
|
|
|
$
|
836,583
|
|
|
$
|
|
|
The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its
nonfinancial assets and liabilities, such as the acquisition or impairment of proved and unproved oil and gas properties and the inception value of asset retirement obligations. These assets and liabilities are subject to fair value adjustments only
in certain circumstances and are not subject to recurring revaluations. See further discussion in Note 3 Acquisition.
The Company reviews its proved oil and natural gas properties for impairment whenever facts and circumstances indicate their carrying value
may not be recoverable. In such circumstances, the income approach
F-38
is used to determine the fair value of proved oil and natural gas reserves. Under this approach, the Company estimates the expected future cash flows of oil and natural gas properties and
compares these undiscounted cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will
write down the carrying amount of the oil and natural gas properties to estimated fair value. The factors used to determine fair value may include, but are not limited to, estimates of reserves, future commodity prices, future production estimates,
estimated future capital expenditures and a commensurate discount rate. These assumptions and estimates represent Level 3 inputs. No impairments were recorded on proved properties during the three and nine month periods ended September 30,
2017 and 2016.
Unproved oil and natural gas property costs are evaluated for impairment and reduced to fair value when there is an
indication that the carrying costs may not be recoverable. To measure the fair value of the unproved properties, the Company uses a market approach, and takes into account future development plans, remaining lease term, drilling results, and
reservoir performance. The Company recorded impairment of unproved oil and gas properties resulting from lease expirations for the three and nine months ended September 30, 2017 of $0 and $348,475, respectively. The Company recorded no
impairment of unproved oil and gas properties during the three and nine months ended September 30, 2016. These assumptions and estimates represent Level 3 inputs.
The inception value of the Companys AROs and gas gathering liability are also measured at fair value on a nonrecurring basis. The inputs
used to determine such fair value are based primarily on the present value of estimated future cash inflows and outflows. Given the unobservable nature of these inputs, they represent Level 3 inputs.
NOTE 7 Revolving Credit Facility
In November 2016, the Company entered into a five-year $250 million secured revolving credit facility (the credit facility).
The credit facility has an initial borrowing base of $20.0 million and has semiannual borrowing base redeterminations by April 1 and October 1 each year. In April 2017, the Company entered into an amendment that increased the credit
facility borrowing base to $32 million. In September 2017, the Company entered into an amendment that increased the credit facility borrowing base to $55 million. Future borrowing bases will be determined at the discretion of the lending
syndicate based on proved oil and natural gas reserves, hedge positions and estimated future cash flow from those reserves, as well as any other outstanding debt.
At September 30, 2017, borrowings under the credit facility bore interest at the alternate base rate plus the applicable margin or at the
adjusted London Interbank Offered (LIBO) rate. The alternate base rate is defined as the greatest of (a) the prime rate in effect, (b) the federal funds rate in effect plus one half of 1.0%, or (c) the monthly LIBO rate,
plus 1%. The applicable margins associated with the prime rate or the federal funds rate vary based on the utilization percentage of the credit facility, and are 1.5% to 2.5% for base rate loans and 2.5% to 3.5% for LIBOR loans. The Company also
pays an annual commitment fee of 0.5% based on the unused portion of the outstanding borrowing base. For the nine months ended September 30, 2017, the Company recorded $378,221 in interest expense, comprised of $255,173 in interest on the
outstanding balance, $48,945 in debt issuance amortization expense, and $74,103 in commitment fees. For the three months ended September 30, 2017, the Company recorded $134,940 in interest expense, comprised of $80,985 in interest on the
outstanding balance, $19,387 in debt issuance amortization expense and $34,568 in commitment fees.
The credit facility is secured by oil
and natural gas properties representing at least 85% of the value of the Companys proved reserves. The credit facility contains certain covenants, including among others, restrictions on indebtedness, restrictions on liens, restrictions on
investments, restrictions on mergers, restrictions on sales of assets, restrictions on dividends and payments to the Companys capital interest holders, and restrictions on the Companys hedging activity. The financial covenants require
the Company to maintain compliance with the following financial ratios:
|
|
|
a current ratio, which is the ratio of the Companys current assets (including unused commitments under the
credit facility and excluding noncash assets related to asset retirement obligations and
|
F-39
|
derivatives) to current liabilities (excluding the current portion of long-term debt under the credit agreement and noncash liabilities related to asset retirement obligations and derivatives),
as of the last day of each fiscal quarter, of not less than 1.0 to 1.0; and
|
|
|
|
a leverage ratio, which is the ratio of debt (as defined in our credit agreement) as of the last day of any rolling period, to annualized EBITDAX for the rolling period (as defined in the credit agreement) ending on the
last day of the rolling period, of not greater than 4.0 to 1.0.
|
As of September 30, 2017, the Company was in
compliance with the financial covenants of the credit facility.
As of September 30, 2017, the Companys outstanding balance
under the credit facility was $14.2 million. The weighted-average interest rate on the outstanding balance for the nine months ended September 30, 2017 was 3.86%. As of December 31, 2016, the Companys outstanding balance under
the credit facility was zero.
NOTE 8 Mustang Creek Energy Partners, LLC
On January 27, 2015, Fifth Creek Energy agreed to purchase from MCEP 10,400,000 units, or 33.3% equity ownership, including a
noncompensatory option to purchase additional units for $100,000 for a total of $10.5 million. MCEP is focused on the exploration and development in the southern Colorado DJ basin. Under FASB ASC 323,
Investments-Equity Method and Joint
Ventures
, the Company uses the equity method of accounting for the investment in MCEP, with earnings or losses, reported in the loss from equity investment line on the statements of operations. The funds received by MCEP from Fifth Creek
Energys investment were used for an operational program including oil and gas exploration and lease acreage development operated by MCEP. During 2015, MCEP incurred operational costs that exceeded the initial $10.5 million funded by the
Company. Due to the overage, Fifth Creek Energy agreed to pay for the first $500,000 of MCEPs operational overage with the remainder being paid by the joint venture partner. The payment of $500,000 to MCEP did not result in additional units or
an increase in ownership in MCEP for the Company. At December 31, 2015, Fifth Creek Energy had fully accrued the Companys $500,000 funding of the overage to MCEP as a payable. The payable to MCEP was paid during the first quarter of 2016.
Based on the results of MCEPs operational program, Fifth Creek Energy determined to discontinue further investment in MCEP since
the acreage did not fit the type of oil and gas play that the Company is looking to develop into a long-term asset. In addition, the acreage was not economical at current market prices. The Company determined the MCEP investment had an other than
temporary loss and fully impaired the investment at December 31, 2015. The evaluation for the impairment was based on current market conditions, expiration of leases within the next 12 months and the result of the drilling program finding
minimal resource play potential in the existing acreage. As a result, the Company incurred a noncash impairment charge of approximately $11 million to write off the carrying amount of the MCEP investment to zero at December 31, 2015. The
Company has no remaining capital commitments to MCEP.
NOTE 9 Members Equity
During 2016, Fifth Creek Energy received contributions from Fifth Creek Energy Company, LLC of $118.5 million, net of issuance costs. From
January 1st through September 30th, 2017 the Company received capital contributions from Fifth Creek Energy Company, LLC of $48.7 million, net of issuance costs.
Fifth Creek Energys operations are governed by the provisions of a limited liability company agreement dated January 22, 2015.
Pursuant to this agreement, the liability of the member is limited to the members contributed capital. Net income and loss are allocated to the member based on a hypothetical liquidation as outlined in the LLC agreement.
F-40
NOTE 10 Related Parties
The Company pays management fees to Fifth Creek Energy Company, LLC. During the three and nine months ended September 30, 2017 and 2016,
Fifth Creek Energy paid $7,500 and $22,500 in management fees, respectively.
Fifth Creek Energy received a reimbursement from MCEP for
time that employees of the Company spent on the operation of Mustang Creek Energy Partners, LLP. As of December 31, 2015, the Company was reimbursed for services rendered to MCEP in the amount of approximately $437,000. At December 31,
2015, the Company had an outstanding receivable for time reimbursement and other expenses related to work performed for MCEP in the amount of approximately $57,000 which had been offset with an allowance for doubtful accounts. This allowance was
written off in 2016.
NOTE 11 Employee Benefit Plan
During 2015, the Company set up and maintained a retirement plan intended to provide benefits under Section 401(k) of the Internal Revenue
Code, under which employees are allowed to contribute portions of their compensation to a
tax-qualified
retirement account. Fifth Creek Energys 401(k) plan provides safe harbor matching contributions of
up to 6% of employees base compensation that is contributed to the plan. For the three and nine months ended September 30, 2017, the Company contributed matching contributions to the 401(k) plan of approximately $91,000 and $205,000,
respectively. For the three and nine months ended September 30, 2016, the Company contributed matching contributions to the 401(k) plan of approximately $48,000 and $120,000, respectively.
NOTE 12 Commitments and Contingencies
Contractual Obligations
A summary
of our contractual obligations as of September 30, 2017 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office lease(1)
|
|
|
Gas
gathering
liability(2)
|
|
|
Compressor
rental(3)
|
|
|
Total
|
|
2017
|
|
$
|
101,033
|
|
|
$
|
186,400
|
|
|
$
|
73,600
|
|
|
$
|
361,033
|
|
2018
|
|
|
524,828
|
|
|
|
911,100
|
|
|
|
809,600
|
|
|
|
2,245,528
|
|
2019
|
|
|
714,401
|
|
|
|
964,000
|
|
|
|
|
|
|
|
1,678,401
|
|
2020
|
|
|
687,248
|
|
|
|
957,300
|
|
|
|
|
|
|
|
1,644,548
|
|
2021
|
|
|
487,926
|
|
|
|
987,000
|
|
|
|
|
|
|
|
1,474,926
|
|
Thereafter
|
|
|
710,001
|
|
|
|
3,409,300
|
|
|
|
|
|
|
|
4,119,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,225,437
|
|
|
$
|
7,415,100
|
|
|
$
|
883,200
|
|
|
$
|
11,523,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company leases office space and equipment from third parties under arrangements accounted for as operating leases. Minimum rent payments are recognized on a straight-line basis over the term of the lease.
|
(2)
|
Relates to the gas gathering agreement with Summit Midstream Partners, LP to sell produced volumes at a predetermined fee. See further discussion in Note 3.
|
(3)
|
In October 2017, the Company entered into
non-cancellable
twelve-month rental agreements with a vendor to secure gas lift compression services.
|
The Company recognized approximately $91,000 and $261,000 in rent expense for the three and nine months ended September 30, 2017,
respectively. The Company recognized approximately $51,000 and $154,000 in rent expense for the three and nine months ended September 30, 2016, respectively.
F-41
Financial Advisor
During 2014, the Company engaged Rivington Holdings, LLC (Rivington) to perform financial advisor services in connection with or in respect to
the Companys strategic transactions. On March 2, 2015, the Company and Rivington Holdings, LLC entered into a compensation agreement based on completion of the equity commitments from NGP and the other investors that occurred in March of
2015. The Company agrees to pay Rivington a fee in the amount equal to 1.67% of investment proceeds received by the Company on and after March 2, 2015; however, the fee will not exceed a total of $5 million. For the three and nine months
ended September 30, 2017, the Company paid approximately $409,000 and $827,000, respectively, in fees to Rivington based on this agreement. For the three months ended September 30, 2016, the Company did not pay any fees to Rivington. For
the nine months ended September 30, 2016, the Company paid approximately $2,013,000 in fees to Rivington. The fees are recorded as a reduction to capital contributions on the balance sheet and the statement on members equity.
Government and Environmental Regulation
Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in all areas in which the Company
has operations. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various other matters,
including taxation. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of September 30, 2017, the Company has not been fined or cited for any
violations of governmental or environmental regulations that would have a material adverse effect upon the financial condition, capital expenditures, earnings, or competitive position of the Company.
Legal Proceedings
Fifth Creek is
party to lawsuits arising in the ordinary course of our business. The Company cannot predict the outcome of any such lawsuits with certainty, but management believes it is remote that pending or threatened legal matters will have a material adverse
impact on our financial condition.
NOTE 13 Subsequent Events
In November 2017, the Company entered into an amendment that increased the credit facility borrowing base to $70 million.
In November 2017, the Company entered into an agreement with Springbok Energy Partners II, LLC, which is owned by NGP, to acquire royalty
interests and overrides in the Hereford field.
On December 4, 2017, Fifth Creek Energy Operating Company, LLC entered into an
Agreement and Plan of Merger with Bill Barrett Corporation. Under the terms of the transaction, BBG and Fifth Creek will each become subsidiaries of a newly formed holding company (New BBG), which will become the publicly listed and
traded holding company for the combined BBG and Fifth Creek. In the transaction, BBGs stockholders will exchange their BBG common stock for New BBG common stock on a
1-for-1
basis, and Fifth Creeks current sole member will receive 100 million shares of the New BBGs common stock.
Subsequent events have been evaluated through December 15, 2017, which is the date the financial statements were available to be issued.
F-42
STATELINE PROPERTIES CARVE-OUT FINANCIAL STATEMENTS
INDEPENDENT AUDITORS REPORT
Board of Directors of Fifth Creek Energy Operating Company LLC
Fifth Creek Energy Operating Company LLC
Greenwood Village, CO
We have audited the accompanying
carve-out
financial statements of the Stateline Properties,
which comprise the
carve-out
balance sheets as of July 14, 2016 and December 31, 2015 and 2014, and the related
carve-out
statements of operations, changes in
parent net investment (deficit), and cash flows for the period from January 1, 2016 to July 14, 2016 and the years ended December 31, 2015 and 2014, and the related notes to the
carve-out
financial statements (the
carve-out
financial statements).
Managements Responsibility for
the
Carve-Out
Financial Statements
Management is responsible for the preparation and fair
presentation of these
carve-out
financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of
carve-out
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our
responsibility is to express an opinion on these
carve-out
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
carve-out
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
carve-out
financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the
carve-out
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the
carve-out
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the
carve-out
financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the
carve-out
financial statements referred to above present fairly, in all material
respects, the financial position of the Stateline Properties as of July 14, 2016 and December 31, 2015 and 2014, and the results of its operations and its cash flows for the period from January 1, 2016 to July 14, 2016 and the
years ended December 31, 2015 and 2014, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of
Matter
As discussed in Note 1 to the
carve-out
financial statements, the accompanying
carve-out
financial statements have been prepared from the separate records maintained by the previous owner and may not
F-43
necessarily be indicative of the conditions that would have existed or the results of operations if the Stateline Properties had been operated as an unaffiliated entity. Portions of certain
expenses represent allocations made from and are applicable to the previous owner as a whole. Our opinion is not modified with respect to this matter.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Supplemental Oil and Gas Information in Note 7 be
presented to supplement the
carve-out
financial statements. Such information, although not a part of the
carve-out
financial statements, is required by the Financial
Accounting Standards Board who considers it to be an essential part of financial reporting for placing the
carve-out
financial statements in an appropriate operational, economic, or historical context. We have
applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with managements responses to our inquiries, the
carve-out
financial statements, and other knowledge we obtained during our audits of the
carve-out
financial statements. We do not express an opinion or provide any assurance on the supplemental information because the limited procedures do not provide us with sufficient evidence to express an opinion
or provide any assurance.
/s/ Deloitte & Touche LLP
December 22, 2017
Houston, TX
F-44
STATELINE PROPERTIES
CARVE-OUT BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 14,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
$
|
1,384,769
|
|
|
$
|
835,563
|
|
|
$
|
1,469,319
|
|
Oil and Gas Properties (Successful Efforts Method)
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and Gas Properties
|
|
|
306,540,623
|
|
|
|
306,428,755
|
|
|
|
305,981,137
|
|
Less: Accumulated Depreciation, Depletion, and Amortization
|
|
|
(306,540,623
|
)
|
|
|
(295,830,888
|
)
|
|
|
(293,694,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties
|
|
|
|
|
|
|
10,597,867
|
|
|
|
12,287,087
|
|
Deferred Tax Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,384,769
|
|
|
$
|
11,433,430
|
|
|
$
|
13,756,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET INVESTMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities
|
|
$
|
1,089,922
|
|
|
$
|
1,590,010
|
|
|
$
|
2,987,812
|
|
Asset Retirement Obligation
|
|
|
12,244,136
|
|
|
|
12,026,610
|
|
|
|
11,602,909
|
|
Commitments and Contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Parent Deficit
|
|
|
(11,949,289
|
)
|
|
|
(2,183,190
|
)
|
|
|
(834,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Net Parent Deficit
|
|
$
|
1,384,769
|
|
|
$
|
11,433,430
|
|
|
$
|
13,756,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-45
STATELINE PROPERTIES
CARVE-OUT STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
January 1, 2016
to July 14, 2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Net Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil and Condensate
|
|
$
|
4,140,392
|
|
|
$
|
10,977,231
|
|
|
$
|
28,558,593
|
|
Natural Gas Liquids
|
|
|
663,497
|
|
|
|
1,455,778
|
|
|
|
4,451,892
|
|
Natural Gas
|
|
|
325,768
|
|
|
|
854,774
|
|
|
|
1,830,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,129,657
|
|
|
|
13,287,783
|
|
|
|
34,841,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Operating Expense
|
|
|
2,293,722
|
|
|
|
5,315,949
|
|
|
|
9,448,978
|
|
Gathering, Processing and Transportation Costs
|
|
|
2,133,059
|
|
|
|
4,862,529
|
|
|
|
6,445,053
|
|
Impairments
|
|
|
10,709,735
|
|
|
|
|
|
|
|
76,458,741
|
|
Depreciation, Depletion, Amortization and Accretion
|
|
|
217,526
|
|
|
|
2,560,538
|
|
|
|
17,059,465
|
|
General and Administrative
|
|
|
352,660
|
|
|
|
676,246
|
|
|
|
950,059
|
|
Taxes Other Than Income Taxes
|
|
|
249,544
|
|
|
|
746,505
|
|
|
|
1,549,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,956,246
|
|
|
|
14,161,767
|
|
|
|
111,911,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss Before Income Tax Benefit (Expense)
|
|
|
(10,826,589
|
)
|
|
|
(873,984
|
)
|
|
|
(77,070,758
|
)
|
Income Tax Benefit (Expense)
|
|
|
168,341
|
|
|
|
(150,531
|
)
|
|
|
27,626,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(10,658,248
|
)
|
|
$
|
(1,024,515
|
)
|
|
$
|
(49,444,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-46
STATELINE PROPERTIES
CARVE-OUT STATEMENTS OF CHANGES IN NET PARENT INVESTMENT (DEFICIT)
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
52,956,515
|
|
|
|
|
|
|
Net Loss
|
|
|
(49,444,029
|
)
|
Capital Distributions To Parent, Net
|
|
|
(4,346,801
|
)
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(834,315
|
)
|
Net Loss
|
|
|
(1,024,515
|
)
|
Capital Distributions To Parent, Net
|
|
|
(324,360
|
)
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(2,183,190
|
)
|
Net Loss
|
|
|
(10,658,248
|
)
|
Capital Contributions From Parent, Net
|
|
|
892,149
|
|
|
|
|
|
|
Balance at July 14, 2016
|
|
$
|
(11,949,289
|
)
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-47
STATELINE PROPERTIES
CARVE-OUT STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
from January 1,
2016 to July 14,
2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Loss to Net Cash (Used in) Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(10,658,248
|
)
|
|
$
|
(1,024,515
|
)
|
|
$
|
(49,444,029
|
)
|
Items Not Requiring (Providing) Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, Depletion, Amortization, and Accretion
|
|
|
217,526
|
|
|
|
2,560,538
|
|
|
|
17,059,465
|
|
Impairment
|
|
|
10,709,735
|
|
|
|
|
|
|
|
76,458,741
|
|
Deferred Income Taxes
|
|
|
|
|
|
|
|
|
|
|
(30,114,938
|
)
|
Changes in Components of Working Capital and Other Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
(549,206
|
)
|
|
|
633,757
|
|
|
|
2,193,774
|
|
Accounts Payable and Accrued Liabilities
|
|
|
(500,088
|
)
|
|
|
(1,397,802
|
)
|
|
|
(1,853,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
|
(780,281
|
)
|
|
|
771,978
|
|
|
|
14,299,197
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Oil and Gas Properties
|
|
|
(111,868
|
)
|
|
|
(447,618
|
)
|
|
|
(9,952,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(111,868
|
)
|
|
|
(447,618
|
)
|
|
|
(9,952,396
|
)
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Contributions From Parent
|
|
|
892,149
|
|
|
|
|
|
|
|
|
|
Capital Distributions To Parent
|
|
|
|
|
|
|
(324,360
|
)
|
|
|
(4,346,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
892,149
|
|
|
|
(324,360
|
)
|
|
|
(4,346,801
|
)
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligation
|
|
|
|
|
|
|
|
|
|
|
5,642,129
|
|
The accompanying notes are an integral
part of these financial statements.
F-48
STATELINE PROPERTIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization, Basis of Presentation and Accounting Policies
Fifth Creek Energy Operating Company, LLC (also known as Fifth Creek Management Company, LLC herein referred to as Fifth Creek
Energy or Buyer), a Delaware limited liability company was formed on April 21, 2014. On May 19, 2016, Fifth Creek Energy entered into a purchase and sale agreement with an unrelated third-party entity (Seller)
to purchase all of the Sellers interests in certain oil and gas properties located in Weld County, Colorado (Stateline Properties), for an aggregate cash consideration of approximately $108 million before purchase price
adjustments. The closing with the Seller occurred on July 15, 2016. The accompanying carve-out financial statements include the assets, liabilities, revenues, expenses, and cash flows of the Stateline Properties as of the period ended from
January 1, 2016 through July 14, 2016, and the years ended December 31, 2015 and 2014. These properties were not previously separately accounted for as a stand-alone legal entity. A summary of significant accounting policies
applicable to the Stateline Properties, consistently applied in the preparation of the accompanying carve-out financial statements, follows:
Allocation of Costs
The accompanying
carve-out financial statements have been prepared in accordance with United States Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) Topic 1-B. These rules require allocation to the Stateline Properties
of a portion of Sellers indirect costs for salaries and benefits, depreciation, rent, accounting, legal services, and other expenses. Such general and administrative expenses were allocated to the Stateline Properties using a ratio of crude
oil and condensate, natural gas liquids (NGL), and natural gas volumes produced, on an equivalents basis, by the Stateline Properties to the total crude oil and condensate, NGL, and natural gas produced, on an equivalents basis, by all
properties owned by the Seller, for the period from January 1, 2016 through July 14, 2016, and the years ended December 31, 2015 and 2014. Fifth Creek Energy management believes the allocation methodologies used are reasonable and
result in an allocation of the indirect costs of doing business borne by the Seller to operate the Stateline Properties as a stand-alone entity. These allocations may not be indicative of the cost of future operations or the amount of future
allocations. Direct costs were included at the historical amounts related to each reported period.
Use of Estimates in the Presentation of Carve-Out
Financial Statements
The preparation of the carve-out financial statements in conformity with accounting principles generally accepted
in the United States of America and SEC rules requires management to make estimates and assumptions that affect the amounts reported in these carve-out financial statements and the accompanying notes. Actual results could differ from those
estimates.
Significant assumptions are required in the valuation of proved oil and gas reserves, which may affect the amount at which oil
and gas properties are recorded; provisions for depreciation, depletion, and amortization; and the impairment of oil and gas properties. Estimation of asset retirement obligations is based on the timing and cost of future abandonments. Estimation of
production volumes near period-end is required to determine the amount of oil and gas revenue receivable and the accrual of certain expenses at period end. It is possible these estimates could be revised in the near term and that these revisions
could be material.
Accounts Receivable
All of the Stateline Properties accounts receivable are generated from the sale of crude oil and condensate, NGL, and natural gas. The
receivables are generally unsecured. The Stateline Properties had no allowance for doubtful accounts for the period ended from January 1, 2016 through July 14, 2016, and the years ended December 31, 2015 and 2014.
F-49
Oil and Gas Properties
The Stateline Properties uses the successful efforts method of accounting for its oil and gas exploration and production activities. Costs
incurred by the Stateline Properties related to the acquisition of oil and gas properties and the cost of drilling development wells and successful exploratory wells are capitalized, while the costs of unsuccessful exploratory wells are expensed
when determined to be unsuccessful. Costs incurred to maintain wells and related equipment, lease and well operating costs and other exploration costs are charged to expense as incurred.
Capitalized acquisition costs attributable to proved oil and gas properties are depleted by field using the unit-of-production method based on
proved reserves. Capitalized exploration costs and well development costs, including asset retirement obligations, are amortized similarly by formation or field, based on proved developed reserves. Depletion expense for oil and gas producing
property and related equipment was $0, $2,136,838, and $16,740,838 for the period from January 1, 2016 through July 14, 2016 and the years ended December 31, 2015 and 2014, respectively. The Stateline Properties had net capitalized
costs related to proved properties and related equipment of $0, $10,597,867, and $12,287,087 from the period ended January 1, 2016 through July 14, 2016, and the years ended December 31, 2015 and 2014, respectively.
Capitalized costs are evaluated for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 360, Property, Plant and Equipment, whenever events or changes in circumstances indicate that an assets carrying amount may not be recoverable.
To determine if oil and gas properties are impaired, the carrying value of such properties, at a field level, is compared to the undiscounted
future net cash flows, calculated by applying managements estimates of future oil and gas prices to the estimated future production of oil and gas reserves over the economic life of the properties and deducting future costs. Future net cash
flows are based upon reservoir engineers estimates of proved reserves. For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the property will be
recognized. The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved
properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, and (iv) a market-based weighted average cost of capital rate. The underlying commodity prices embedded in
the Stateline Properties estimated cash flows are the applicable forward curve pricing, as adjusted for estimated location and quality differentials and other factors that the Stateline Properties believes will impact realizable prices. No
impairment was recognized for the year ended December 31, 2015. Impairment expense of $10,709,735 and $76,458,741 was recognized for the period from January 1, 2016 through July 14, 2016 and the year ended December 31, 2014,
respectively.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities include obligations incurred in the ordinary operation of the business for services performed and
products received, including capital expenditures that are capitalized as oil and gas properties.
Asset Retirement Obligations
Asset retirement obligations (AROs) are accounted for in accordance with ASC Topic 410,
Asset Retirement and
Environmental Obligations
. ASC Topic 410 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including: 1) the timing of liability recognition, 2) initial measurement of the liability, 3)
allocation of asset retirement cost to expense, 4) subsequent measurement of the liability, and 5) related financial statement disclosure. AROs consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated
with oil and gas properties. A
liability is recorded
F-50
when the fair value of an ARO can be reasonably estimated and a legal obligation for such activity exists. The liability amounts are based on cost estimates to satisfy the legal obligations
and incorporate many assumptions, such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the adjusted risk-free rate of interest.
The ARO is recorded at its estimated present value at the obligations inception with an offsetting increase to proved properties in the
carve-out balance sheets. This addition to proved properties represents a non-cash investing activity for presentation in the statements of cash flows. The initial liability is subsequently increased based on the passage of time and the related cost
of capital, with increases reflected in depreciation, depletion, amortization and accretion expense in the carve-out statements of operations.
The following table shows the changes in the carrying value of asset retirement obligations for the period from January 1, 2016 through
July 14, 2016, and the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
from January 1,
2016 to July 14,
2016
|
|
|
Years Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Balance at Beginning of Period
|
|
$
|
12,026,610
|
|
|
$
|
11,602,909
|
|
|
$
|
5,642,153
|
|
Accretion
|
|
|
217,526
|
|
|
|
423,701
|
|
|
|
318,627
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
138,417
|
|
Revisions
|
|
|
|
|
|
|
|
|
|
|
5,503,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
12,244,136
|
|
|
$
|
12,026,610
|
|
|
$
|
11,602,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2014, the Stateline Properties had revisions of approximately $5.5 million substantially due to changes in
timing of future cash flow.
Net Parent Investment (Deficit)
Net parent investment (deficit) reflects the financial reporting bases of the Stateline Properties assets and liabilities and changes due
to capital contributions, distributions, and earnings (loss), as applicable for each period.
Revenue Recognition
Revenues are recorded on the sales method of accounting for crude oil and condensate, NGL and natural gas, whereby direct operating revenues
are recognized as the production is sold to purchasers at a fixed and determinable price and delivery has occurred. The amount of gas sold may differ from the amount to which the Stateline Properties is entitled based on ownership interest.
Operating Expenses
Operating expenses
are recognized when incurred and include costs to bring crude oil and natural gas to the surface and to gather, transport, field process, treat and store the same.
Income Taxes
Income taxes are reflected
in the accompanying carve-out financial statements assuming the Stateline Properties is treated as a C corporation consistent with the Sellers status prior to the sale, while the Buyer is a pass-through entity not subject to entity level
taxation. All of the Stateline Properties assets and activities are located in the State of Colorado. Deferred tax balances are primarily attributable to cost recovery differences in the carrying value and tax basis of oil and gas assets, and
asset retirement obligations. The Company records and
F-51
adjusts a valuation allowance against net deferred tax assets when in managements judgment, the net deferred tax assets are not more-likely-than-not recoverable in future periods. Changes
in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. Deferred tax assets, including tax losses, credit carryforwards and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
The Stateline Properties record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in
which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.
Recent Accounting Pronouncements
Revenue from
Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue
from Contracts with Customers (Topic 606)
, which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new guidance will require a company to recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The new standards are effective for the Stateline Properties on January 1, 2019. Early adoption is
permitted for fiscal years beginning after December 15, 2016. The Stateline Properties is still assessing the effects of adoption of the new standard on its financial statements.
Leases
On February 25, 2016, the
FASB issued ASU No. 2016-02,
Leases
(ASU 2016-02). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets.
ASU No. 2016-02 is effective for the Stateline Properties annual and interim periods beginning January 1, 2020. Early adoption of
ASU No. 2016-02 is permitted. Upon adoption of ASU 2016-02, the Stateline Properties is required to recognize and measure leases at the beginning of the earliest period presented in the Stateline Properties financial statements using a
modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that the Stateline Properties may elect to apply. The Stateline Properties has not yet decided when it will adopt ASU No. 2016-02
or which practical expedient options it will elect. Stateline Properties is currently evaluating and assessing the impact ASU No. 2016-02 will have on its financial statements. As of the date of this report, the Stateline Properties cannot provide
any estimate of the impact of adopting ASU No. 2016-02.
NOTE 2. FAIR VALUE MEASUREMENT
The Stateline Properties utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible. The Stateline Properties determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant
assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance with ASU No. 2011-04:
|
|
|
Level 1 Inputs: Quoted prices are available in active markets for identical assets and liabilities
|
F-52
|
|
|
Level 2 Inputs: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are
observable or whose significant value drivers are observable
|
|
|
|
Level 3 Inputs: Significant inputs to the valuation model are unobservable
|
Financial and
non-financial assets and liabilities are to be classified based on the lowest level of input that is significant to the fair value measurement. The Stateline Properties assessment of the significance of a particular input to the fair value
measurements requires judgement and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The accounting for any impaired proved oil and gas properties requires determination of the fair value of such proved oil and gas reserves.
Stateline Properties utilizes the income approach to determine fair value. The factors used to determine fair value may include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, estimated future
capital expenditures and a commensurate discount rate. These assumptions and estimates represent Level 3 inputs. During 2016, proved oil and gas properties with a carrying amount of $10,709,735 were written down to their estimated fair value of $0.
During 2014, proved oil and gas properties with a carrying amount of $88,745,828 were written down to their estimated fair value of $12,287,087. No impairment was recorded in 2015.
The inception values of the Stateline Properties AROs are also measured at fair value on a nonrecurring basis. The inputs used to determine
such fair values are based primarily on the present value of estimated future cash inflows and outflows. Given the unobservable nature of these inputs, they represent Level 3 inputs. Please refer to Asset Retirement Obligations detail in Note 1.
NOTE 3. INCOME TAXES
The
Stateline Properties uses the asset and liability method of accounting for income tax in accordance with ASC Topic No. 740,
Accounting for Income Taxes
. Income taxes are provided for the tax effects of transactions reported in the
carve-out statement of assets, liabilities, and net parent investment (deficit) and consist of taxes currently due (or recoverable) plus deferred taxes. Annual settlements are recorded as increases or decreases in Net Parent Investment (deficit), as
the case may be. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carve-out financial statements carrying amounts of existing assets and liabilities and their respective
tax bases.
Deferred tax assets, including tax losses, credit carryforwards and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred income tax expense or benefit represents the change during the period in the deferred tax assets and deferred tax liabilities net of a valuation allowance. At this time, the Stateline Properties does not believe
that its net deferred tax assets are realizable in the future on a more-likely-than-not basis.
The components of our income tax (benefit)
expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
January 1, 2016
to July 14, 2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Current income tax (benefit) expense
|
|
$
|
(168
|
)
|
|
$
|
151
|
|
|
$
|
2,488
|
|
Deferred income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(30,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(168
|
)
|
|
$
|
151
|
|
|
$
|
(27,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
The Stateline Properties effective income tax rate was (1.6%), 17.2% and (35.8%), for the tax
periods ended July 14, 2016, December 31, 2015, and December 31, 2014, respectively. The effective income tax rate reflects a valuation allowance against recorded asset to reserve net deferred tax assets at each year-end. The
following is a reconciliation of the statutory income tax rate to our effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
January 1, 2016
to July 14, 2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Statutory rate benefit
|
|
|
(35.0
|
%)
|
|
|
(35.0
|
%)
|
|
|
(35.0
|
%)
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current increase in valuation allowance
|
|
|
36.4
|
%
|
|
|
55.2
|
%
|
|
|
2.2
|
%
|
State rate net of Federal benefit
|
|
|
(3.0
|
%)
|
|
|
(3.0
|
%)
|
|
|
(3.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
(1.6
|
%)
|
|
|
17.2
|
%
|
|
|
(35.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal components of our rollforward valuation allowances for deferred tax assets are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
January 1, 2016
to July 14, 2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Beginning balance
|
|
|
2,151
|
|
|
|
1,668
|
|
|
|
|
|
Increase
|
|
|
3,946
|
|
|
|
483
|
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
6,097
|
|
|
|
2,151
|
|
|
|
1,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of our deferred taxes are detailed in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
January 1, 2016
to July 14, 2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas properties and other property
|
|
$
|
1,443
|
|
|
$
|
|
|
|
$
|
|
|
Asset retirement obligations
|
|
|
4,654
|
|
|
|
4,571
|
|
|
|
4,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,097
|
|
|
|
4,571
|
|
|
|
4,410
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas properties and other property
|
|
|
|
|
|
|
(2,420
|
)
|
|
|
(2,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
|
|
|
|
(2,420
|
)
|
|
|
(2,742
|
)
|
Valuation allowance
|
|
|
(6,097
|
)
|
|
|
(2,151
|
)
|
|
|
(1,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes in deferred tax assets and liabilities each year are primarily due to differences in cost recovery
methods for depletion, depreciation, amortization and impairment of oil and natural gas properties for financial accounting and income tax purposes. In each year presented, a valuation allowance is recorded and adjusted as required to reflect
managements belief that our net deferred tax assets are not recoverable on a more-likely-than-not basis.
The Stateline Properties
are included in the consolidated tax return of the Seller for the periods presented. The provision for income taxes was calculated by using a separate return method. Under this method, the Stateline Properties are assumed to file a
separate return with the tax authority, thereby reporting its taxable
F-54
income or loss and paying the applicable tax to or receiving the appropriate refund from the Seller. Our current provision is the amount of tax payable or refundable on the basis of a
hypothetical, current-year separate return. The Stateline Properties provides deferred taxes on temporary differences and on any carryforwards that the Seller could claim on a hypothetical return, and assess the need for a valuation allowance on the
basis on its projected separate return results.
Any difference between the tax provision (or benefit) allocated to the Stateline
Properties under the separate return method and payments to be made to (or received from) the Seller for tax expense are treated as either dividends or capital contributions. Accordingly, the amount by which our tax liability under the separate
return method exceeds the amount of tax liability ultimately settled as a result of using incremental expenses of Seller is periodically settled as a capital contribution from the Seller to Stateline Properties.
For the periods presented, the Stateline Properties had no U.S. Federal or state net operating loss carryforward since, in these carve-out
financial statement, any such loss was absorbed by its parent and settled in accordance with the (deemed) tax-sharing agreement by a payment charged or credited to net parent investment.
ASC Topic No. 740,
Accounting for Income Taxes
, prescribes accounting for and disclosure of uncertainty in tax positions.
This guidance defines the criteria that must be met for the benefits of a tax position to be recognized in the carve-out financial statements and the measurement of tax benefits recognized. For the periods presented, the Stateline Properties did not
record a liability related to uncertain tax positions nor recognize any interest or penalty expense related to uncertain tax positions or income taxes.
NOTE 4. RELATED PARTY TRANSACTIONS
Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition.
ASC Topic 850,
Related Party Disclosures
, requires that transactions with related parties that would make a difference in decision making to be disclosed so that users of the financial statements can evaluate their significance.
During the period from January 1, 2016 through July 14, 2016 and the years ended December 31, 2015 and 2014, there were no
related party transactions, except as disclosed in these carve-out financial statements reflected in the contributions to or distributions from the parent in the Statement of Changes in Net Parent Investment
NOTE 5. COMMITMENTS AND CONTINGENCIES
Government and
Environmental Regulation
Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments,
including in all areas of operations of the Stateline Properties. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the utilization and pooling of properties, reports concerning
operations, royalty rates, and various other matters, including taxation. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of July 14, 2016,
there have been no fines or citations for any violations of governmental or environmental regulations that would have a material adverse effect upon the financial condition, capital expenditures, earnings or competitive position of the Stateline
Properties for all periods presented in the carve-out financial statements.
Legal Proceedings
The Stateline Properties may, from time, be involved in various legal actions arising in the normal course of business. As of July 14,
2016, the Stateline Properties are not subject to any pending or threatened litigation, claims or assessments.
F-55
NOTE 6. SUBSEQUENT EVENTS
See Note 1 regarding the purchase of the Stateline Properties by Fifth Creek Energy.
Management has evaluated events and transactions associated with Stateline Properties after the balance sheet date through December 22,
2017, the date these carve-out financial statements were available to be issued.
NOTE 7. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The reserves at July 14, 2016, and December 31, 2015 and 2014 presented below were prepared by a third-party reserve engineer.
Estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors. The reserves are located in the DJ Basin
located in Weld County, Colorado.
Guidelines prescribed in ASC Topic 932
Extractive Industries Oil and Gas
have been
followed for computing a standardized measure of future net cash flows and changes therein related to estimated proved reserves. Future cash inflows and future production and development costs are determined by applying prices and costs, including
transportation, quality, and basis differentials, to the period-end estimated quantities of crude oil and condensate, NGL and natural gas to be produced in the future. The resulting future net cash flows are reduced to present value amounts by
applying a 10% annual discount factor. Future operating costs are determined based on estimates of expenditures to be incurred in producing the proved oil and gas reserves in place at the end of the period using period-end costs and assuming
continuation of existing economic conditions, plus overhead incurred. Future development costs are determined based on estimates of capital expenditures to be incurred in developing proved oil and gas reserves.
The assumptions used to compute the standardized measure are those prescribed by the FASB and SEC. These assumptions do not necessarily
reflect managements expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the
standardized measure computations since these reserve quantity estimates are the basis for the valuation process. Reserve estimates are inherently imprecise, and estimates of new discoveries and undeveloped locations are more imprecise than
estimates of established proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available.
The following table sets forth information for the years ended December 31, 2015 and 2014, and for the period from January 1, 2016
to July 14, 2016 with respect to changes in the proved reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Mbbl)
Crude
Oil
|
|
|
(MMcf)
Natural
Gas
|
|
|
(Mbbl)
NGLs
|
|
January 1, 2014
|
|
|
2,362
|
|
|
|
3,458
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions
|
|
|
(182
|
)
|
|
|
(415
|
)
|
|
|
(23
|
)
|
Production
|
|
|
(351
|
)
|
|
|
(351
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
1,829
|
|
|
|
2,692
|
|
|
|
463
|
|
Revisions
|
|
|
(257
|
)
|
|
|
(494
|
)
|
|
|
(78
|
)
|
Production
|
|
|
(267
|
)
|
|
|
(343
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
1,305
|
|
|
|
1,855
|
|
|
|
319
|
|
Revisions
|
|
|
(1,186
|
)
|
|
|
(1,685
|
)
|
|
|
(288
|
)
|
Production
|
|
|
(119
|
)
|
|
|
(170
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 14, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 14, 2016, the reserves are uneconomical and therefore there are no economic reserves. As of
December 31, 2015, the reserves were comprised of 67.5% crude oil, 16.0% natural gas, and 16.5% NGL on an
F-56
energy equivalent basis. As of December 31, 2014, the reserves were comprised of 66.7% crude oil, 16.4% natural gas, and 16.9% NGL on an energy equivalent basis. The following values for
July 14, 2016 reserves were derived based on prices of $38.03 per Bbl of crude oil, $2.435 per Mcf of natural gas, and $15.78 per Bbl of NGL. The following values for the 2015 proved reserves were derived based on prices of $42.78 per Bbl of
crude oil, $2.673 per Mcf of natural gas, and $18.85 per Bbl of NGL. The following values for the 2014 reserves were derived based on prices of $82.67 per Bbl of crude oil, and $6.186 per Mcf of natural gas, and $38.70 per Bbl of NGL. These prices
were based on the 12-month arithmetic average first-of-month price for July 2015 through June 2016, January 2015 through December 2015, and January 2014 through December 2014, respectively. The crude oil pricing was based on the West Texas
Intermediate (WTI) price; the natural gas pricing was based on the Henry Hub price; the NGL pricing was 65%, 55% and 55% of WTI in 2016, 2015, and 2014 respectively. All prices have been adjusted for transportation, quality and basis
differentials.
The following summary sets forth the future net cash flows related to proved oil and gas reserves based on the
standardized measure prescribed in ASC Topic 932 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
From January 1,
2016 to July 14,
2016
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
Future crude oil, natural gas, and NGLs sales
|
|
$
|
56,234
|
|
|
$
|
66,773
|
|
|
$
|
185,690
|
|
Future production costs
|
|
|
(43,476
|
)
|
|
|
(52,856
|
)
|
|
|
(122,353
|
)
|
Future development costs
|
|
|
(12,758
|
)
|
|
|
(12,758
|
)
|
|
|
(12,758
|
)
|
Future income tax expense
|
|
|
|
|
|
|
(642
|
)
|
|
|
(17,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
|
|
|
|
517
|
|
|
|
32,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% annual discount
|
|
|
|
|
|
|
(457
|
)
|
|
|
(10,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
|
|
$
|
|
|
|
$
|
60
|
|
|
$
|
22,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal sources of change in the standardized measure of discounted future net cash flows are (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
From January 1,
2016 to July 14,
2016
|
|
|
Years Ended
December 31,
2015
|
|
|
Years Ended
December 31,
2014
|
|
Balance at beginning of period
|
|
$
|
60
|
|
|
$
|
22,651
|
|
|
$
|
52,083
|
|
Sales of crude oil, natural gas and NGLs, net of production costs
|
|
|
(453
|
)
|
|
|
(2,363
|
)
|
|
|
(17,398
|
)
|
Net change in prices and production costs
|
|
|
(830
|
)
|
|
|
(28,475
|
)
|
|
|
(26,771
|
)
|
Net changes in future development costs
|
|
|
|
|
|
|
|
|
|
|
(4,146
|
)
|
Revisions of previous quantity estimates
|
|
|
|
|
|
|
(6,839
|
)
|
|
|
(6,665
|
)
|
Net change in income taxes
|
|
|
587
|
|
|
|
12,614
|
|
|
|
16,986
|
|
Accretion of discount
|
|
|
35
|
|
|
|
3,585
|
|
|
|
8,227
|
|
Other
|
|
|
601
|
|
|
|
(1,113
|
)
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
|
|
|
$
|
60
|
|
|
$
|
22,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
Annex A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BILL
BARRETT CORPORATION,
RED RIDER HOLDCO, INC.,
RIO MERGER SUB, LLC,
RIDER MERGER SUB, INC.,
FIFTH CREEK ENERGY OPERATING COMPANY, LLC,
solely for the purposes of Sections 4.15(k), 6.5, 6.9(c) and 6.13,
FIFTH CREEK ENERGY COMPANY, LLC,
and solely for the purposes of Sections 6.5(a)(ii), 6.5(a)(iv), 6.5(b), and 6.5(c),
NGP NATURAL RESOURCES XI, L.P.
December 4, 2017
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I THE TRANSACTIONS
|
|
|
A-2
|
|
|
|
|
1.1
|
|
The Mergers
|
|
|
A-2
|
|
1.2
|
|
Closing
|
|
|
A-3
|
|
1.3
|
|
Organizational and Governing Documents
|
|
|
A-3
|
|
1.4
|
|
Directors, Managers and Officers
|
|
|
A-3
|
|
1.5
|
|
Stockholders Agreement
|
|
|
A-4
|
|
|
|
ARTICLE II EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS
|
|
|
A-4
|
|
|
|
|
2.1
|
|
Conversion of Securities
|
|
|
A-4
|
|
2.2
|
|
Exchange of Parent Certificates
|
|
|
A-5
|
|
2.3
|
|
Issuance of Merger Consideration
|
|
|
A-7
|
|
2.4
|
|
Stock/LLC Interest Transfer Books
|
|
|
A-7
|
|
2.5
|
|
Parent Equity Awards
|
|
|
A-7
|
|
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARENT PARTIES
|
|
|
A-8
|
|
|
|
|
3.1
|
|
Organization; Qualification
|
|
|
A-8
|
|
3.2
|
|
Authority; Enforceability
|
|
|
A-9
|
|
3.3
|
|
Non-Contravention
|
|
|
A-9
|
|
3.4
|
|
Approvals of Governmental Entities and Third Parties
|
|
|
A-10
|
|
3.5
|
|
Capitalization
|
|
|
A-10
|
|
3.6
|
|
Compliance with Law
|
|
|
A-11
|
|
3.7
|
|
Parent SEC Reports; Financial Statements
|
|
|
A-11
|
|
3.8
|
|
Absence of Certain Changes
|
|
|
A-12
|
|
3.9
|
|
Title to Properties and Assets
|
|
|
A-12
|
|
3.10
|
|
Intellectual Property
|
|
|
A-15
|
|
3.11
|
|
Environmental Matters
|
|
|
A-15
|
|
3.12
|
|
Material Contracts
|
|
|
A-15
|
|
3.13
|
|
Legal Proceedings
|
|
|
A-17
|
|
3.14
|
|
Permits
|
|
|
A-17
|
|
3.15
|
|
Taxes
|
|
|
A-17
|
|
3.16
|
|
Employee Benefits; Employment and Labor Matters
|
|
|
A-18
|
|
3.17
|
|
Insurance
|
|
|
A-20
|
|
3.18
|
|
Derivative Transactions and Hedging
|
|
|
A-20
|
|
3.19
|
|
Required Vote of the Parent Stockholders
|
|
|
A-20
|
|
3.20
|
|
Related Party Transactions
|
|
|
A-20
|
|
3.21
|
|
Brokers Fee
|
|
|
A-21
|
|
3.22
|
|
Opinion of Financial Advisor
|
|
|
A-21
|
|
3.23
|
|
Information Supplied
|
|
|
A-21
|
|
3.24
|
|
No Other Representations or Warranties
|
|
|
A-21
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
|
|
A-21
|
|
|
|
|
4.1
|
|
Organization; Qualification
|
|
|
A-21
|
|
4.2
|
|
Authority; Enforceability
|
|
|
A-22
|
|
4.3
|
|
Non-Contravention
|
|
|
A-22
|
|
4.4
|
|
Approvals of Governmental Entities and Third Parties
|
|
|
A-22
|
|
4.5
|
|
Capitalization
|
|
|
A-22
|
|
4.6
|
|
Compliance with Law
|
|
|
A-23
|
|
4.7
|
|
Financial Statements
|
|
|
A-23
|
|
4.8
|
|
Absence of Certain Changes
|
|
|
A-24
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
4.9
|
|
Title to Properties and Assets; Oil and Gas Properties
|
|
|
A-24
|
|
4.10
|
|
Intellectual Property
|
|
|
A-26
|
|
4.11
|
|
Environmental Matters
|
|
|
A-27
|
|
4.12
|
|
Material Contracts
|
|
|
A-27
|
|
4.13
|
|
Legal Proceedings
|
|
|
A-29
|
|
4.14
|
|
Permits
|
|
|
A-29
|
|
4.15
|
|
Taxes
|
|
|
A-29
|
|
4.16
|
|
Employee Benefits; Employment and Labor Matters
|
|
|
A-31
|
|
4.17
|
|
Insurance
|
|
|
A-32
|
|
4.18
|
|
Derivative Transactions and Hedging
|
|
|
A-32
|
|
4.19
|
|
Related Party Matters
|
|
|
A-32
|
|
4.20
|
|
Brokers Fee
|
|
|
A-33
|
|
4.21
|
|
Information Supplied
|
|
|
A-33
|
|
4.22
|
|
No Other Representations or Warranties
|
|
|
A-33
|
|
|
|
ARTICLE V CERTAIN
PRE-CLOSING
COVENANTS
|
|
|
A-33
|
|
|
|
|
5.1
|
|
Conduct of Business of Parent
|
|
|
A-33
|
|
5.2
|
|
Conduct of Business by the Company Entities
|
|
|
A-35
|
|
|
|
ARTICLE VI ADDITIONAL AGREEMENTS
|
|
|
A-38
|
|
|
|
|
6.1
|
|
No Solicitation
|
|
|
A-38
|
|
6.2
|
|
Preparation of Proxy Statement and Registration Statement
|
|
|
A-41
|
|
6.3
|
|
Stockholders Meeting; Recommendations
|
|
|
A-42
|
|
6.4
|
|
Access to Information; Confidentiality
|
|
|
A-42
|
|
6.5
|
|
Efforts to Consummate; Notification
|
|
|
A-43
|
|
6.6
|
|
Certain Notices
|
|
|
A-44
|
|
6.7
|
|
Public Announcements
|
|
|
A-44
|
|
6.8
|
|
Indemnification of Directors and Officers
|
|
|
A-45
|
|
6.9
|
|
Employee Matters
|
|
|
A-46
|
|
6.10
|
|
Section 16(b) Matters
|
|
|
A-47
|
|
6.11
|
|
Takeover Laws
|
|
|
A-47
|
|
6.12
|
|
Exchange Listing
|
|
|
A-47
|
|
6.13
|
|
Tax Matters
|
|
|
A-47
|
|
6.14
|
|
Financing Cooperation
|
|
|
A-48
|
|
6.15
|
|
Treatment of Certain Indebtedness
|
|
|
A-48
|
|
6.16
|
|
Stockholder Litigation
|
|
|
A-48
|
|
6.17
|
|
Parent Covenants
|
|
|
A-49
|
|
|
|
ARTICLE VII CONDITIONS PRECEDENT
|
|
|
A-49
|
|
|
|
|
7.1
|
|
Conditions to Each Partys Obligations to Effect the Transactions
|
|
|
A-49
|
|
7.2
|
|
Additional Conditions to the Companys Obligations
|
|
|
A-49
|
|
7.3
|
|
Additional Conditions to Parents Obligations
|
|
|
A-50
|
|
|
|
ARTICLE VIII TERMINATION AND EXPENSES
|
|
|
A-51
|
|
|
|
|
8.1
|
|
Termination
|
|
|
A-51
|
|
8.2
|
|
Notice of Termination; Effect of Termination
|
|
|
A-52
|
|
8.3
|
|
Termination Fee
|
|
|
A-52
|
|
8.4
|
|
Expenses and Other Payments
|
|
|
A-53
|
|
|
|
ARTICLE IX DEFINITIONS
|
|
|
A-53
|
|
|
|
|
9.1
|
|
Definitions
|
|
|
A-53
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE X SURVIVAL
|
|
|
A-64
|
|
|
|
|
10.1
|
|
Non-Survival
of Representations and
Warranties
|
|
|
A-64
|
|
|
|
ARTICLE XI MISCELLANEOUS
|
|
|
A-64
|
|
|
|
|
11.1
|
|
Notices
|
|
|
A-64
|
|
11.2
|
|
Severability
|
|
|
A-65
|
|
11.3
|
|
Entire Agreement
|
|
|
A-66
|
|
11.4
|
|
Assignment
|
|
|
A-66
|
|
11.5
|
|
Extension; Waiver
|
|
|
A-66
|
|
11.6
|
|
Third Party Beneficiaries
|
|
|
A-66
|
|
11.7
|
|
Interpretation
|
|
|
A-66
|
|
11.8
|
|
Governing Law and Venue; Consent to Jurisdiction
|
|
|
A-67
|
|
11.9
|
|
Disclosure Letters
|
|
|
A-68
|
|
11.10
|
|
Specific Performance
|
|
|
A-68
|
|
11.11
|
|
Facsimiles; Counterparts
|
|
|
A-68
|
|
11.12
|
|
Amendment
|
|
|
A-68
|
|
11.13
|
|
Representation by Counsel
|
|
|
A-69
|
|
11.14
|
|
No Recourse
|
|
|
A-69
|
|
|
|
|
Exhibits
|
|
|
|
|
Exhibit A
|
|
Form of Certificate of Incorporation of New Parent
|
Exhibit B
|
|
Form of Bylaws of New Parent
|
Exhibit C
|
|
Forms of Officers Certificate for Tax Opinion
|
Exhibit D
|
|
Form of Stockholders Agreement
|
Exhibit E
|
|
Director Designees
|
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER
is made as of December 4, 2017 (the
Execution Date
), by and among Fifth Creek
Energy Operating Company, LLC, a Delaware limited liability company (the
Company
), Bill Barrett Corporation, a Delaware corporation (
Parent
), Red Rider Holdco, Inc., a Delaware corporation and a wholly owned
Subsidiary of Parent (
New Parent
), Rio Merger Sub, LLC, a Delaware limited liability company and a direct wholly owned Subsidiary of New Parent (
Rio Grande Merger Sub
), Rider Merger Sub, Inc., a Delaware
corporation and a direct wholly owned Subsidiary of New Parent (
Parent Merger Sub
and, together with Parent, New Parent and Rio Grande Merger Sub, the
Parent Parties
), solely for the purposes of
Sections
4.15(k)
,
6.5,
6.9(c), and
6.13
, Fifth Creek Energy Company, LLC, a Delaware limited liability company (
Holdings
), and, solely for the purposes of
Sections 6.5(a)(ii)
,
6.5(a)(iv)
,
6.5(b)
and
6.5(c)
, NGP Natural Resources XI, L.P., a Delaware limited partnership (the
Fund
). Capitalized terms used and not otherwise defined in this Agreement have the meanings set forth in
Article
IX
.
R E C I T A L S
WHEREAS
, in anticipation of the Mergers (as defined below), (a) Parent has formed New Parent and (b) New Parent has formed Rio
Grande Merger Sub and Parent Merger Sub;
WHEREAS
, the Company and each of the Parent Parties desire, upon the terms and subject to
the satisfaction or waiver of the conditions set forth in this Agreement, to effect (a) a merger whereby Parent Merger Sub shall be merged with and into Parent, with Parent as the surviving entity in such merger and Parent Surviving Corporation
becoming a direct wholly owned Subsidiary of New Parent (the
Parent Merger
) and (b) concurrently with the consummation of the Parent Merger, a merger whereby Rio Grande Merger Sub shall be merged with and into the Company,
with the Company as the surviving entity in such merger and Rio Grande Surviving Company becoming a wholly owned Subsidiary of New Parent (the
Rio Grande Merger
and, together with the Parent Merger, the
Mergers
);
WHEREAS
, (a) the board of managers of the Company (the
Company Board
) has
unanimously approved this Agreement, the Rio Grande Merger and the other transactions contemplated by this Agreement (collectively, the
Transactions
), in its capacity as the Company Board and (b) the sole member of the
Company has approved this Agreement and the Transactions, including the Rio Grande Merger;
WHEREAS
, the board of directors of
Parent (the
Parent Board
) has unanimously determined that the terms of this Agreement and the Transactions are advisable and in the best interests of Parent and its stockholders and (a) has approved the execution, delivery
and performance of this Agreement and the Transactions, including the Parent Merger and (b) has determined to recommend that the Parent stockholders adopt this Agreement and the Transactions, including the Parent Merger;
WHEREAS
, (a) the board of directors of New Parent (the
New Parent Board
) has determined the Transactions are
consistent with, and will further, the business strategies and goals of New Parent, and are in the best interests of New Parent and its sole stockholder and has unanimously approved this Agreement and the Transactions, including the Mergers,
(b) the board of directors of Parent Merger Sub has determined that the Transactions, including the Parent Merger, are consistent with, and will further, the business strategies and goals of Parent Merger Sub, and are in the best interests of
Parent Merger Sub and its sole stockholder and has unanimously approved this Agreement and the Transactions, including the Parent Merger and (c) the board of managers of Rio Grande Merger Sub has determined that the Transactions, including the
Rio Grande Merger, are consistent with, and will further, the business strategies and goals of Rio Grande Merger Sub, and are in the best interests of Rio Grande Merger Sub and its sole member and has unanimously approved this Agreement and the
Transactions, including the Rio Grande Merger;
A-1
WHEREAS
, Parent, Parent Merger Sub and New Parent, as the sole member of Rio Grande
Merger Sub, will each adopt this Agreement promptly following its execution;
WHEREAS
, for U.S. federal income tax purposes, the
parties intend that (i) the Mergers shall together qualify as a transaction described in Section 351 of the Internal Revenue Code of 1986, as amended (the
Code
), (ii) the Parent Merger shall qualify as a
reorganization within the meaning of Section 368(a) of the Code, and (iii) this Agreement shall constitute and be adopted as a plan of reorganization within the meaning of Treasury Regulations
Sections 1.368-2(g)
and
1.368-3(a);
and
WHEREAS
,
each of the parties intends to make certain representations, warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE
, in consideration of the premises, representations and warranties and mutual covenants contained in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, do hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1
The Mergers
.
(a)
The Parent Merger
.
(i) Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance
with the DGCL, at the Effective Time, Parent Merger Sub shall be merged with and into Parent. As a result of the Parent Merger, the separate existence of Parent Merger Sub will cease and Parent will survive and continue to exist as a Delaware
corporation and direct wholly owned Subsidiary of New Parent (the entity surviving the Parent Merger, the
Parent Surviving Corporation
).
(ii) As early as practicable on the Closing Date, the parties shall cause the Parent Merger to be consummated by filing a
certificate of merger relating to the Parent Merger with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL (the
Parent Certificate of
Merger
). The Parent Merger shall become effective at such time at which the Parent Certificate of Merger is filed with the Secretary of State of the State of Delaware or at such subsequent time as the Company and Parent shall agree and as
shall be specified in the Parent Certificate of Merger (the date and time the Parent Merger becomes effective being the
Effective Time
).
(iii) At the Effective Time, the effect of the Parent Merger shall be as provided in this Agreement and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of Parent and Parent Merger Sub shall vest in Parent Surviving Corporation, and all debts,
liabilities and duties of Parent and Parent Merger Sub shall become the debts, liabilities and duties of Parent Surviving Corporation.
(b)
The Rio Grande Merger
.
(i) Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance
with the DLLCA, at the Effective Time, Rio Grande Merger Sub shall be merged with and into the Company. As a result of the Rio Grande Merger, the separate existence of Rio Grande Merger Sub will cease and the Company will survive and continue to
exist as a Delaware limited liability company and direct wholly owned Subsidiary of New Parent (the entity surviving the Rio Grande Merger, the
Rio Grande Surviving Company
).
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(ii) As early as practicable on the Closing Date, the parties shall cause
the Rio Grande Merger to be consummated by filing a certificate of merger relating to the Rio Grande Merger with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions
of, the DLLCA (the
Rio Grande Certificate of Merger
). The Rio Grande Merger shall become effective at such time at which the Rio Grande Certificate of Merger is filed with the Secretary of State of the State of Delaware or at such
subsequent time as the Company and Parent shall agree and as shall be specified in the Rio Grande Certificate of Merger;
provided,
however
, that the effective time of the Rio Grande Merger shall be the same time as the Effective Time
of the Parent Merger.
(iii) At the Effective Time, the effect of the Rio Grande Merger shall be as provided in this
Agreement and the applicable provisions of the DLLCA. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Rio Grande Merger Sub shall vest in Rio
Grande Surviving Company, and all debts, liabilities and duties of the Company and Rio Grande Merger Sub shall become the debts, liabilities and duties of Rio Grande Surviving Company.
1.2
Closing
. The closing of the Mergers (the
Closing
) shall take place at 9:00
a.m. Houston time on the second Business Day after the satisfaction or waiver (to the extent permitted herein) of the conditions (excluding conditions that, by their nature, cannot be satisfied until the Closing, but subject to the satisfaction or
waiver of those conditions as of the Closing) set forth in
Article VII
, at the offices of Wachtell, Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New York 10019, unless another time, date or place is agreed to in writing by the
Company and Parent. The date upon which the Closing actually occurs is referred to herein as the Closing Date.
1.3
Organizational and Governing Documents
.
(a)
Organizational Documents of New Parent
. Parent, as the sole
stockholder of New Parent, and New Parent, shall take all requisite action to cause the certificate of incorporation of New Parent (the
New Parent Certificate
) and the bylaws of New Parent (the
New Parent
Bylaws
) to be in effect immediately prior to the Effective Time to be in the forms attached to this Agreement as
Exhibit A
and
Exhibit B
, respectively, except for such changes approved in writing by Parent and the Company
(such approval not to be unreasonably withheld, conditioned or delayed). Immediately prior to the Effective Time, New Parent shall change its name as mutually agreed upon by Parent and the Company.
(b)
Parent Surviving Corporation
. At the Effective Time, by virtue of the Parent Merger, the certificate of incorporation and bylaws of
Parent Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of incorporation and bylaws of Parent Surviving Corporation, from and after the Effective Time, until thereafter amended as provided therein or by
applicable Law, except for such changes approved by Parent and the Company (such approval not to be unreasonably withheld, conditioned or delayed).
(c)
Rio Grande Surviving Company
. At the Effective Time, by virtue of the Rio Grande Merger, the certificate of formation and limited
liability company agreement of Rio Grande Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of formation and limited liability company agreement of Rio Grande Surviving Company, from and after the Effective
Time, until thereafter amended as provided therein or by applicable Law, except for such changes approved by Parent and the Company (such approval not to be unreasonably withheld, conditioned or delayed).
1.4
Directors, Managers and Officers
.
(a)
New Parent
. Prior to the Closing, Parent, as the sole stockholder of New Parent, and New Parent, shall take all action necessary to
elect as directors of New Parent effective as of the Effective Time the directors
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identified on Exhibit E hereto, each to hold office in accordance with the New Parent Certificate and the New Parent Bylaws, and except as otherwise determined by mutual agreement of the parties
prior to the Closing, appoint the persons who are the officers of Parent immediately prior to the Effective Time as officers holding the same offices of New Parent effective as of the Effective Time, each such person to hold office in accordance
with the New Parent Certificate and the New Parent Bylaws.
(b)
Parent Surviving Corporation
. The directors of Parent Merger Sub
immediately prior to the Effective Time shall be the directors of Parent Surviving Corporation from and after the Effective Time, each to hold office in accordance with the certificate of incorporation and the bylaws of Parent Surviving Corporation.
The officers of Parent Merger Sub immediately prior to the Effective Time shall be the officers of Parent Surviving Corporation from and after the Effective Time, each to hold office in accordance with the certificate of incorporation and bylaws of
Parent Surviving Corporation.
(c)
Rio Grande Surviving Company
. The managers of Rio Grande Merger Sub immediately prior to the
Effective Time shall be the managers of Rio Grande Surviving Company from and after the Effective Time, each to hold office in accordance with the certificate of formation and limited liability company agreement of Rio Grande Surviving Company. The
officers of Rio Grande Merger Sub immediately prior to the Effective Time shall be the officers of Rio Grande Surviving Company from and after the Effective Time, each to hold office in accordance with the certificate of formation and limited
liability company agreement of Rio Grande Surviving Company.
1.5
Stockholders
Agreement
.
At the Closing, prior to the Effective Time, but with effect only from and after the Effective Time, New Parent, Holdings, and the Fund shall enter into a Stockholders Agreement (the
Stockholders
Agreement
) providing for certain governance rights and voting agreements, substantially in the form of Exhibit D hereto.
ARTICLE II
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS
2.1
Conversion of Securities
.
(a)
Parent and Parent Merger Sub
. At the Effective Time, by virtue
of the Parent Merger and without any action on the part of any party or the holders of any securities of Parent or Parent Merger Sub:
(i)
Generally
. Each share of Parent Common Stock issued and outstanding immediately prior to the Effective Time (other
than any shares of Parent Common Stock to be cancelled or converted pursuant to
Section
2.1(a)(iii)
) shall be converted into the right to receive one (1) share of validly issued, fully paid and nonassessable New Parent
Common Stock (the
Parent Merger Consideration
). All such shares of Parent Common Stock that were issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist and each holder of a certificate or certificates which immediately prior to the Effective Time represented any such shares of Parent Common Stock (
Parent Certificates
) or book-entry shares
which immediately prior to the Effective Time represented shares of Parent Common Stock (
Parent Book-Entry Shares
) shall thereafter cease to have any rights with respect to such shares of Parent Common Stock, except the right to
receive the Parent Merger Consideration, without interest.
(ii)
Parent Merger Sub Common Stock
. Each share of
common stock of Parent Merger Sub issued and outstanding immediately prior to the Effective Time shall continue as one share of common stock of Parent Surviving Corporation, which, except as provided in
Section
2.1(a)(iii)
,
shall constitute the only outstanding shares of common stock of Parent Surviving Corporation.
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(iii)
Cancellation and Conversion of Certain Parent Shares
. Each
share of Parent Common Stock held in the Parent treasury, if any, immediately prior to the Effective Time shall be cancelled and extinguished without any conversion thereof. The shares of Parent Common Stock held by any wholly owned Subsidiary of
Parent immediately prior to the Effective Time, if any, shall automatically be converted into such number of shares of common stock of Parent Surviving Corporation such that the ownership percentage of any such Subsidiary in Parent Surviving
Corporation immediately following the Effective Time shall equal the ownership percentage of such Subsidiary in Parent immediately prior to the Effective Time.
(b)
The Company and Rio Grande Merger Sub
. At the Effective Time, by virtue of the Rio Grande Merger and without any action on the part
of any party or the holders of any securities of the Company or Rio Grande Merger Sub:
(i)
Generally
. All Company
LLC Interests issued and outstanding immediately prior to the Effective Time, in the aggregate, shall be converted into the right to receive an aggregate of 100,000,000 validly issued, fully paid and nonassessable shares of New Parent Common Stock
(all such shares of New Parent Common Stock collectively, the
Rio Grande Merger Consideration
). All such Company LLC Interests that were issued and outstanding immediately prior to the Effective Time shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist and each holder of a certificate or certificates which immediately prior to the Effective Time represented any such Company LLC Interest or book-entry interests which
immediately prior to the Effective Time represented Company LLC Interests shall thereafter cease to have any rights with respect to such Company LLC Interests or any Company Entity Organizational Document, except the right to receive the Rio Grande
Merger Consideration, without interest.
(ii)
Rio Grande Merger Sub LLC Interests
. Each limited liability company
interest in Rio Grande Merger Sub issued and outstanding immediately prior to the Effective Time shall continue as a limited liability company interest of Rio Grande Surviving Company, which shall constitute the only outstanding limited liability
company interests of Rio Grande Surviving Company.
(c)
C
er
t
a
in Adjustm
e
nts
. If, between
the Execution Date and the Effective Time, the outstanding shares of Parent Common Stock shall have been changed into a different number of shares or a different class of shares by reason of any stock dividend, subdivision, reorganization,
reclassification, recapitalization, stock split, reverse stock split, combination or exchange of shares, or any similar Event shall have occurred, then the Parent Merger Consideration and the Rio Grande Merger Consideration shall be equitably
adjusted, without duplication, to proportionally reflect such change;
provided
, however, that nothing in this
Section
2.1(c)
shall be deemed to permit or authorize any party hereto to effect any such change that it
is not otherwise authorized or permitted to undertake pursuant to this Agreement.
2.2
Exchange of
Parent Certificates
.
(a)
Exchange Agent
. Prior to or concurrent with the Effective Time, Parent shall cause
to be deposited with a commercial bank or trust company designated by Parent and reasonably satisfactory to the Company (the
Exchange Agent
), for the benefit of the holders of shares of Parent Common Stock book-entry interests
(which, to the extent subsequently requested, shall be exchanged for certificates), representing the total number of shares of New Parent Common Stock issuable as Parent Merger Consideration pursuant to the Parent Merger (the
Exchange
Fund
).
(b)
Exchange Procedures
. New Parent shall instruct the Exchange Agent to promptly (and in any event no more than
five (5) Business Days) after the Effective Time, mail to each holder of record of a Parent Certificate (i) a letter of transmittal (which shall be in customary form and shall specify that delivery shall be effected, and risk of loss and
title to the Parent Certificates shall pass, only upon proper delivery of the Parent Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Parent
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Certificates in exchange for the Parent Merger Consideration payable in respect of the shares of Parent Common Stock formerly represented by such Parent Certificates. Upon surrender of a Parent
Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, properly completed and duly executed, and such other documents as may be reasonably required pursuant to such instructions, the Exchange Agent shall issue
and deliver to the holder of such Parent Certificate the number of whole shares of New Parent Common Stock (in the form of book-entry interests, unless the holder of such Parent Certificate expressly requests that such interests be delivered in
certificated form) in respect of the shares of Parent Common Stock formerly represented by such Parent Certificate, and the Parent Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of shares of Parent
Common Stock that is not registered in the transfer records of Parent, the Parent Merger Consideration payable in respect of such shares of Parent Common Stock may be paid to a transferee if the Parent Certificate formerly representing such shares
of Parent Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence, reasonably satisfactory to New Parent, that any applicable stock transfer Taxes have been paid or
are not payable. Until surrendered as contemplated by this
Section
2.2
, each Parent Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Parent
Merger Consideration payable in respect of the shares of Parent Common Stock formerly represented by such Parent Certificate and any dividends or other distributions to which such holder is entitled pursuant to
Section
2.2(c)
, in each case, without any interest thereon. Promptly (and in any event no more than two (2) Business Days) after the Effective Time, the Exchange Agent shall issue and deliver to each holder of Parent
Book-Entry Shares the number of whole shares of New Parent Common Stock (in the form of book-entry interests, unless the holder of such shares of Parent Common Stock expressly requests that such interests be delivered in certificated form) in
respect of such shares of Parent Common Stock, without such holder being required to deliver a Parent Certificate or an executed letter of transmittal to the Exchange Agent.
(c)
Distributions with Respect to
Unexchanged
Shares of Parent Common Stock
. No dividends or other distributions declared
or made in respect of New Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Parent Certificate, unless and until the holder of such Parent Certificate shall surrender such Parent
Certificate. Subject to the effect of abandoned property, escheat or other applicable Laws, following surrender of any such Parent Certificate, there shall be paid to the holder of whole New Parent Common Stock issuable in exchange therefor, without
interest, (i) promptly, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of New Parent Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of New Parent Common Stock.
(d)
Further Rights in Parent Common Stock
. The Parent Merger Consideration issued and paid upon conversion of a share of Parent Common
Stock in accordance with the terms of this Agreement shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such share of Parent Common Stock (other than the right to receive dividends or other distributions,
if any, in accordance with
Section
2.2(c)
).
(e)
Exchange Fund
. Any portion of the Exchange Fund that
remains unclaimed by former stockholders of Parent entitled thereto one hundred eighty (180) days after the Effective Time shall be returned to New Parent and such former stockholders shall thereafter look only to New Parent for payment of the
Parent Merger Consideration, without any interest thereon. Any such portion of the Exchange Fund remaining unclaimed by such former stockholders five (5) years after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any Governmental Entity) shall, to the extent permitted by Law, become the property of New Parent free and clear of any claims or interest of any Person previously entitled thereto.
(f)
No Liability
. Neither New Parent nor the Exchange Agent shall be liable to any former holder of shares of Parent Common Stock for
the Parent Merger Consideration from the Exchange Fund delivered to a public official pursuant to any abandoned property, escheat or other applicable Law.
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(g)
Lost Certificates
. If any Parent Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming such Parent Certificate to be lost, stolen or destroyed and, if required by New Parent, the posting by such Person of a bond, in such reasonable amount as New Parent may
direct as indemnity against any claim that may be made against it with respect to such Parent Certificate, the Exchange Agent shall pay in exchange for such lost, stolen or destroyed Parent Certificate the Parent Merger Consideration payable in
respect of the shares of Parent Common Stock formerly represented by such Parent Certificate and any dividend or other distribution to which the holder thereof is entitled pursuant to
Section
2.2(c)
, in each case without
any interest thereon.
(h)
Withholding
. New Parent and the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of local, state, federal, or foreign Tax Law. To the extent
that amounts are so deducted or withheld by New Parent or the Exchange Agent, as the case may be, such deducted or withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such
deduction and withholding was made by New Parent or the Exchange Agent, as the case may be.
2.3
Issuance of Merger Consideration
. At the Closing, New Parent shall deliver to Holdings the Rio Grande Merger Consideration, in book-entry form, together with an executed certificate of the transfer agent of New Parent Common Stock certifying
as to the book-entry issuance thereof or, if requested by Holdings, certificates of the New Parent Common Stock representing the Rio Grande Merger Consideration bearing customary legends noting that such securities constitute restricted securities
under the Securities Act;
provided, however
, that in the event any Company LLC Interests are certificated, New Parent shall have no obligation to deliver the Rio Grande Merger Consideration to Holdings until Holdings delivers the certificates
representing its Company LLC Interests to New Parent. No certificates or scrip representing fractional interests in New Parent Common Stock or book-entry credit of the same will be issued.
2.4
Stock/LLC Interest Transfer Books
. At the Effective Time, the applicable transfer books of
Parent and the Company shall be closed with respect to shares of Parent Common Stock and Company LLC Interests and thereafter there shall be no further registration of transfers of shares of Parent Common Stock theretofore outstanding on the records
of Parent or of transfers of Company LLC Interests on the records of the Company.
2.5
Parent Equity
Awards
.
(a)
Parent Stock Options
. At the Effective Time, by virtue of the Merger and without any action on the part of the
holders thereof, each compensatory option to purchase shares of Parent Common Stock (a
Parent Stock Option
), whether vested or unvested, that is outstanding and unexercised as of immediately prior to the Effective Time shall be
assumed by New Parent and shall be converted into an option (a
New Parent Stock Option
), with the same terms and conditions as applied to the corresponding Parent Stock Option as of immediately prior to the Effective Time, to
acquire (i) that number of whole shares of New Parent Common Stock equal to the number of shares of Parent Common Stock subject to such Parent Stock Option as of immediately prior to the Effective Time, (ii) at an exercise price per share
of New Parent Common Stock equal to the exercise price per share of Parent Common Stock of such Parent Stock Option.
(b)
Parent
Restricted Stock Awards
. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each award of restricted shares of Parent Common Stock (a
Parent Restricted Stock Award
) that
is outstanding as of immediately prior to the Effective Time shall be assumed by New Parent and shall be converted into an award of restricted shares of New Parent Common Stock (a
New Parent Restricted Stock Award
), with the same
terms and conditions as applied to the corresponding Parent Restricted Stock Award as of immediately prior to the Effective Time, in respect of that number of whole shares of New Parent Common Stock equal to the number of shares of Parent Common
Stock subject to such Parent Restricted Stock Award as of immediately prior to the Effective Time.
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(c)
Parent Performance Unit Awards
. At the Effective Time, by virtue of the Merger
and without any action on the part of the holders thereof, each award of performance units in respect of shares of Parent Common Stock (a
Parent Performance Unit Award
) that is outstanding as of immediately prior to the Effective
Time shall be assumed by New Parent and shall be converted into a time-based award of restricted stock units in respect of shares of New Parent Common Stock (a
New Parent RSU Award
), with the same terms and conditions as applied
to the corresponding Parent Performance Unit Award as of immediately prior to the Effective Time, in respect of that number of whole shares of New Parent Common Stock equal to the number of shares of Parent Common Stock subject to such Parent
Performance Unit Award as of immediately prior to the Effective Time (as determined by Parent in its reasonable discretion based upon the greater of actual performance (assuming the applicable performance period ends immediately prior to the Closing
Date) and target performance).
(d)
New Parent Actions
. New Parent shall take all corporate action necessary to reserve for
issuance a number of shares of New Parent Common Stock in respect of New Parent Stock Options, New Parent Restricted Stock Awards and New Parent RSU Awards issued pursuant to this
Section
2.5
. Effective as of the Effective
Time, New Parent shall file an appropriate registration statement or registration statements with respect to the shares of New Parent Common Stock subject to such New Parent Stock Options, New Parent Restricted Stock Awards and New Parent RSU Awards
and shall maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such awards remain outstanding.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT PARTIES
Except as (i) disclosed in the Parent SEC Documents publicly filed with or publicly furnished to the SEC on or after January 1, 2017
and prior to the Execution Date (excluding any disclosures included in any risk factor or forward looking information section of such Parent SEC Documents or any other disclosures in such Parent SEC Documents to the extent
they are forward-looking, predictive, or general in nature) or (ii) set forth on the disclosure letter delivered to the Company on the Execution Date (the
Parent Disclosure Letter
), which identifies items of disclosure by
reference to a particular section or subsection of this Agreement (
provided
that any information set forth in one section of the Parent Disclosure Letter shall be deemed to apply to each other section or subsection thereof or hereof to which
its relevance is reasonably apparent), the Parent Parties hereby, jointly and severally, represent and warrant to the Company as follows:
3.1
Organization; Qualification
. Each Parent Entity is an entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization. Each Parent Entity (a) has all requisite
organizational power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted, and (b) is duly qualified, registered or licensed to do business as a foreign entity and is in good
standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so duly qualified, registered or licensed and in
good standing would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect or to prevent, materially delay or materially impair the ability of Parent to perform its obligations under this Agreement or
the Transactions. Parent has made available to the Company true and complete copies of the Organizational Documents of each Parent Entity, as in effect on the Execution Date. There has been no violation of any of the provisions of the Organizational
Documents of each Parent Entity, and no Parent Entity has taken any action that is inconsistent in any material respect with any resolution adopted by such entitys members, board of directors or board of managers (or other similar body) or any
committee of the board of directors or board of managers (or other similar body) of such entity. Section 3.1 of the Parent Disclosure Letter sets forth each Parent Entity.
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3.2
Authority; Enforceability
.
(a) Each of the Parent Parties has the requisite entity power and authority to execute and deliver this Agreement and the other Transaction
Agreements to which it is a party and, subject to receipt of the Parent Stockholder Approval, to consummate the transactions contemplated by the Transaction Agreements to which it is a party. The execution and delivery by each Parent Party of this
Agreement and the other Transaction Agreements to which it is a party and the consummation by each Parent Party of the transactions contemplated by the Transaction Agreements to which it is a party have been duly and validly authorized by such
Parent Party, and, except for the Parent Stockholder Approval, no other proceedings on the part of such Parent Party or its stockholders, members or other equityholders is necessary to authorize this Agreement or the other Transaction Agreements to
which it is a party or to consummate the transactions contemplated by the Transaction Agreements to which it is a party. The Parent Board has unanimously (i) declared it advisable to enter into this Agreement, (ii) determined that this
Agreement, the Transactions and the terms of the Stockholders Agreement are in the best interests of Parent and its stockholders, (iii) approved this Agreement, the Stockholders Agreement and the Transactions and (iv) has determined to
recommend that the holders of Parent Common Stock vote to adopt and approve this Agreement (the
Parent Recommendation
). The board of directors of Parent Merger Sub and the New Parent Board, on behalf of New Parent for itself and
in its capacity as the sole member of Rio Grande Merger Sub, have each unanimously (i) approved this Agreement and the Transactions and (ii) determined that this Agreement and the Transactions are fair to and in the best interests of such
entity and its equityholders. No Parent stockholders or other holders of Equity Interests of Parent have any dissenters rights or rights of appraisal relating to the Transactions or the Transaction Agreements to which a Parent Entity is a
party.
(b) This Agreement and the other Transaction Agreements to which each Parent Party is a party have been, or, in the case of the
Transaction Agreements to be delivered after the Execution Date, will be, duly executed and delivered by such Parent Entity, and, assuming the due authorization, execution and delivery by the Company Entities party thereto, this Agreement and the
other Transaction Agreements to which such Parent Party is a party thereto constitute the valid and binding obligation of such Parent Party, enforceable against such Parent Party in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws relating to or affecting creditors rights generally and subject, as to enforceability, to legal principles of general applicability
governing the availability of equitable remedies, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether such enforceability is considered in a proceeding in equity or at law) (collectively,
Creditors
Rights
).
3.3
Non-Contravention
. The
execution, delivery and performance of this Agreement and the other Transaction Agreements by the Parent Parties and, subject to the receipt of the Parent Stockholder Approval, the consummation by the Parent Parties of the Transactions and the
Transaction Agreements do not and will not (a) result in any breach or violation of any provision of the Organizational Documents of any Parent Entity; (b) constitute a default (or an Event that with notice or passage of time or both would give
rise to a default) under, or give rise to any right of termination, cancellation, amendment or acceleration (with or without the giving of notice, or the passage of time or both) under any of the terms, conditions or provisions of any Contract to
which any Parent Entity is a party or by which any property or asset of any Parent Entity is bound or affected; (c) assuming compliance with the matters referred to in
Section
3.4
, violate any Law to which any Parent
Entity is subject or by which any Parent Entitys properties or assets is bound; or (d) constitute (with or without the giving of notice or the passage of time or both) an Event which would result in the creation of any Encumbrance (other
than Permitted Encumbrances) on any asset of any Parent Entity, except, in the cases of clauses (b), (c) and (d), for such defaults or rights of termination, cancellation, amendment, acceleration, violations or Encumbrances as would not reasonably
be expected to have, individually or in the aggregate, a Parent Material Adverse Effect or to prevent, materially delay or materially impair the ability of Parent to perform its obligations under this Agreement or the consummation of the
Transactions.
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3.4
Approvals of Governmental Entities and Third
Parties
. No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Person or Governmental Entity is necessary for the consummation by any Parent Entity of the Transactions, other than
(a) filings and clearances required under the HSR Act, (b) in connection or in compliance with the Exchange Act or the Securities Act, (c) applicable state securities, and blue sky Laws, (d) satisfaction by New Parent
of the initial listing standards of the NYSE, (e) the Parent Stockholder Approval and (f) such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made, would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse Effect or to prevent, materially delay or materially impair the ability of Parent to perform its obligations under this Agreement or the Transactions.
3.5
Capitalization
.
(a) The authorized capital stock of Parent consists of 375,000,000 shares, consisting of (i) 300,000,000 shares of Parent Common Stock, par
value $0.001 per share, and (ii) 75,000,000 shares of preferred stock, par value $0.001 per share (
Parent Preferred Stock
). As of the Execution Date: (i) 76,292,038 shares of Parent Common Stock were issued and outstanding
(including 1,395,493 shares of Parent Common Stock subject to outstanding Parent Restricted Stock Awards), (ii) no shares of Parent Preferred Stock were issued and outstanding, (iii) 199,123 shares of Parent Common Stock were subject to
outstanding Parent Stock Options and (iv) 0 shares of Parent Common Stock were subject to outstanding Parent Performance Unit Awards (assuming satisfaction of performance conditions at the target level). Except as set forth in this
Section
3.5(a)
and for the Equity Interests that may be granted or issued by Parent following the Execution Date pursuant to
Section
5.1(b)
, Parent has no other Equity Interests authorized, issued
and/or outstanding.
(b) All of the outstanding shares of Parent Common Stock are, and all of the shares of New Parent Common Stock issued
as Parent Merger Consideration or Rio Grande Merger Consideration will be, duly authorized and validly issued in accordance with the Organizational Documents of Parent or New Parent, as applicable, and are, or will be when issued, fully paid and
nonassessable and have not been, or will not be when issued, issued in violation of any preemptive rights, rights of first refusal or other similar rights of any Person. All of the issued and outstanding Equity Interests in each Subsidiary of Parent
are authorized and validly issued in accordance with the Organizational Documents of such Parent Entity and are fully paid (to the extent required under the Organizational Documents of such Parent Entity) and nonassessable and have not been issued
in violation of any preemptive rights, rights of first refusal or other similar rights of any Person. All of the issued and outstanding Equity Interests in each Subsidiary of Parent is owned by the Persons set forth on Section 3.5(b) of
the Parent Disclosure Letter named as owning such interests free and clear of all Encumbrances other than (i) transfer restrictions imposed by federal and state securities Laws and (ii) any transfer restrictions contained in the
Organizational Documents of the Parent Entities, none of which apply to the Transactions. As of the Execution Date and the Closing Date, Parent owns, directly or indirectly, all of the outstanding Equity Interests in each other Parent Entity free
and clear of all Encumbrances other than (A) transfer restrictions imposed by federal and state securities Laws and (B) any transfer restrictions contained in the Organizational Documents of the Parent Entities.
(c) Except as set forth in the Organizational Documents of Parent and except as otherwise provided in
Section
3.5(a)
, there are no preemptive rights or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls,
subscription agreements, commitments or rights of any kind that obligate any of the Parent Entities to issue or sell any Equity Interests or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any Equity Interests in any of the Parent Entities, and no securities or obligations evidencing such rights are authorized, issued or outstanding.
(d) No Parent Entity has any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote) with the holders of Equity Interests in any Parent Entity on any matter.
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(e) There are no voting trusts or other agreements or understandings to which any Parent
Entity is a party with respect to the voting or registration of the limited liability company interest or other equity interest of any Parent Entity.
(f) Except with respect to the ownership of any equity or long-term debt securities between or among the Parent Entities, none of the Parent
Entities owns, directly or indirectly, any equity or long-term debt securities of any Person.
3.6
Compliance with Law
. Except for Environmental Laws, Laws requiring the obtaining or maintenance of a Permit, Tax matters, Laws relating to employee benefits, employment and labor matters, and Laws relating to the regulatory and
compliance matters, which are the subject of
Sections 3.11
,
3.14
,
3.15
and
3.16
, respectively, and except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect, (a) each Parent Entity is in compliance with all applicable Laws, (b) none of the Parent Entities has received written notice from any Governmental Entity regarding any violation of any applicable Law and (c) none of
the Parent Entities has received written notice that it is under investigation by any Governmental Entity for potential
non-compliance
with any Law.
3.7
Parent SEC Reports; Financial Statements
.
(a) Parent has timely furnished or timely filed all reports, schedules, forms, statements and other documents (including exhibits and other
information incorporated therein) required to be furnished or filed by Parent with the SEC since January 1, 2016 (such documents being collectively referred to as the
Parent SEC Documents
). Each Parent SEC Document
(i) at the time filed, complied in all material respects with the requirements of the Exchange Act and the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC
Document, and (ii) did not contain at the time it was filed (or if amended or superseded by a filing or amendment prior to the Execution Date, then at the time of such filing or amendment) any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements of Parent included in the Parent SEC Documents (
Parent Financial
Statements
) complied at the time it was filed as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, has been prepared in accordance with
GAAP, applied on a consistent basis throughout the periods presented thereby and fairly present in all material respects the consolidated financial position and operating results, equity and cash flows of Parent and its consolidated Subsidiaries as
of, and for the periods ended on, the respective dates thereof, subject, however, in the case of unaudited financial statements, to normal
year-end
audit adjustments.
(c) Parent has established and maintains a system of internal control over financial reporting and disclosure controls and procedures (as such
terms are defined in Rule
13a-15
or Rule
15d-15,
as applicable, under the Exchange Act); such disclosure controls and procedures are designed to ensure that material
information relating to Parent, including its consolidated Subsidiaries, required to be disclosed by Parent in the reports that it files or submits under the Exchange Act is accumulated and communicated to Parents principal executive officer
and its principal financial officer to allow timely decisions regarding required disclosure; and such disclosure controls and procedures are effective to ensure that information required to be disclosed by Parent in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Parents principal executive officer and its principal financial officer have disclosed, based on their
most recent evaluation, to Parents auditors and the audit committee of the Parent Board (x) all significant deficiencies in the design or operation of internal controls of financial reporting (as defined in Rule
13a-15(f)
under the Exchange Act) that is reasonably likely to adversely affect Parents ability to record, process, summarize and report financial information and (y) any fraud, known to such officers,
whether or not material, that involves management or other employees who have a significant role in Parents internal
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controls. The principal executive officer and the principal financial officer of Parent have made all certifications required by the Sarbanes-Oxley Act, the Exchange Act and any related rules and
regulations promulgated by the SEC with respect to the Parent SEC Documents, and the statements contained in such certifications were complete and correct as of the dates they were made.
(d) None of the Parent Entities has any liability, whether accrued, contingent, absolute or otherwise, that would be required to be included
in the financial statements of Parent and its consolidated Subsidiaries under GAAP, except for (i) liabilities set forth on the consolidated balance sheet dated as of September 30, 2017 or the notes thereto contained in the Parent
Financial Statements; (ii) liabilities that have arisen since September 30, 2017, in the ordinary course of business; (iii) liabilities or obligations incurred in connection with the transactions contemplated hereby and
(iv) liabilities which would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(e) Parent meets the eligibility requirements for the use of Form
S-3
under the Securities Act.
3.8
Absence of Certain Changes
. Except as expressly contemplated by this Agreement, from and
after September 30, 2017, (a) through the Execution Date, the Parent Entities have operated their business in all material respects only in the ordinary course of business and consistent with past practice, (b) through the Execution Date,
no Parent Entity has taken or agreed to take any action that, if taken during the period from the Execution Date to the Effective Time, would constitute a breach of
Section
5.1(b)(ii)
,
(iii)
,
(v)
,
(ix)
,
(x)
, (
xi
),
(xii)
, or
(xiv)
and (c) through the Effective Time, there has not been any Event, occurrence or development which has had, or would be reasonably expected to have, individually or in the aggregate, a
Parent Material Adverse Effect. Since their respective dates of formation or incorporation, as applicable, none of New Parent, Parent Merger Sub or Rio Grande Merger Sub has carried on any business or conducted any operations other than the
execution of this Agreement and the other Transaction Agreements, the performance of its obligations hereunder and thereunder and matters ancillary thereto.
3.9
Title to Properties and Assets
.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, each Parent Entity
has title to or rights or interests in its real property and personal property (and each real property and personal property at which material operations of Parent are conducted) free and clear of all Encumbrances (subject to Permitted
Encumbrances), sufficient to allow it to conduct its business as currently being conducted.
(b)
Oil and Gas Properties
.
(i) Except for (A) property sold or otherwise disposed of in the ordinary course of business since the dates of the
reserve reports prepared by Netherland, Sewell & Associates, Inc. (
Parent Reserve Engineer
) relating to the Parent Entity interests referred to therein as of December 31, 2016 (the
Parent Reserve
Reports
), (B) property reflected in the Parent Reserve Reports as having been sold or otherwise disposed of, as of the Execution Date or (C) matters that would not reasonably be expected to have, individually or in the aggregate,
a Parent Material Adverse Effect, the Parent Entities have good and defensible title to all Oil and Gas Properties forming the basis for the reserves reflected in the Parent Reserve Reports and in each case as attributable to interests owned by the
Parent Entities, free and clear of any Encumbrances, except for Permitted Encumbrances. For purposes of the foregoing sentence, good and defensible title means the collective title of Parent Entities (as of the date hereof and as of the
Closing) to each of the Oil and Gas Properties held or owned by them (or purported to be held or owned by them), beneficially or of record with any applicable Governmental Entity that (1) collectively entitles Parent Entities to receive (after
satisfaction of all Production Burdens applicable thereto), not less than the net revenue interest share shown in the Parent Reserve Report of all Hydrocarbons produced from such Oil and Gas Properties throughout the life of such Oil and Gas
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Properties (other than decreases in connection with operations in which Parent Entities may be a
non-consenting
co-owner,
decreases resulting from reversion of interests to
co-owners
with respect to operations in which such
co-owners
elected
not to consent, decreases resulting from the establishment of pools or units, and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries), (2) obligates Parent Entities
to collectively bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, such Oil and Gas Properties, of not greater than the working interest shown on the Parent Reserve Report for such Oil and
Gas Properties (other than increases resulting from contribution requirements with respect to defaulting or
non-consenting
co-owners
under applicable operating
agreements or Laws and increases that are accompanied by at least a proportionate increase in the net revenue interest of Parent Entities) and (3) is free and clear of all Encumbrances (other than Permitted Encumbrances).
(ii) The factual,
non-interpretive
data supplied by or on behalf of the Parent Entities
to the Parent Reserve Engineer relating to the Parent Entities interests referred to in the Parent Reserve Reports and that was material to such firms estimates of proved oil and gas reserves attributable to the Oil and Gas Properties of
the Parent Entities in connection with the preparation of the Parent Reserve Reports was, as of the time provided (or as modified or amended prior to the issuance of the Parent Reserve Reports), accurate in all material respects. To Parents
Knowledge, any assumptions or estimates provided by the Parent Entities to the Parent Reserve Engineer in connection with their preparation of the Parent Reserve Reports were made in good faith and on a reasonable basis based on the facts and
circumstances in existence and that were to known to Parent at the time such assumptions or estimates were made. The estimates of proved oil and gas reserves provided by the Parent Entities to the Parent Reserve Engineer in connection with the
preparation of the Parent Reserve Reports complied in all material respects with
Rule 4-10
of
Regulation S-X
promulgated by the SEC. Parents internal
proved reserve estimates prepared by management for the year ended December 31, 2016 were not, taken as a whole, materially lower than the conclusions in such Parent Reserve Reports. Except for changes generally affecting the oil and gas
exploration, development and production industry (including changes in commodity prices) and normal depletion by production, there has been no material change in respect of the matters addressed in the Parent Reserve Reports that would have,
individually or in the aggregate, a Parent Material Adverse Effect.
(iii) Except as would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, (A) all proceeds from the sale of Hydrocarbons produced from the Oil and Gas Properties of the Parent Entities are being received by them in a timely manner; and
(B) except as set forth on Section 3.9(b)(iii)(B) of the Parent Disclosure Letter, as of December 31, 2016, no proceeds from the sale of Hydrocarbons produced from any such Oil and Gas Properties (to the extent operated by Parent or
any Parent Entity) are being held in suspense (by Parent, any Parent Entity, any third-party operator thereof or any other Person or individual) for any reason other than awaiting preparation and approval of division order title opinions for
recently drilled wells. Section 3.9(b)(iii)(C) of the Parent Disclosure Letter sets forth all the Oil and Gas Leases included in any Parent Entitys Oil and Gas Properties that are scheduled to expire (in whole or in part) at any time in
the twelve (12)-month period immediately following the Execution Date.
(iv) Except as would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, all royalties, minimum royalties, overriding royalties and other Production Burdens with respect to any Oil and Gas Properties owned or held by any Parent Entity have been
timely and properly paid. Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, no Parent Entity (and, to Parents Knowledge, no third party operator) has violated any provision
of, or taken or failed to take any act which, with or without notice, lapse of time, or both, would constitute a default under the provisions of any Oil and Gas Lease (or entitle the lessor thereunder to cancel or terminate such Oil and Gas Lease)
included in the Oil and Gas Properties owned or held by any Parent Entity and no Parent Entity (or, to Parents Knowledge,
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any third party operator) has received written notice from any other party to any such Oil and Gas Lease (1) that any Parent Entity (or such third party operator, as the case may be) has
breached, violated or defaulted under any such Oil and Gas Lease or (2) threatening to terminate, cancel, rescind or procure judicial reformation of any such Oil and Gas Lease.
(v) Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, all
Oil and Gas Properties operated by any Parent Entity (and, to the Knowledge of Parent, all Oil and Gas Properties owned or held by any Parent Entity and operated by a third party) have been operated in accordance with reasonable, prudent oil and gas
field practices.
(vi) Except as would not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect, none of the Oil and Gas Properties of the Parent Entities is subject to any preferential, purchase, preemptive, consent or similar right which would become operative as a result of the entry into (or the consummation of) the
Transactions.
(vii) Except as would not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect, there is no well included in the Oil and Gas Properties of the Parent Entities that has been drilled and completed in a manner that is not within the limits permitted by all applicable Laws, Oil and Gas Leases or other
instruments governing the Oil and Gas Properties. Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, no Parent Entity has elected not to participate in any operation or activity
proposed with respect to any of the Oil and Gas Properties owned or held by it (or them, as applicable) that could result in a penalty or forfeiture as a result of such election not to participate in such operation or activity that would be material
to the Parent Entities, taken as a whole and is not reflected in the Parent Reserve Reports.
(viii) Except as would not
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, and to the Knowledge of Parent as of the Execution Date, Section 3.9(b)(viii) of the Parent Disclosure Letter lists, as of December 31,
2016, all transportation, plant, production and other imbalances and overlifts with respect to Hydrocarbon production from the Parent Entities Oil and Gas Properties.
(ix) Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect,
with respect to the Parent Entities Oil and Gas Properties, all currently producing wells and all tangible equipment included therein, used in connection with the operation thereof or otherwise primarily associated therewith (including all
buildings, plants, structures, platforms, pipelines, machinery, vehicles and other rolling stock) are in a good state of repair and are adequate and sufficient to maintain normal operations in accordance with past practices (ordinary wear and tear
excepted).
(x) As of the date of this Agreement, there are no authorizations for expenditure or other commitments to make
capital expenditures (or series of related authorizations for expenditure or commitments) binding on any Parent Entity with respect to its or their respective Oil and Gas Properties that Parent reasonably anticipates will individually require
expenditures after the Effective Time of greater than $5,000,000.
(xi) Except as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, there are no Oil and Gas Properties (i) with respect to which any Parent Entity has received an order from any Governmental Entity requiring that such well be plugged and
abandoned that has not been plugged and abandoned, (ii) that, to the Knowledge of Parent, formerly produced but that are currently shut in or temporarily abandoned or were dry holes and have not been plugged in accordance with applicable Laws,
(iii) that, to the Knowledge of Parent, have been or are required to be plugged and abandoned but have not been plugged in accordance with applicable Laws or (iv) to the Knowledge of Parent, with respect to which any Parent Entity has any
decommissioning obligations that are required to have been performed and which have not been performed in accordance with applicable Laws.
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3.10
Intellectual Property
. Except as would
not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, (a) the Parent Entities own or have the right to use pursuant to a license, sublicense, agreement or otherwise all material items of
Intellectual Property required in the operation of their business as presently conducted; (b) no third party has asserted in writing delivered to any Parent Entity an unresolved claim that any Parent Entity is infringing on the Intellectual
Property of such third party; and (c) to the Knowledge of Parent, no third party is infringing on the Intellectual Property owned by the Parent Entities.
3.11
Environmental Matters
.
(a) Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect:
(i) each of the Parent Entities and its assets, real properties and operations are and, during the two (2) years
preceding the Execution Date, have been, in compliance with all applicable Environmental Laws;
(ii) each of the Parent
Entities possesses all Environmental Permits required for their operations as currently conducted and is in compliance with the terms of such Environmental Permits, and such Environmental Permits are in full force and effect and are not subject to
any pending or, to the Knowledge of Parent, threatened Proceeding;
(iii) none of the Parent Entities nor any of their
properties or operations or any person or entity whose liability any of the Parent Entities has retained or assumed either contractually or by operation of Law, are subject to any pending or, to the Knowledge of Parent, threatened Proceeding arising
under any Environmental Law, nor has any Parent Entity received any written and pending notice, order or complaint from any Person alleging a violation of or liability arising under any Environmental Law; and
(iv) there has been no Release of Hazardous Substances on, at, under, to, or from any of the properties of the Parent Entities
or, to the Knowledge of Parent, any offsite properties, or from or in connection with the Parent Entities operations in a manner that would reasonably be expected to give rise to any uninsured liability pursuant to any Environmental Law.
(b) Parent has made available to the Company complete and accurate copies of all reports, studies, investigations and audits that are in
Parents possession or control, have been prepared within the two (2) years preceding the Execution Date, and that address any (i) condition of the Parent Entities assets, properties or operations,
(ii) non-compliance
by any Parent Entity with Environmental Laws, or (iii) liabilities that the Parent Entities may have incurred pursuant to Environmental Laws, in each case with respect to clauses
(ii) and (iii) to the extent that such matter could reasonably be expected to result in a Parent Material Adverse Effect.
(c) Except
with respect to
Sections 3.7
,
3.8
and
3.17
, this
Section
3.11
represents Parents sole representations and warranties with respect to environmental matters.
(d) None of the Parent Entities is subject to any judgment, order or decree or any indemnity obligation with any other Person that would
reasonably be expected to result in liabilities under applicable Environmental Laws or concerning Hazardous Substances.
3.12
Material Contracts
.
(a) As of the Execution Date, except for those Contracts set forth on Section 3.12(a) of
the Parent Disclosure Letter and excluding any Parent Benefit Plans, none of the Parent Entities is a party to or bound by any Contract that:
(i) other than any employment agreement, includes any Company Related Person (other than the Parent Entities) as a counterparty
or third party beneficiary;
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(ii) contains any provision or covenant which (A) materially restricts
any Parent Entity or any Affiliate thereof from engaging in any lawful business activity or competing with any Person, or (B) would, after the Effective Time, materially restrict the Company and its Affiliates from engaging in any lawful
business activity or competing with any Person;
(iii) (A) relates to the creation, incurrence, assumption, or guarantee of
any Indebtedness for borrowed money by any Parent Entity or (B) creates a capitalized lease obligation (except, in the cases of
clauses (A)
and
(B)
, any such Contract with an aggregate principal amount not exceeding
$2,500,000 and except any transactions solely among the Parent Entities);
(iv) is in respect of the formation of any
partnership, limited liability company agreement or joint venture or otherwise relates to the joint ownership or operation of the assets owned by any Parent Entity involving assets or obligations in excess of $5,000,000;
(v) includes the acquisition or sale of assets with a book value in excess of $5,000,000 (whether by merger, sale of stock,
sale of assets or otherwise);
(vi) provides for the sale of Hydrocarbons which contains a minimum throughput commitment,
minimum volume commitment,
take-or-pay
clause or any similar prepayment or forward sale arrangement or obligation (excluding gas balancing
arrangements associated with customary joint operating agreements) to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor;
(vii) involves the transportation of more than 10 MMcf (or the MBtu equivalent) of Hydrocarbons per day (calculated on a yearly
average basis);
(viii) provides for the sale by any Parent Entity of Hydrocarbons that has a remaining term of greater
than sixty (60) days and does not allow such Parent Entity to terminate it without penalty on sixty (60) days or less notice;
(ix) provides for a call or option on production, or acreage dedication or other commitment of Hydrocarbons produced from or
otherwise attributable to any Parent Entitys Oil and Gas Properties to a gathering, transportation processing, storage treatment or other arrangement at or downstream of the wellhead;
(x) any Oil and Gas Lease that contains express provisions (A) establishing bonus or minimum royalty obligations in excess
of $1,250,000 that are not satisfied at the time of lease or signing or (B) providing for a fixed term, even if there is still production in paying quantities;
(xi) is an agreement pursuant to which any Parent Entity has paid amounts associated with any Production Burdens in excess of
$2,500,000 during the immediately preceding fiscal year or with respect to which Parent reasonably expects that it (and/or its Subsidiaries) will make payments associated with any Production Burdens in any of the next three (3) succeeding
fiscal years that could, based on current projections, exceed $2,500,000 per year;
(xii) is a joint development agreement,
exploration agreement or acreage dedication agreement (excluding, in respect of each of the foregoing, customary joint operating agreements) that either (A) is material to the operation of the Parent Entities, taken as a whole, (B) would
reasonably be expected to require the Parent Entities to make expenditures in excess of $10,000,000 in the aggregate during the
12-month
period following the Execution Date or (C) contains an area of
mutual interest or any tag along or drag along (or similar rights) allowing a third party, or requiring the Parent Entities, to participate in any future transactions with respect to any assets or properties of the Parent
Entities;
(xiii) is an acquisition Contract that contains an
earn-out
or other contingent payment obligations, or remaining indemnity or similar obligations (other than asset retirement obligations, plugging and abandonment obligations and other reserves of any Parent Entity set forth in the Parent Reserve Reports
that have been provided to Parent prior to the Execution Date) that would be
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reasonably expected to result in payments after the Execution Date by the Parent Entities in excess of $2,500,000;
(xiv) relates to futures, swaps, collars, puts, calls, floors, caps, options or otherwise is intended to reduce or eliminate
the fluctuations in prices of commodities, including natural gas, natural gas liquids, crude oil and condensate;
(xv)
involves a sharing of profits, losses, costs or liabilities by any Parent Entity with any other Person or pursuant to which any Parent Entity has agreed to guarantee the performance obligations of any other Person (other than another Parent Entity);
(xvi) otherwise involves the annual payment by or to any Parent Entity of more than $2,500,000 and cannot be terminated by
the Parent Entities on ninety (90) days or less notice without payment by the Parent Entities of any penalty; or
(xvii) Contracts that are of a type that is required to be included as an exhibit to Parents Annual Report on Form
10-K
pursuant to Items 601(b)(2), (4), (9) or (10) of Regulation
S-K
of the SEC.
(b) Each Contract required to be disclosed pursuant to
Section
3.12(a)
as well as the Section 6.17 Agreements
(collectively, the
Parent Material Contracts
) has been made available to the Company, and, except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, each Parent
Material Contract is a valid and binding obligation of the applicable Parent Entity, and is in full force and effect and enforceable in accordance with its terms against such Parent Entity and, to the Knowledge of Parent, the other parties thereto,
except, in each case, as enforcement may be limited by Creditors Rights.
(c) Except as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect, none of the Parent Entities nor any other party to any Parent Material Contract is in default or breach under the terms of any Parent Material Contract and no Event has occurred
that with the giving of notice or the passage of time or both would constitute a breach or default by such Parent Entity or, to the Knowledge of Parent, any other party to any Parent Material Contract, or would permit termination, modification or
acceleration under any Parent Material Contract.
3.13
Legal Proceedings
. Other than with
respect to Proceedings arising under Environmental Laws, which are the subject of
Section
3.11
, or Tax matters, which are the subject of
Section
3.15
, there are no material Proceedings pending or,
to the Knowledge of Parent, threatened against the Parent Entities. There is no material judgment, order or decree outstanding against any Parent Entity. To the Knowledge of Parent, as of the Execution Date, no officer or director of any Parent
Entity is a defendant in any Proceeding in connection with his or her status as an officer or director of any Parent Entity. No Parent Entity nor any of their respective properties or assets is or are subject to any material judgment, order or
decree of a Governmental Entity.
3.14
Permits
. The Parent Entities have all Permits as are
necessary to use, own and operate their assets in the manner such assets are currently used, owned and operated by the Parent Entities, except where the failure to have such Permits would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
3.15
Taxes
. Except as would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse Effect:
(a) All Tax Returns required to be filed by any of
the Parent Entities have been timely filed (taking into account extensions of time for filing), each such Tax Return is complete and correct, and all Taxes that are due and payable from any of the Parent Entities (including Taxes required to be
withheld from payments to employees, creditors, equityholders or other Persons) have been paid in full.
(b) There is no written claim
(other than claims being contested in good faith through appropriate proceedings and for which adequate reserves have been made in accordance with GAAP) against any of the
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Parent Entities for any Taxes, and no assessment, deficiency, or adjustment has been asserted or proposed in writing with respect to any Taxes or Tax Returns of any of the Parent Entities.
(c) There are no Encumbrances for Taxes (other than Permitted Encumbrances) on the assets of any Parent Entity.
(d) No audits or other administrative or judicial Proceedings are being conducted, are pending, or have been threatened in writing with
respect to any Taxes or Tax Returns of any of the Parent Entities.
(e) There are no outstanding agreements or waivers extending the
applicable statutory periods of limitations for the assessment or payment of any Tax by any Parent Entity.
(f) No Parent Entity has
requested, has received, or is subject to any written ruling of a taxing authority that will be binding on it for any taxable period beginning on or after the Closing Date or has entered into any closing agreement as described in
Section 7121 of the Code (or any similar provision of state, local or foreign Law).
(g) None of the Parent Entities (i) has
been a member of an affiliated, consolidated, combined, or unitary group (other than a group the common parent of which is or was a Parent Entity) for federal, state, local or foreign Tax purposes, or (ii) is a party to any Tax sharing, Tax
allocation or similar agreement (other than any Tax sharing or indemnification provisions contained in any agreement (A) solely among the Parent Entities or (B) entered into in the ordinary course of business and not primarily relating to
Taxes (e.g., leases, credit agreements or other commercial agreements)).
(h) No Parent Entity is liable for the Taxes of any other Person
as a result of successor liability or transferee liability (whether pursuant to Treasury Regulations
Section 1.1502-6
or any similar provision of state, local, or foreign Law or otherwise).
(i) None of the Parent Entities has participated, or is currently participating, in any listed transaction within the meaning of
Treasury Regulations
Section 1.6011-4(b)(2).
(j) Parent has not constituted a
distributing corporation or a controlled corporation (or a successor thereto) in a distribution of stock intended to qualify for
tax-free
treatment under Section 355(a) of the Code
in the two (2) years prior to the date of this Agreement.
(k) None of the Parent Entities is aware of the existence of any facts, or
has taken or agreed to take any action, that could reasonably be expected to prevent (i) the Mergers from together qualifying as a transaction described in Section 351 of the Code or (ii) the Parent Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
Notwithstanding any other provisions of this Agreement to the contrary,
the representations and warranties made in this Section 3.15 and in Section 3.16 are the sole and exclusive representations and warranties of the Parent Entities with respect to Taxes.
3.16
Employee Benefits; Employment and Labor Matters
.
(a) Section 3.16(a) of the Parent Disclosure Letter contains a true and complete list of each material Parent Benefit Plan. A true and
complete copy of each material Parent Benefit Plan has been made available to the Company Parties.
(b) Except for matters that would not
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect:
(i) each Parent
Benefit Plan has been established, operated and administered in compliance with its terms and applicable Law (including ERISA and the Code);
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(ii) as to any Parent Benefit Plan intended to be qualified under
Section 401 of the Code, such plan has received a favorable determination letter or opinion letter, as applicable, from the IRS to such effect (or has applied or has time remaining to apply for such letter) and, to the Knowledge of Parent, no
Event has occurred since the date of such determination letter that would reasonably be expected to adversely affect the qualified status of any such Parent Benefit Plan;
(iii) all contributions (including employer contributions and employee salary reduction contributions) that are due and owing
to each Parent Benefit Plan have been timely paid or accrued in accordance with GAAP; and
(iv) there are no unresolved
claims or disputes (pending or threatened) under the terms of, or in connection with, any Parent Benefit Plan other than routine undisputed claims for benefits.
(c) No Parent Entity nor an ERISA Affiliate of any Parent Entity maintains or contributes to an employee welfare benefit plan that provides
health or life insurance or other welfare benefits to retired or terminated employees, their spouses or their dependents (other than in accordance with Section 4980B of the Code or for coverage through the end of the month of termination or
during an applicable severance period).
(d) No Parent Entity nor any ERISA Affiliate of any Parent Entity has , at any time during the
preceding six (6) years, contributed to, been required to contribute to or had any liability with respect to any Multiemployer Plan or a plan that has two or more contributing sponsors, at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA.
(e) No Parent Benefit Plan is subject to Title IV of ERISA or Section 412 of the
Code. During the immediately preceding six (6) years, no liability under Section 302 or Title IV of ERISA has been incurred by any Parent Entity or any ERISA Affiliate of a Parent Entity that has not been satisfied in full, and no
condition exists that presents a risk to any Parent Entity or any such ERISA Affiliates of incurring any such liability. No Event has occurred and, to the Knowledge of Parent, there currently exists no condition or circumstances that would subject
any Parent Entity to any Controlled Group Liability with respect to any employee benefit plan that is not a Parent Benefit Plan.
(f)
Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event): (i) entitle any current or former employee, officer or director of any
Parent Entity to any payment or benefit (or result in the funding of any such payment or benefit) under any Parent Benefit Plan; (ii) increase the amount of any compensation or benefits otherwise payable by any Parent Entity under any Parent
Benefit Plan; (iii) result in the acceleration of the time of payment, funding or vesting of any compensation or benefits under any Parent Benefit Plan; (iv) result in any excess parachute payment (within the meaning of
Section 280G of the Code) becoming due to any current or former employee, officer or director of any Parent Entity; or (v) limit or restrict the right of any Parent Entity to merge, amend or terminate any Parent Benefit Plan.
(g) No Parent Entity is a party to, or is otherwise obligated under, any plan, policy, agreement or arrangement that provides for the
gross-up
or reimbursement of Taxes imposed under Section 409A or 4999 of the Code (or any corresponding provisions of state or local Law relating to Tax).
(h) Each of the Parent Entities (i) is in material compliance with all applicable Laws regarding labor and employment, including all Laws
relating to employment discrimination,
non-retaliation,
labor relations, payment of wages and overtime, leaves of absence, employment Tax and social security, occupational health and safety, recordkeeping, and
immigration; (ii) has not, any time within the six (6) months preceding the Execution Date, had any plant closing or mass layoff (as defined by the Worker Adjustment and Retraining Notification Act of 1988 (the
WARN Act
)) or other terminations of employees that would create any obligations upon or liabilities for any Parent Entity under the WARN Act or similar state and local Laws; (iii) is not subject to any material disputes
pending, or, to the Knowledge of Parent, threatened, by any of its prospective, current, or
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former employees, independent contractors or Governmental Entity relating to the engagement of employees or independent contractors by any Parent Entity; and (iv) is not subject to any
material judgment, order or decree with or relating to any present or former employee, independent contractor or any Governmental Entity relating to claims of discrimination, wage or hour practices, or other claims in respect to employment or labor
practices and policies.
(i) None of the Parent Entities is or has ever been a party to or bound by the terms of any collective bargaining
agreement or other agreement with any labor union or similar representative or potential representative of employees, nor has any of the Parent Entities experienced any strike, slowdown, work stoppage, boycott, picketing, lockout, or material
grievance, claim of unfair labor practices, or other collective bargaining or labor dispute within the past three years and there are no current union representation questions or petitions or organizing campaigns involving employees of any Parent
Entity and, to the Knowledge of Parent, no such questions, petitions or campaigns are threatened.
3.17
Insurance
. Except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, (a) each insurance policy under which the Parent Entities is an insured or otherwise the principal
beneficiary of coverage (collectively, the
Parent Insurance Policies
) is in full force and effect, all premiums due thereon have been paid in full and the Parent Entities are in compliance with the terms and conditions of such
Parent Insurance Policy; (b) no Parent Entity is in breach or default under any Parent Insurance Policy; and (c) no Event has occurred which, with notice or lapse of time, would constitute such breach of default, or permit termination or
modification, under any Parent Insurance Policy.
3.18
Derivative Transactions and Hedging
.
Section 3.18 of the Parent Disclosure Letter contains a complete and correct list of all outstanding Derivative Transactions (including each outstanding Hydrocarbon or financial hedging position attributable to the Hydrocarbon production of the
Company Entities) entered into by any of the Parent Entities or for the account of any of their respective customers as of the Execution Date pursuant to which such party has outstanding rights or obligations. All such Derivative Transactions were,
and any Derivative Transactions entered into after the Execution Date will be, entered into in accordance with applicable Laws, and in accordance with the investment, securities, commodities, risk management and other policies, practices and
procedures employed by the Parent Entities. The Parent Entities have duly performed in all material respects all of their respective obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to
the Knowledge of the Parent, there are no material breaches, violations, collateral deficiencies, requests for collateral or demands for payment (except for ordinary course margin deposit requests), or defaults or allegations or assertions of such
by any party thereunder.
3.19
Required Vote of the Parent Stockholders
. (a) The
affirmative vote of a majority of the outstanding shares of Parent Common Stock entitled to vote on this Agreement and the Parent Merger (the
Parent Stockholder Approval
) is the only vote of holders of securities of Parent which
is required to approve this Agreement and the Transactions; and (b) neither Section 203 of the DGCL nor any other Takeover Laws are, or at the Effective Time will be, applicable to the Transactions, this Agreement or any transaction
contemplated hereby. As used in this Agreement,
Takeover Laws
means any moratorium, control share acquisition, fair price, supermajority, affiliate transactions, or
business combination statute or regulation or other similar state anti-takeover Laws and regulations, including Section 203 of the DGCL.
3.20
Related Party Transactions
. Except for Parent Benefit Plans, (a) the Parent Entities
are not, directly or indirectly, a party to, and have no continuing obligations under, any agreement (oral or written), arrangement or transaction with, or involving, or have made any commitment to, any Affiliate of the Parent Entities (other than
any Parent Entity) or any director or officer of the Parent Entities, or any of their respective family members or Persons in which any of them have, directly or indirectly, a material interest (any such Person, a
Parent Related
Person
), with respect to which the Parent Entities have or will have, following the Closing Date, any liability and (b) no Affiliate of the Parent Entities (other than any Parent Entity) or director or officer of the Parent Entities
has, directly or indirectly, any interest in any asset, right or property (real or personal, tangible or intangible) used by the Parent Entities.
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3.21
Brokers
Fee
. Except for the fees payable to the Parent Financial Advisor which shall be paid by Parent, no broker, investment banker, financial advisor or other Person is entitled to any brokers, finders, financial advisors or
other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of any Parent Entity.
3.22
Opinion of Financial Advisor
. The Parent Board has received the Parent Fairness Opinion from Tudor, Pickering, Holt & Co. Advisors LP (the
Parent Financial Advisor
).
3.23
Information Supplied
.
None of the information supplied or to be supplied by
Parent for inclusion or incorporation by reference in (a) the Registration Statement will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (b) the Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to stockholders and at the time of the Parent Stockholder Meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of
the circumstances under which such statement was made, not misleading.
3.24
No Other
Representations or Warranties
. Except for the representations and warranties contained in
Article
IV
, Parent agrees and acknowledges that neither the Company nor any Person on behalf of the Company makes any other
express or implied representation or warranty with respect to the Company or any of its Subsidiaries or with respect to any other information provided or made available to Parent in connection with this Agreement or the Transactions, including
information conveyed at management presentations, in virtual data rooms or in due diligence sessions and, without limiting the foregoing, including any estimates, projections, predictions or other forward-looking information, and Company shall not
have any liability to Parent resulting from Parents reliance on any such information. Parent agrees and acknowledges that neither Holdings nor the Fund nor any Person on behalf of either Holdings or the Fund makes any express or implied
representation or warranty (other than Holdings as expressly set forth in Section
4.15(k)) of any kind whatsoever.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the disclosure letter delivered to Parent on the Execution Date (the
Company Disclosure Letter
),
which identifies items of disclosure by reference to a particular section or subsection of this Agreement (
provided
that any information set forth in one section of the Company Disclosure Letter shall be deemed to apply to each other section
or subsection thereof or hereof to which its relevance is reasonably apparent), the Company hereby represents and warrants to Parent as follows:
4.1
Organization; Qualification
. Each Company Entity is an entity duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its organization. Each Company Entity (a) has all requisite organizational power and authority to own, lease and operate its assets and properties and to carry on its business as it
is now being conducted, and (b) is duly qualified, registered or licensed to do business as a foreign entity and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so duly qualified, registered or licensed and in good standing would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or
to prevent, materially delay or materially impair the ability of Company to perform its obligations under this Agreement or the Transactions. The Company has made available to Parent true and complete copies of the Organizational Documents of each
Company Entity, as in effect on the Execution Date. There has been no violation of any of the provisions of the Organizational Documents of each Company Entity, and no Company Entity has taken any action that is inconsistent in any material respect
with any resolution adopted by such entitys members, board of directors or board of managers (or other similar body) or any committee of the board of directors or board of managers (or other similar body) of such entity. Section 4.1 of
the Company Disclosure Letter sets forth each Company Entity.
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4.2
Authority; Enforceability
.
(a) The Company has all requisite entity power and authority to execute and deliver this Agreement and the other Transaction Agreements to
which it is a party and to consummate the transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party. The execution and delivery by the Company of this Agreement and the other Transaction Agreements to
which it is a party and the consummation by the Company of the transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party have been duly and validly authorized by the Company Board and Holdings, and no
other limited liability company proceedings on the part of the Company or its members is necessary to authorize this Agreement or the other Transaction Agreements to which the Company is a party or to consummate the transactions contemplated by this
Agreement or the other Transaction Agreements to which it is a party. The Company Board has unanimously approved this Agreement and the Transactions. Holdings has approved this Agreement and the Transactions, including the Rio Grande Merger,
pursuant to the Company LLC Agreement. No holder of Equity Interests of the Company has any dissenters rights or rights of appraisal relating to the Transactions and the Transaction Agreements to which the Company is a party.
(b) This Agreement and the other Transaction Agreements to which the Company is a party have been, or in the case of the Transaction
Agreements to be delivered after the Execution Date, will be, duly executed and delivered by the Company and, if applicable, Holdings, and, assuming the due authorization, execution and delivery by the Parent Parties party thereto, this Agreement
and the other Transaction Agreements to which the Company is a party thereto constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by
Creditors Rights.
4.3
Non-Contravention
. The execution, delivery and
performance of this Agreement and the other Transaction Agreements by the Company and the consummation by the Company of the Transactions and the Transaction Agreements do not and will not: (a) result in any breach or violation of any provision
of the Organizational Documents of any Company Entity; (b) constitute a default (or an Event that with notice or passage of time or both would give rise to a default) under, or give rise to any right of termination, cancellation, amendment or
acceleration (with or without the giving of notice, or the passage of time or both) under any of the terms, conditions or provisions of any Contract to which any Company Entity is a party or by which any property or asset of any Company Entity is
bound or affected; (c) assuming compliance with the matters referred to in Section 4.4, violate any Law to which any Company Entity is subject or by which any Company Entitys properties or assets is bound; or (d) constitute (with or
without the giving of notice or the passage of time or both) an Event which would result in the creation of any Encumbrance (other than Permitted Encumbrances) on any asset of any Company Entity, except, in the cases of clauses (b), (c) and
(d) for such defaults or rights of termination, cancellation, amendment, acceleration, violations or Encumbrances as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or to prevent,
materially delay or materially impair the ability of the Company to perform its obligations under this Agreement or the consummation of the Transactions.
4.4
Approvals of Governmental Entities and Third Parties
. No declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any Person or Governmental Entity is necessary for the consummation by any Company Entity of the Transactions, other than (a) filings and clearances required under the HSR Act and
(b) such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made, would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or to
prevent, materially delay or materially impair the ability of the Company to perform its obligations under this Agreement or the Transactions.
4.5
Capitalization
.
(a) Section 4.5(a) of the Company Disclosure Letter sets forth a correct and complete description of the following: (i) all of the
authorized, issued and outstanding Equity Interests in each of the Company Entities; and
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(ii) the record and beneficial owners of each of the outstanding Equity Interests in each of the Company Entities as of the Execution Date and the Closing Date. Except as set forth on
Section 4.5(a) of the Company Disclosure Letter, there are no other outstanding Equity Interests of any Company Entity. All of the issued and outstanding Equity Interests in each of the Company Entities have been duly authorized and validly
issued in accordance with the Organizational Documents of such Company Entity and are fully paid (to the extent required under the Organizational Documents of such Company Entity) and nonassessable (except as nonassessability may be affected by
Sections
17-303,
17-607
and
17-804
of the Delaware LP Act or Sections
18-607
or
18-804
of the DLLCA) and have not been issued in violation of any preemptive rights, rights of first refusal or other similar rights of any Person. All of the issued and outstanding Equity Interests in each of the
Company Entities are owned by the Persons set forth on Section 4.5(a) of the Company Disclosure Letter named as owning such interests free and clear of all Encumbrances other than (i) transfer restrictions imposed by federal and state
securities Laws and (ii) any transfer restrictions contained in the Organizational Documents of the Company Entities, none of which apply to the Transactions. As of the Execution Date and the Closing Date, (1) Holdings directly owns all of
the outstanding Equity Interests in the Company and (2) the Company owns, directly or indirectly, all of the outstanding Equity Interests in each other Company Entity free and clear of all Encumbrances other than (A) transfer restrictions
imposed by federal and state securities Laws and (B) any transfer restrictions contained in the Organizational Documents of the Company Entities.
(b) Except as set forth in the Organizational Documents of the Company Entities and except as otherwise provided in
Section
4.5(a)
, there are no preemptive rights or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls,
subscription agreements, commitments or rights of any kind that obligate any of the Company Entities to issue or sell any Equity Interests or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any Equity Interests in any of the Company Entities, and no securities or obligations evidencing such rights are authorized, issued or outstanding.
(c) No Company Entity has any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote) with the holders of Equity Interests in any Company Entity on any matter.
(d) There are no voting trusts or other agreements or understandings to which any Company Entity is a party with respect to the voting or
registration of the limited liability company interest or other equity interest of any Company Entity.
(e) Except with respect to the
ownership of any equity or long-term debt securities between or among the Company Entities, none of the Company Entities owns, directly or indirectly, any equity or long-term debt securities of any Person.
4.6
Compliance with Law
. Except for Environmental Laws, Laws requiring the obtaining or
maintenance of a Permit, Tax matters, Laws relating to employee benefits, employment and labor matters, and Laws relating to the regulatory and compliance matters, which are the subject of
Sections
4.11
,
4.14
,
4.15
and
4.16
, respectively, and except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (a) each Company Entity is in compliance with all applicable
Laws, (b) no Company Entity has received written notice of any violation of any applicable Law and (c) none of the Company Entities has received written notice that it is under investigation by any Governmental Entity for potential
non-compliance
with any Law.
4.7
Financial Statements
.
(a) The Company has made available to Parent copies of the Company Financial Statements. The Company Financial Statements have been
prepared in accordance with GAAP, applied on a consistent basis
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throughout the periods presented thereby and fairly present in all material respects the consolidated financial position and operating results, equity and cash flows of the Company Entities on a
consolidated basis and of the Business, as of, and for the periods ended on, the respective dates thereof, subject, however, in the case of interim financial statements, to normal
year-end
audit adjustments.
(b) None of the Company Entities has any liability, whether accrued, contingent, absolute or otherwise, that would be required to be
included in the financial statements of the Company and its consolidated Subsidiaries under GAAP, except for (i) liabilities set forth on the consolidated balance sheet dated as of September 30, 2017 or the notes thereto contained in the
Company Financial Statements; (ii) liabilities that have arisen since September 30, 2017, in the ordinary course of business; (iii) liabilities or obligations incurred in connection with the transactions contemplated hereby and
(iv) liabilities which would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.8
Absence of Certain Changes
. Except as expressly contemplated by this Agreement, from
and after September 30, 2017, (a) through the Execution Date, the Company Entities have operated their business in all material respects only in the ordinary course of business and consistent with past practice, (b) through the Execution Date,
no Company Entity has taken or agreed to take any action that, if taken during the period from the Execution Date to the Effective Time, would constitute a breach of
Section
5.2(b)(ii)
,
(iii)
,
(v)
,
(ix)
,
(x)
,
(xi)
,
(xii)
or
(xiv)
and (c) through the Effective Time, there has not been any Event, occurrence or development which has had, or would be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
4.9
Title to Properties and Assets; Oil and Gas
Properties
.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect, each Company Entity has title to or rights or interests in its real property and personal property (and each real property and personal property at which material operations of the Company are conducted) free and clear of all Encumbrances
(subject to Permitted Encumbrances), sufficient to allow it to conduct the Business as currently being conducted.
(b)
Oil and Gas
Properties
.
(i) Except for (A) property sold or otherwise disposed of in the ordinary course of business since
the dates of the reserve reports prepared by Netherland, Sewell & Associates, Inc. (
Company Reserve Engineer
) relating to the Company Entity interests referred to therein as of December 31, 2016 (the
Company
Reserve Reports
), (B) property reflected in the Company Reserve Reports as having been sold or otherwise disposed of, as of the Execution Date or (C) matters that would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, the Company Entities have good and defensible title to all Oil and Gas Properties forming the basis for the reserves reflected in the Company Reserve Reports and in each case as attributable to interests
owned by the Company Entities, free and clear of any Encumbrances, except for Permitted Encumbrances. For purposes of the foregoing sentence, good and defensible title means the collective title of Company Entities (as of the date hereof
and as of the Closing) to each of the Oil and Gas Properties held or owned by them (or purported to be held or owned by them), beneficially or of record with any applicable Governmental Entity that (1) collectively entitles Company Entities to
receive (after satisfaction of all Production Burdens applicable thereto), not less than the net revenue interest share shown in the Company Reserve Report of all Hydrocarbons produced from such Oil and Gas Properties throughout the life of such Oil
and Gas Properties (other than decreases in connection with operations in which Company Entities may be a
non-consenting
co-owner,
decreases resulting from reversion of
interests to
co-owners
with respect to operations in which such
co-owners
elected not to consent, decreases resulting from the establishment of pools or units, and
decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under
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deliveries), (2) obligates Company Entities to collectively bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, such Oil and Gas
Properties, of not greater than the working interest shown on the Company Reserve Report for such Oil and Gas Properties (other than increases resulting from contribution requirements with respect to defaulting or
non-consenting
co-owners
under applicable operating agreements or Laws and increases that are accompanied by at least a proportionate increase in the net revenue
interest of Company Entities) and (3) is free and clear of all Encumbrances (other than Permitted Encumbrances).
(ii)
The factual,
non-interpretive
data supplied by or on behalf of the Company Entities to the Company Reserve Engineer relating to the Company Entities interests referred to in the Company Reserve Reports
and that was material to such firms estimates of proved oil and gas reserves attributable to the Oil and Gas Properties of the Company Entities in connection with the preparation of the Company Reserve Reports was, as of the time provided (or
as modified or amended prior to the issuance of the Company Reserve Reports), accurate in all material respects. To the Companys Knowledge, any assumptions or estimates provided by the Company Entities to the Company Reserve Engineer in
connection with their preparation of the Company Reserve Reports were made in good faith and on a reasonable basis based on the facts and circumstances in existence and that were to known to the Company at the time such assumptions or estimates were
made. The estimates of proved oil and gas reserves provided by the Company Entities to the Company Reserve Engineer in connection with the preparation of the Company Reserve Reports complied in all material respects with
Rule 4-10
of
Regulation S-X
promulgated by the SEC. The Companys internal proved reserve estimates prepared by management for the year ended December 31,
2016 were not, taken as a whole, materially lower than the conclusions in such Company Reserve Reports. Except for changes generally affecting the oil and gas exploration, development and production industry (including changes in commodity prices)
and normal depletion by production, there has been no material change in respect of the matters addressed in the Company Reserve Reports that would have, individually or in the aggregate, a Company Material Adverse Effect.
(iii) Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect,
(A) all proceeds from the sale of Hydrocarbons produced from the Oil and Gas Properties of the Company Entities are being received by them in a timely manner; and (B) as of December 31, 2016, no proceeds from the sale of Hydrocarbons
produced from any such Oil and Gas Properties (to the extent operated by the Company or any Company Entity) are being held in suspense (by the Company, any Company Entity, any third-party operator thereof or any other Person or individual) for any
reason other than awaiting preparation and approval of division order title opinions for recently drilled wells. Section 4.9(b)(iii) of the Company Disclosure Letter sets forth all the Oil and Gas Leases included in any Company Entitys
Oil and Gas Properties that are scheduled to expire (in whole or in part) at any time in the twelve (12)-month period immediately following the Execution Date.
(iv) Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect,
all royalties, minimum royalties, overriding royalties and other Production Burdens with respect to any Oil and Gas Properties owned or held by any Company Entity have been timely and properly paid. Except as would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, no Company Entity (and, to the Companys Knowledge, no third party operator) has violated any provision of, or taken or failed to take any act which, with or without
notice, lapse of time, or both, would constitute a default under the provisions of any Oil and Gas Lease (or entitle the lessor thereunder to cancel or terminate such Oil and Gas Lease) included in the Oil and Gas Properties owned or held by any
Company Entity and no Company Entity (or, to the Companys Knowledge, any third party operator) has received written notice from any other party to any such Oil and Gas Lease (1) that any Company Entity (or such third party operator, as
the case may be) has breached, violated or defaulted under any such Oil and Gas Lease or (2) threatening to terminate, cancel, rescind or procure judicial reformation of any such Oil and Gas Lease.
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(v) Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, all Oil and Gas Properties operated by any Company Entity (and, to the Knowledge of the Company, all Oil and Gas Properties owned or held by any Company Entity and operated by a third party) have
been operated in accordance with reasonable, prudent oil and gas field practices.
(vi) Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect, none of the Oil and Gas Properties of the Company Entities is subject to any preferential, purchase, preemptive, consent or similar right which would become
operative as a result of the entry into (or the consummation of) the Transactions.
(vii) Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect, there is no well included in the Oil and Gas Properties of the Company Entities that has been drilled and completed in a manner that is not within the limits
permitted by all applicable Laws, Oil and Gas Leases or other instruments governing the Oil and Gas Properties. Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, no Company
Entity has elected not to participate in any operation or activity proposed with respect to any of the Oil and Gas Properties owned or held by it (or them, as applicable) that could result in a penalty or forfeiture as a result of such election not
to participate in such operation or activity that would be material to the Company Entities, taken as a whole and is not reflected in the Company Reserve Reports.
(viii) Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect,
and to the Knowledge of the Company as of the Execution Date, Section 4.9(b)(viii) of the Company Disclosure Letter lists, as of December 31, 2016, all transportation, plant, production and other imbalances and overlifts with respect to
Hydrocarbon production from the Company Entities Oil and Gas Properties.
(ix) Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect, with respect to the Company Entities Oil and Gas Properties, all currently producing wells and all tangible equipment included therein, used in connection
with the operation thereof or otherwise primarily associated therewith (including all buildings, plants, structures, platforms, pipelines, machinery, vehicles and other rolling stock) are in a good state of repair and are adequate and sufficient to
maintain normal operations in accordance with past practices (ordinary wear and tear excepted).
(x) As of the date of this
Agreement, there are no authorizations for expenditure or other commitments to make capital expenditures (or series of related authorizations for expenditure or commitments) binding on any Company Entity with respect to its or their respective Oil
and Gas Properties that Company reasonably anticipates will individually require expenditures after the Effective Time of greater than $5,000,000.
(xi) Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect,
there are no Oil and Gas Properties (i) with respect to which any Company Entity has received an order from any Governmental Entity requiring that such well be plugged and abandoned that has not been plugged and abandoned, (ii) that, to
the Knowledge of Company, formerly produced but that are currently shut in or temporarily abandoned or were dry holes and have not been plugged in accordance with applicable Laws, (iii) that, to the Knowledge of Company, have been or are
required to be plugged and abandoned but have not been plugged in accordance with applicable Laws or (iv) to the Knowledge of Company, with respect to which any Company Entity has any decommissioning obligations that are required to have been
performed and which have not been performed in accordance with applicable Laws.
4.10
Intellectual
Property
. Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (a) the Company Entities own or have the right to use pursuant
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to a license, sublicense, agreement or otherwise all material items of Intellectual Property required in the operation of their business as presently conducted; (b) no third party has
asserted in writing delivered to any Company Entity an unresolved claim that any Company Entity is infringing on the Intellectual Property of such third party; and (c) to the Knowledge of the Company, no third party is infringing on the
Intellectual Property owned by the Company Entities.
4.11
Environmental Matters
.
(a) Except as to matters that would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(i) each of the Company Entities and its assets, real properties and operations are and, during the two (2) years
preceding the Execution Date, have been, in compliance with all applicable Environmental Laws;
(ii) each of the Company
Entities possesses all Environmental Permits required for their operations as currently conducted and is in compliance with the terms of such Environmental Permits, and such Environmental Permits are in full force and effect and are not subject to
any pending or, to the Knowledge of the Company, threatened Proceeding;
(iii) none of the Company Entities nor any of
their properties or operations or any person or entity whose liability any Company Entity has retained or assumed either contractually or by operation of Law, are subject to any pending or, to the Knowledge of the Company, threatened Proceeding
arising under any Environmental Law, nor has any Company Entity received any written and pending notice, order or complaint from any Person alleging a violation of or liability arising under any Environmental Law; and
(iv) there has been no Release of Hazardous Substances on, at, under, to, or from any of the properties of the Company Entities
or, to the Knowledge of the Company, any offsite properties, or from or in connection with the Company Entities operations in a manner that would reasonably be expected to give rise to any uninsured liability pursuant to any Environmental Law.
(b) The Company has made available to Parent complete and accurate copies of all reports, studies, investigations and audits that are in
the Companys possession or control, have been prepared within the two (2) years preceding the Execution Date, and that address any (i) condition of the Company Entities assets, properties or operations,
(ii) non-compliance
by any Company Entity with Environmental Laws, or (iii) liabilities that the Company Entities may have incurred pursuant to Environmental Laws, in each case with respect to clauses
(ii) and (iii) to the extent that such matter could reasonably be expected to result in a Company Material Adverse Effect.
(c)
Except with respect to
Sections 4.7
,
4.8
and
4.17
, this
Section
4.11
represents the Companys sole representations and warranties with respect to environmental matters.
(d) None of the Company Entities is subject to any judgment, order or decree or any indemnity obligation with any other Person that would
reasonably be expected to result in liabilities under applicable Environmental Laws or concerning Hazardous Substances.
4.12
Material Contracts
.
(a) As of the Execution Date, except for those Contracts set forth on Section 4.12(a) of
the Company Disclosure Letter and excluding any Company Benefit Plans, none of the Company Entities is a party to or bound by any Contract that:
(i) other than any employment agreement, includes any Company Related Person (other than the Company Entities) as a
counterparty or third party beneficiary;
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(ii) contains any provision or covenant which (A) materially restricts
any Company Entity or any Affiliate thereof from engaging in any lawful business activity or competing with any Person, or (B) would, after the Effective Time, materially restrict Parent and its Affiliates from engaging in any lawful business
activity or competing with any Person;
(iii) (A) relates to the creation, incurrence, assumption, or guarantee of any
Indebtedness for borrowed money by any Company Entity or (B) creates a capitalized lease obligation (except, in the cases of
clauses (A)
and
(B)
, any such Contract with an aggregate principal amount not exceeding $2,500,000
and except any transactions solely among the Company Entities);
(iv) is in respect of the formation of any partnership,
limited liability company agreement or joint venture or otherwise relates to the joint ownership or operation of the assets owned by any Company Entity involving assets or obligations in excess of $5,000,000;
(v) includes the acquisition or sale of assets with a book value in excess of $5,000,000 (whether by merger, sale of stock,
sale of assets or otherwise);
(vi) provides for the sale of Hydrocarbons which contains a minimum throughput commitment,
minimum volume commitment,
take-or-pay
clause or any similar prepayment or forward sale arrangement or obligation (excluding gas balancing
arrangements associated with customary joint operating agreements) to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor;
(vii) involves the transportation of more than 10 MMcf (or the MBtu equivalent) of Hydrocarbons per day (calculated on a yearly
average basis);
(viii) provides for the sale by any Company Entity of Hydrocarbons that has a remaining term of greater
than sixty (60) days and does not allow such Company Entity to terminate it without penalty on sixty (60) days or less notice;
(ix) provides for a call or option on production, or acreage dedication or other commitment of Hydrocarbons produced from or
otherwise attributable to any Company Entitys Oil and Gas Properties to a gathering, transportation processing, storage treatment or other arrangement at or downstream of the wellhead;
(x) any Oil and Gas Lease that contains express provisions (A) establishing bonus obligations or minimum royalty in excess
of $1,250,000 that were not satisfied at the time of lease or signing or (B) providing for a fixed term, even if there is still production in paying quantities;
(xi) is an agreement pursuant to which any Company Entity has paid amounts associated with any Production Burdens in excess of
$2,500,000 during the immediately preceding fiscal year or with respect to which the Company reasonably expects that it (and/or its Subsidiaries) will make payments associated with any Production Burdens in any of the next three (3) succeeding
fiscal years that could, based on current projections, exceed $2,500,000 per year;
(xii) is a joint development agreement,
exploration agreement or acreage dedication agreement (excluding, in respect of each of the foregoing, customary joint operating agreements) that either (A) is material to the operation of the Company Entities, taken as a whole, (B) would
reasonably be expected to require the Company Entities to make expenditures in excess of $10,000,000 in the aggregate during the twelve (12)-month period following the Execution Date or (C) contains an area of mutual interest or any tag
along or drag along (or similar rights) allowing a third party, or requiring the Company Entities, to participate in any future transactions with respect to any assets or properties of the Company Entities;
(xiii) is an acquisition Contract that contains an
earn-out
or other
contingent payment obligations, or remaining indemnity or similar obligations (other than asset retirement obligations, plugging and abandonment obligations and other reserves of any Company Entity set forth in the
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Company Reserve Reports that have been provided to Parent prior to the Execution Date) that would be reasonably expected to result in payments after the Execution Date by the Company Entities in
excess of $2,500,000;
(xiv) relates to futures, swaps, collars, puts, calls, floors, caps, options or otherwise is
intended to reduce or eliminate the fluctuations in prices of commodities, including natural gas, natural gas liquids, crude oil and condensate;
(xv) involves a sharing of profits, losses, costs or liabilities by any Company Entity with any other Person or pursuant to
which any Company Entity has agreed to guarantee the performance obligations of any other Person (other than another Company Entity);
(xvi) otherwise involves the annual payment by or to any Company Entity of more than $2,500,000 and cannot be terminated by the
Company Entities on ninety (90) days or less notice without payment by the Company Entities of any penalty; or
(xvii) is material to the Business but otherwise not of a type described in clauses (i) through (xvi) above.
(b) Each Contract required to be disclosed pursuant to
Section
4.12(a)
(collectively, the
Company Material
Contracts
) has been made available to Parent and, except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, each Company Material Contract is a valid and binding obligation of
the applicable Company Entity, and is in full force and effect and enforceable in accordance with its terms against such Company Entity and, to the Knowledge of the Company, the other parties thereto, except, in each case, as enforcement may be
limited by Creditors Rights.
(c) Except as would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, none of the Company Entities nor any other party to any Company Material Contract is in default or breach under the terms of any Company Material Contract and no Event has occurred that with the giving of notice or the
passage of time or both would constitute a breach or default by such Company Entity or, to the Knowledge of the Company, any other party to any Company Material Contract, or would permit termination, modification or acceleration under any Company
Material Contract.
4.13
Legal Proceedings
. Other than with respect to Proceedings arising
under Environmental Laws, which are the subject of
Section
4.11
, or relating to Tax matters, which are the subject of
Section
4.15
, there are no material Proceedings pending or, to the Knowledge of
the Company, threatened against the Company Entities. There is no material judgment, order or decree outstanding against any Company Entity. To the Knowledge of the Company, as of the Execution Date, no officer or director of any Company Entity is a
defendant in any Proceeding in connection with his or her status as an officer, director or manager of any Company Entity. No Company Entity nor any of their respective properties or assets is or are subject to any material judgment, order or decree
of a Governmental Entity.
4.14
Permits
. Other than with respect to Permits issued pursuant
to or required under Environmental Laws, the Company Entities have all Permits as are necessary to use, own and operate their assets in the manner such assets are currently used, owned and operated by the Company Entities, except where the failure
to have such Permits would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.15
Taxes
. Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(a) All Tax Returns required to be filed by any of the Company Entities have been timely filed (taking into account extensions of time for
filing), each such Tax Return is complete and correct, and all Taxes that are due and payable from any of the Company Entities (including Taxes required to be withheld from payments to employees, creditors, equityholders or other Persons) have been
paid in full.
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(b) There is no written claim (other than claims being contested in good faith through
appropriate proceedings and for which adequate reserves have been made in accordance with GAAP) against any of the Company Entities for any Taxes, and no assessment, deficiency, or adjustment has been asserted or proposed in writing with respect to
any Taxes or Tax Returns of any of the Company Entities.
(c) There are no Encumbrances for Taxes (other than Permitted Encumbrances) on
the assets of any Company Entity.
(d) No audits or other administrative or judicial Proceedings are being conducted, are pending, or have
been threatened in writing with respect to any Taxes or Tax Returns of any of the Company Entities.
(e) There are no outstanding
agreements or waivers extending the applicable statutory periods of limitations for the assessment or payment of any Tax by any Company Entity.
(f) No Company Entity has requested, has received, or is subject to any written ruling of a taxing authority that will be binding on it for
any taxable period beginning on or after the Closing Date or has entered into any closing agreement as described in Section 7121 of the Code (or any similar provision of state, local or foreign Law).
(g) None of the Company Entities (i) has been a member of an affiliated, consolidated, combined, or unitary group (other than a group the
common parent of which is or was a Company Entity) for federal, state, local or foreign Tax purposes, or (ii) is a party to any Tax sharing, Tax allocation or similar agreement (other than any Tax sharing or indemnification provisions contained
in any agreement (A) solely among the Company Entities or (B) entered into in the ordinary course of business and not primarily relating to Taxes (e.g., leases, credit agreements or other commercial agreements)).
(h) No Company Entity is liable for the Taxes of any other Person as a result of successor liability or transferee liability (whether pursuant
to Treasury Regulations
Section 1.1502-6
or any similar provision of state, local, or foreign Law or otherwise).
(i) None of the Company Entities has participated, or is currently participating, in any listed transaction within the meaning of
Treasury Regulations
Section 1.6011-4(b)(2).
(j) Each Company Entity is classified and,
since the date of its formation, has been classified, as an entity disregarded as separate from its owner for U.S. federal income tax purposes. None of the Company Entities has elected to be treated as a corporation for U.S. federal income tax
purposes, and no entity classification election under Treasury Regulations
Section 301.7701-3
(or any analogous election under state or local law) is currently in effect for any Company Entity.
(k) Neither Holdings nor any Company Entity has taken a position inconsistent with the classifications described in
Section
4.15(j)
for U.S. federal income tax purposes.
(l) At the Closing, the Company will be classified as an
entity disregarded as separate from Holdings for U.S. federal income tax purposes pursuant to Treasury Regulations
Section 301.7701-3.
(m) None of the Company Entities is aware of the existence of any facts, or has taken or agreed to take any action, that could reasonably be
expected to prevent (i) the Mergers from together qualifying as a transaction described in Section 351 of the Code or (ii) the Parent Merger from qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
Notwithstanding any other provisions of this Agreement to the contrary, the representations and warranties made in this Section 4.15 and
in Section 4.16 are the sole and exclusive representations and warranties of the Company Entities with respect to Taxes.
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4.16
Employee Benefits; Employment and Labor
Matters
.
(a) Section 4.16(a) of the Company Disclosure Letter contains a true and complete list of each material
Company Benefit Plan. With respect to each material Company Benefit Plan, true and complete copies of each of the following documents, to the extent applicable, have been made available to the Parent Parties: (i) each Company Benefit Plan, and
(ii) as applicable to each Company Benefit Plan, (A) the summary plan description, (B) the most recent determination letter (or opinion letter, as applicable), (C) the most recent actuarial report, related trusts, insurance or
group annuity Contracts, (D) correspondence to or from any Governmental Entity, (E) administrative service agreements, and (F) each other funding or financing arrangement relating to any plan, including, in each case, all amendments,
modifications or supplements thereto.
(b) Except for matters that would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect:
(i) each Company Benefit Plan has been established, operated and
administered in compliance with its terms and applicable Law (including ERISA and the Code);
(ii) as to any Company
Benefit Plan intended to be qualified under Section 401 of the Code, such plan has received a favorable determination letter or opinion letter, as applicable, from the IRS to such effect (or has applied or has time remaining to apply for such
letter) and, to the Knowledge of the Company, no Event has occurred since the date of such determination letter that would reasonably be expected to adversely affect the qualified status of any such Company Benefit Plan;
(iii) all contributions (including employer contributions and employee salary reduction contributions) that are due and owing
to each Company Benefit Plan have been timely paid or accrued in accordance with GAAP; and
(iv) there are no unresolved
claims or disputes (pending or threatened) under the terms of, or in connection with, any Company Benefit Plan other than routine undisputed claims for benefits.
(c) No Company Entity nor an ERISA Affiliate of any Company Entity maintains or contributes to an employee welfare benefit plan that provides
health or life insurance or other welfare benefits to retired or terminated employees, their spouses or their dependents (other than in accordance with Section 4980B of the Code or for coverage through the end of the month of termination or
during an applicable severance period).
(d) No Company Entity nor any ERISA Affiliate of any Company Entity has, at any time during the
preceding six (6) years, contributed to, been required to contribute to or had any liability with respect to any Multiemployer Plan or any plan that has two or more contributing sponsors, at least two of whom are not under common control,
within the meaning of Section 4063 of ERISA.
(e) No Company Benefit Plan is subject to Title IV of ERISA or Section 412 of
the Code. During the immediately preceding six (6) years, no liability under Section 302 or Title IV of ERISA has been incurred by any Company Entity or any ERISA Affiliate of a Company Entity that has not been satisfied in full, and
no condition exists that presents a risk to any Company Entity or any such ERISA Affiliates of incurring any such liability. No Event has occurred and, to the Knowledge of the Company, there currently exists no condition or circumstances that would
subject any Company Entity to any Controlled Group Liability with respect to any employee benefit plan that is not a Company Benefit Plan.
(f) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in
conjunction with any other event): (i) entitle any current or former employee, officer or director of any Company Entity to any payment or benefit (or result in the funding of any such payment or benefit) under any Company Benefit Plan;
(ii) increase the amount of any compensation or benefits otherwise payable by any Company Entity under any Company Benefit Plan; (iii) result in the acceleration of the time of payment, funding or vesting of any compensation or benefits
under any Company
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Benefit Plan; (iv) result in any excess parachute payment (within the meaning of Section 280G of the Code) becoming due to any current or former employee, officer or
director of any Company Entity; or (v) limit or restrict the right of any Company Entity to merge, amend or terminate any Company Benefit Plan.
(g) No Company Entity is a party to, or is otherwise obligated under, any plan, policy, agreement or arrangement that provides for the
gross-up
or reimbursement of Taxes imposed under Section 409A or 4999 of the Code (or any corresponding provisions of state or local Law relating to Tax).
(h) Each of the Company Entities (i) is in material compliance with all applicable Laws regarding labor and employment, including all
Laws relating to employment discrimination,
non-retaliation,
labor relations, payment of wages and overtime, leaves of absence, employment Tax and social security, occupational health and safety,
recordkeeping, and immigration; (ii) has not, any time within the six (6) months preceding the Execution Date, had any plant closing or mass layoff (as defined by the WARN Act) or other terminations of employees
that would create any obligations upon or liabilities for any Company Entity under the WARN Act or similar state and local laws; (iii) is not subject to any material disputes pending, or, to the Knowledge of the Company, threatened, by any of
its prospective, current, or former employees, independent contractors or Governmental Entity relating to the engagement of employees or independent contractors by any of the Company Entities; and (iv) is not subject to any material judgment,
order or decree with or relating to any present or former employee, independent contractor or any Governmental Entity relating to claims of discrimination, wage or hour practices, or other claims in respect to employment or labor practices and
policies.
(i) None of the Company Entities is or has ever been a party to or bound by the terms of any collective bargaining agreement or
other agreement with any labor union or similar representative or potential representative of employees, nor has any of the Company Entities experienced any strike, slowdown, work stoppage, boycott, picketing, lockout, or material grievance, claim
of unfair labor practices, or other collective bargaining or labor dispute within the past three (3) years and there are no current union representation questions or petitions or organizing campaigns involving employees of any of the Company
Entities and, to the Knowledge of the Company, no such questions, petitions or campaigns are threatened.
4.17
Insurance
. Except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, (a) each insurance policy under which the Company Entities is an insured or otherwise the principal beneficiary of coverage (collectively, the
Company Insurance Policies
) is
in full force and effect, all premiums due thereon have been paid in full and the Company Entities are in compliance with the terms and conditions of such Company Insurance Policy; (b) no Company Entity is in breach or default under any Company
Insurance Policy; and (c) no Event has occurred which, with notice or lapse of time, would constitute such breach of default, or permit termination or modification, under any Company Insurance Policy.
4.18
Derivative Transactions and Hedging
. Section 4.18 of the Company Disclosure Letter
contains a complete and correct list of all outstanding Derivative Transactions (including each outstanding Hydrocarbon or financial hedging position attributable to the Hydrocarbon production of the Company Entities) entered into by any of the
Company Entities or for the account of any of their respective customers as of the Execution Date pursuant to which such party has outstanding rights or obligations. All such Derivative Transactions were, and any Derivative Transactions entered into
after the Execution Date will be, entered into in accordance with applicable Laws, and in accordance with the investment, securities, commodities, risk management and other policies, practices and procedures employed by the Company Entities. The
Company Entities have duly performed in all material respects all of their respective obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and, to the Knowledge of the Company, there are no
material breaches, violations, collateral deficiencies, requests for collateral or demands for payment (except for ordinary course margin deposit requests), or defaults or allegations or assertions of such by any party thereunder.
4.19
Related Party
Matters
. Except for Company Benefit Plans and through ownership
of the Company LLC Interests, (a) the Company Entities are not, directly or indirectly, a party to, and have no continuing
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obligations under, any agreement (oral or written), arrangement or transaction with, or involving, or have made any commitment to, any Affiliate of the Company Entities (other than any Company
Entity) or any director or officer of the Company Entities, or any of their respective family members or Persons in which any of them have, directly or indirectly, a material interest (any such Person, a
Company Related Person
),
with respect to which the Company Entities have or will have, following the Closing Date, any liability and (b) no Affiliate of the Company Entities (other than any Company Entity) or director or officer of the Company Entities has, directly or
indirectly, any interest in any asset, right or property (real or personal, tangible or intangible) used by the Company Entities or used in the conduct of the Business.
4.20
Brokers
Fee
. Except for the fees payable to Credit Suisse
Securities (USA) LLC which shall be paid by the Company, no broker, investment banker, financial advisor or other Person is entitled to any brokers, finders, financial advisors or other similar fee or commission in connection with
the Transactions based upon arrangements made by or on behalf of the Company.
4.21
Information
Supplied
. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (a) the Registration Statement will, at the time the Registration Statement and each amendment or supplement
thereto, if any, becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (b) the
Proxy Statement and any amendment or supplement thereto will, at the date of mailing to stockholders and at the time of the Parent Stockholder Meeting contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the circumstances under which such statement was made, not misleading.
4.22
No Other Representations or Warranties
. Except for the representations and warranties
contained in
Article
III
, the Company agrees and acknowledges that none of the Parent Parties or any Person on behalf of the Parent Parties makes any other express or implied representation or warranty with respect to
Parent or any of its Subsidiaries or with respect to any other information provided or made available to the Company in connection with this Agreement and the Transactions, including information conveyed at management presentations, in virtual data
rooms or in due diligence sessions and, without limiting the foregoing, including any estimates, projections, predictions or other forward-looking information, and Parent shall not have any liability to the Company resulting from the Companys
reliance on any such information.
ARTICLE V
CERTAIN
PRE-CLOSING
COVENANTS
5.1
Conduct of Business of Parent
.
(a) Parent covenants and agrees as to itself and its Subsidiaries that, from the Execution Date and continuing until the earlier of the
Effective Time and the termination of this Agreement, except (1) as expressly permitted by this Agreement, (2) as set forth in Section 5.1(a) of the Parent Disclosure Letter, or (3) to the extent the Company shall otherwise
consent in writing (which consent shall not be unreasonably withheld, conditioned or delayed), Parent shall and shall cause its Subsidiaries to conduct their respective businesses in the ordinary course of business consistent with past practice and
use reasonable best efforts to (i) maintain and preserve intact its business organization, (ii) keep available the services of key employees and (iii) maintain satisfactory relationships with customers, suppliers and distributors.
(b) Without limiting the generality of this
Section
5.1
, and, except (1) as expressly permitted by this
Agreement, (2) as set forth in Section 5.1(b) of the Parent Disclosure Letter, (3) as required by Law or the regulations or requirements of any stock exchange or regulatory organization applicable to Parent or any of its Subsidiaries,
or (4) to the extent the Company shall otherwise consent in writing (which consent shall not be
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unreasonably withheld, conditioned or delayed), from the Execution Date and continuing until the earlier of the Effective Time and the termination of this Agreement, Parent shall not, and shall
not authorize or permit any of its Subsidiaries to:
(i) in the case of Parent, make any change or amendment, or in the
case of any Subsidiary of Parent make any material change or amendment, to its Organizational Documents;
(ii) make any
acquisition of any other Person or business (whether by merger, business combination or otherwise), or purchase any securities or ownership interests or assets of, or make any investment in any Person, in each case, in excess of $5,000,000, other
than (A) ordinary course acquisitions of inventory and equipment, (B) ordinary course overnight investments consistent with the cash management policies of Parent and (C) intercompany capital contributions or loans solely among Parent
and/or its wholly owned Subsidiaries;
(iii) make aggregate capital expenditures in excess of one hundred and ten percent
(110%) of Parents 2017 and anticipated 2018 capital budgets, which are set forth on Section 5.1(b)(iii) of the Parent Disclosure Letter, or as required on an emergency basis or for the safety of individuals or the environment;
(iv) other than in the ordinary course of business consistent with past practice, (A) make, change or revoke any material
Tax election, but excluding any election that must be made periodically and is made consistent with past practice; (B) change any material method of Tax accounting; or (C) settle or compromise any material Tax Proceeding for an amount
materially in excess of the amounts accrued or reserved with respect thereto in the Parent Financial Statements;
(v)
authorize, establish a record date for, declare or pay any dividends or other distribution (in cash, stock or other equity, property or a combination thereof) in respect of any of its capital stock or other equity securities except the declaration
and payment of dividends or distributions from any direct or indirect wholly owned Subsidiary of Parent to Parent or any other wholly owned Subsidiary thereof;
(vi) split, combine or reclassify any shares of its capital stock or other equity securities or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for, its capital stock or equity securities, except for any such transaction by a direct or indirect wholly owned Subsidiary of Parent that remains a direct or indirect wholly
owned Subsidiary of Parent or any of its Subsidiaries after consummation of such transaction;
(vii) repurchase, redeem or
otherwise acquire any of its capital stock or other equity securities or any securities convertible into or exercisable for any capital stock or equity securities, other than the acceptance of shares of Parent Common Stock as payment for the
exercise price of Parent Stock Options or for withholding taxes incurred in connection with the exercise, vesting or settlement of Parent Equity Awards and dividend equivalents thereon;
(viii) issue, deliver, sell, pledge or dispose of, or authorize the issuance, delivery, sale, pledge or disposition of, any
(A) capital stock or equity securities of any class, (B) debt securities having the right to vote on any matters on which holders of capital stock or members or partners of the same issuer may vote or (C) securities convertible into
or exercisable for, or any rights, warrants, calls or options to acquire, any such securities, other than issuances by a direct or indirect wholly owned Subsidiary of Parent of capital stock or equity securities to such Persons parent or any
other direct or indirect wholly owned Subsidiary of Parent, or sell, pledge or dispose of any equity interest in (or other interest that is convertible or exchangeable into any equity interest in) Parent or any of its Subsidiaries, in each case,
excluding (1) the issuance of shares of Parent Common Stock in respect of the exercise or settlement of Parent Equity Awards that are outstanding on the Execution Date or granted thereafter in accordance with clause (2) of this
Section
5.1(b)(viii)
in accordance with their terms and (2) grants of Parent Equity Awards made in the ordinary course of business, consistent with past practice, in respect of up to an aggregate of
1,300,000 shares of Parent Common Stock;
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(ix) sell, assign, lease, transfer or otherwise dispose of any of its assets
or properties (including any Equity Interests in any other Person), other than (A) sales of Hydrocarbons, inventory and obsolete equipment in the ordinary course of business by Parent or any of its Subsidiaries and (B) sales of assets to
third parties for a purchase price that does not exceed $5,000,000 in the aggregate;
(x) (A) settle any claims, demands,
lawsuits or state or federal regulatory Proceedings for damages to the extent such settlements assess damages in excess of $5,000,000 in the aggregate (other than any claims, demands, lawsuits or proceedings to the extent insured (net of
deductibles), reserved against in the Parent Financial Statements or covered by an indemnity obligation not subject to dispute or adjustment from a solvent indemnitor) or (B) settle any claims, demands, lawsuits or state, local, or federal
regulatory Proceedings seeking an injunction or other equitable relief where such settlements would or would reasonably be expected to materially impair the business of the Parent Entities, taken as a whole, except, in the case of clauses
(A) and (B) of this paragraph
(x)
, relating to Taxes;
(xi) create, incur, guarantee or assume any Indebtedness
for borrowed money other than (A) Indebtedness outstanding on the Execution Date, (B) borrowings under the Existing Parent Credit Facility in accordance with its terms as of the date hereof (except as it may be amended to permit the Merger
and the Transactions contemplated hereby, and in connection with the addition of the Company or any of its Subsidiaries as parties thereto at or after the Closing Date), and (C) Indebtedness solely among Parent and/or any Subsidiaries thereof;
(xii) merge with or into, or consolidate with, any other Person or acquire all or substantially all of the business or
assets of any other Person, except transactions between Parent and any direct or indirect wholly owned Subsidiary of Parent or between direct or indirect wholly owned Subsidiaries of Parent;
(xiii) take any action with respect to or in contemplation of any liquidation, dissolution, recapitalization, reorganization,
or other winding up;
(xiv) change or modify any material accounting policies, except as required by GAAP;
(xv) except in the ordinary course of business, (A) modify, make any material amendment to or voluntarily terminate, prior
to the expiration date thereof, any Parent Material Contracts; (B) enter into a Contract after the Execution Date that would be a Parent Material Contract described in Section 3.12(a) if entered into prior to the Execution Date; or
(C) waive any default by, or release, settle or compromise any claim against, any other party to a Parent Material Contract; or
(xvi) agree or commit to take any of the actions described above.
(c) During the period from the Execution Date through the Effective Time, none of New Parent, Parent Merger Sub or Rio Grande Merger Sub shall
engage in any activity of any nature except for activities related to or in furtherance of the Transactions (including enforcement of its rights under this Agreement) or as provided in or expressly contemplated by this Agreement.
5.2
Conduct of Business by the Company Entities
.
(a) The Company covenants and agrees as to itself and its Subsidiaries that, from the Execution Date and continuing until the earlier of the
Effective Time and the termination of this Agreement, except as expressly permitted by this Agreement, as set forth in Section 5.2(a) of the Company Disclosure Letter or to the extent Parent shall otherwise consent in writing (which consent
shall not be unreasonably withheld, conditioned or delayed), the Company shall and shall cause each Company Entity to conduct their respective businesses in the ordinary course of business consistent with past practice and use reasonable best
efforts to (i) maintain and preserve intact its business organization, (ii) keep available the services of key employees and (iii) maintain satisfactory relationships with customers, suppliers and distributors.
(b) Without limiting the generality of this
Section
5.2
, and, except (1) as expressly permitted by this
Agreement, (2) as set forth in Section 5.2(b) of the Company Disclosure Letter, (3) as required by Law or the regulations or requirements of any stock exchange or regulatory organization applicable to the Company or any
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of its Subsidiaries, or (4) to the extent Parent shall otherwise consent in writing (which consent shall not be unreasonably withheld, conditioned or delayed), from the Execution Date and
continuing until the earlier of the Effective Time and the termination of this Agreement, the Company shall not, and shall not authorize or permit any of its Subsidiaries to:
(i) make any change or amendment to its Organizational Documents;
(ii) make any acquisition of any other Person or business (whether by merger, business combination or otherwise), or purchase
any securities or ownership interests or assets of, or make any investment in any Person, in each case, in excess of $5,000,000, other than (A) ordinary course acquisitions of inventory and equipment, (B) ordinary course overnight
investments consistent with the cash management policies of the Company and (C) intercompany capital contributions or loans solely among the Company and/or its wholly owned Subsidiaries;
(iii) make aggregate capital expenditures in excess of one hundred and ten percent (110%) of Companys 2017 and
anticipated 2018 capital budgets, which are set forth on Section 5.2(b)(iii) of the Company Disclosure Letter, or as required on an emergency basis or for the safety of individuals or the environment;
(iv) other than in the ordinary course of business consistent with past practice, (A) make, change or revoke any material
Tax election, but excluding any election that must be made periodically and is made consistent with past practice, (B) make, change or revoke any election described in
Section
4.15(j)
; (C) change any material method of
Tax accounting; or (D) settle or compromise any material Tax Proceeding for an amount materially in excess of the amounts accrued or reserved with respect thereto in the Company Financial Statements;
(v) authorize, establish a record date for, declare or pay any dividends or other distribution (in cash, stock or other equity,
property or a combination thereof) in respect of any shares of its capital stock or other equity securities, except the declaration and payment of dividends or distributions from any direct or indirect wholly owned Subsidiary of the Company to the
Company or any other wholly owned Subsidiary thereof;
(vi) split, combine or reclassify any shares of its capital stock or
other equity securities or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for, its capital stock or equity securities, except for any such transaction by a direct or indirect wholly owned
Subsidiary of the Company that remains a direct or indirect wholly owned Subsidiary of the Company or any of its Subsidiaries after consummation of such transaction;
(vii) repurchase, redeem or otherwise acquire any of its capital stock or other equity securities or any securities convertible
into or exercisable for any capital stock or equity securities;
(viii) issue, deliver, sell, pledge or dispose of, or
authorize the issuance, delivery, sale, pledge or disposition of, any (A) capital stock or equity securities of any class, (B) debt securities having the right to vote on any matters on which holders of capital stock or members or partners
of the same issuer may vote or (C) securities convertible into or exercisable for, or any rights, warrants, calls or options to acquire, any such securities, other than issuances by a direct or indirect wholly owned Subsidiary of the Company of
capital stock or equity securities to such Persons parent or any other direct or indirect wholly owned Subsidiary of the Company; or sell, pledge or dispose of any equity interest in (or other interest that is convertible or exchangeable into
any equity interest in) the Company or any of its Subsidiaries;
(ix) sell, assign, lease, transfer or otherwise dispose of
its assets or properties (including any Equity Interests in any other Person), other than (A) sales of Hydrocarbons, inventory and obsolete equipment in the ordinary course of business by the Company or any of its Subsidiaries and
(B) sales of assets to third parties for a purchase price that does not exceed $5,000,000 in the aggregate;
(x)
redeem, repurchase, prepay, create, incur, guarantee, assume or otherwise become liable for any Indebtedness (directly, contingently or otherwise), other than incurrences of Indebtedness under
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the Existing Company Credit Agreement,
provided
that the amount of Indebtedness outstanding under the Existing Company Credit Agreement shall not exceed $54,000,000 in the aggregate at any
time;
(xi) (A) settle any claims, demands, lawsuits or state or federal regulatory Proceedings for damages to the extent
such settlements assess damages in excess of $5,000,000 in the aggregate (other than any claims, demands, lawsuits or proceedings to the extent insured (net of deductibles), reserved against in the Company Financial Statements or covered by an
indemnity obligation not subject to dispute or adjustment from a solvent indemnitor) or (B) settle any claims, demands, lawsuits or state, local or federal regulatory Proceedings seeking an injunction or other equitable relief where such
settlements would or would reasonably be expected to materially impair the business of the Company Entities, taken as a whole, except, in the case of clauses (A) and (B) of this paragraph
(xi)
, relating to Taxes;
(xii) merge with or into, or consolidate with, any other Person or acquire all or substantially all of the business or assets
of any other Person, except transactions between the Company and any direct or indirect wholly owned Subsidiary of the Company or between direct or indirect wholly owned Subsidiaries of the Company;
(xiii) take any action with respect to or in contemplation of any liquidation, dissolution, recapitalization, reorganization,
or other winding up;
(xiv) change or modify any material accounting policies, except as required by GAAP;
(xv) except as required by the existing terms of any Company Benefit Plan in existence as of the date hereof, (A) increase
the compensation or benefits payable or to become payable to any of its directors, officers, employees or individual independent contractors, other than annual base salary increases in the ordinary course of business, consistent with past practice,
that do not, in the aggregate, exceed 3% of the aggregate annual base salaries of all employees as of the date hereof, (B) grant to any of its directors, officers, employees or individual independent contractors any increase in severance or
termination pay, (C) pay or award, or commit to pay or award, any bonuses or incentive compensation, (D) enter into any employment, severance, change of control or retention agreement (excluding offer letters that provide for no severance
or change of control benefits) with any of its directors, officers, employees or individual independent contractors, (E) establish, adopt, enter into, amend or terminate any collective bargaining agreement or other agreement with a labor union
or representative of employees or Company Benefit Plan, except any amendments to Company Benefit Plans that are health and welfare plans in the ordinary course of business consistent with past practice that do not increase the cost to the Company,
in the aggregate, of maintaining such Company Benefit Plan, (F) take any action to accelerate any payment or benefit, or the funding of any payment or benefit, payable or to become payable to any of its directors, officers, employees or
individual independent contractors, or (G) hire or retain any employee or individual independent contractor other than in the ordinary course of business in respect of individuals whose total annual cash compensation is not in excess of
$100,000;
(xvi) except in the ordinary course of business, (A) modify, make any material amendment to or voluntarily
terminate, prior to the expiration date thereof, any Company Material Contracts; (B) enter into a Contract after the Execution Date that would be a Company Material Contract described in
Section
4.12(a)
if entered into
prior to the Execution Date; or (C) waive any default by, or release, settle or compromise any claim against, any other party to a Company Material Contract; or
(xvii) agree, or commit to take any of the actions described above.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1
No Solicitation
.
(a) Parent shall, and shall cause the other Parent Entities and its and their Representatives to,
(x) cease and cause to be terminated any solicitation, discussions or negotiations with any Person (other than the parties hereto and their respective Representatives acting in their capacity as such) regarding any Parent Alternative Proposal,
or that could reasonably be expected to lead to a Parent Alternative Proposal, (y) request in writing each Person with whom discussions, negotiations or any exchange of
non-public
information has occurred
that all
non-public
information previously furnished to any such Person be returned or destroyed promptly and use reasonable best efforts to ensure such return or destruction and (z) shut down any
physical or electronic data room or analogous access to information. Parent shall, and shall cause the other Parent Entities to, (x) not release or permit the release of any Person from, or amend, waive or permit the amendment or
waiver of any provision of, any standstill, nondisclosure or similar agreement or provision to which Parent or any of its Subsidiaries is or becomes a party or under which any of Parent or its Subsidiaries has any rights, unless the
failure to take such action would be inconsistent with the Parent directors fiduciary duties under applicable Law and (y) use its reasonable best efforts to enforce each such agreement or provision upon the request of the Company. Except
as otherwise expressly permitted by this
Section
6.1
, from and after the Execution Date until the Effective Time or, if earlier, the valid termination of this Agreement in accordance with
Article
VIII
hereof, Parent shall not, and shall cause the other Parent Entities and its and their Representatives not to, directly or indirectly:
(i) solicit, initiate, knowingly facilitate or encourage any inquiry, proposal or offer from any Person relating to, or that
could reasonably be expected to lead to, a Parent Alternative Proposal;
(ii) engage or participate in any discussions or
negotiations with, or provide any
non-public
information or access to the business, properties, assets, books or records of the Parent Entities to, or cooperate with, assist or facilitate any efforts by, any
Person relating to or in connection with, or that could reasonably be expected to lead to, a Parent Alternative Proposal;
(iii) accept any proposal or offer from any Person relating to a Parent Alternative Proposal;
(iv) approve, adopt, enter into or recommend any contract, letter of intent or similar agreement with any Person (other than
the Company) relating to or in connection with a Parent Alternative Proposal (other than a confidentiality agreement as provided in
Section
6.1(d)(i)
); or
(v) resolve, agree or publicly propose to, or permit Parent or any of its Subsidiaries or any of its Representatives to agree
or publicly propose to take any of the actions referred to in clauses (i) (iv).
(b) Except as expressly permitted in and in
accordance with the terms of
Section
6.1(d)
, Parent Board or any committee thereof shall not (i) fail to include the Parent Recommendation in the Proxy Statement, (ii) amend, withdraw, modify or qualify or propose
publicly to amend, withdraw, modify or qualify, in a manner adverse to the Company, the Parent Recommendation, (iii) recommend, adopt, authorize, endorse, declare advisable or approve, or propose publicly to recommend, adopt, authorize,
endorse, declare advisable or approve, any Parent Alternative Proposal or (iv) fail to recommend against any tender or exchange offer for any outstanding capital stock of Parent or any of its Subsidiaries within ten (10) Business Days
after the commencement (within the meaning of Rule
14d-2
under the Exchange Act) of such tender or exchange offer (the taking of any action described in this
Section
6.1(b)
being
referred to as a
Parent Recommendation Change
).
(c) From and after the Execution Date, Parent shall promptly (and in
each case within twenty-four (24) hours thereof) advise the Company of the receipt by any Parent Entities or any of their respective Representatives of any Parent Alternative Proposal made on or after the Execution Date, any inquiry or proposal
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that could reasonably be expected to lead to a Parent Alternative Proposal, any request for
non-public
information or data relating to Parent or any its
Subsidiaries made by any Person in connection with a Parent Alternative Proposal and any request for discussions or negotiations with any Parent Entity or a Representative of a Parent Entity relating to, or that could reasonably be expected to lead
to, a Parent Alternative Proposal (in each case within twenty-four (24) hours thereof), and Parent shall provide to the Company (within such twenty-four (24) hour time frame) (i) if such Parent Alternative Proposal, inquiry, proposal
or request is in writing, a copy of any such Parent Alternative Proposal, inquiry, proposal or request made in writing and (ii) if such Parent Alternative Proposal, inquiry, proposal or request is oral, a written summary of the material terms
of such Parent Alternative Proposal, inquiry, proposal or request (including the identity of the Person making such Parent Alternative Proposal, inquiry, proposal or request) and, in the case of each of the foregoing clauses (i) and (ii) copies
of all material correspondence (but excluding, for the avoidance of doubt, drafts of agreements that do not constitute or form a part of the initial written Parent Alternative Proposal, inquiry, proposal or request) sent or provided to any Parent
Entity or any Parent Entitys Representatives relating to such Parent Alternative Proposal, inquiry, proposal or request. Parent shall keep the Company reasonably informed on a reasonably current basis with respect to the status and material
terms of any such Parent Alternative Proposal, inquiry, proposal or request and any material changes to the status of any such discussions or negotiations, and shall promptly (and in no event later than twenty-four (24) hours after transmittal
or receipt), provide the Company with copies of any material correspondence, and with respect to material oral communications, a written summary of such correspondence or communications, between: (x) on the one hand, Parent or any of its
Representatives; and (y) on the other hand, the Person that made or submitted such Parent Alternative Proposal, request, inquiry or proposal or any Representative of such Person.
(d) Parent, directly or indirectly through one or more of its Representatives, may:
(i) prior to the receipt of the Parent Stockholder Approval, engage in the activities prohibited by
Section
6.1(a)(
i
)
or
6.1(a)(ii)
solely with and to any Person who has made a bona fide written Parent Alternative Proposal after the Execution Date that did not result from, or was otherwise knowingly
facilitated by, a breach of this
Section
6.1
;
provided,
however
, that (A) no
non-public
information may be furnished to such Person until Parent receives an
executed confidentiality agreement from such Person containing limitations on the use and disclosure of nonpublic information furnished to such Person by or on behalf of Parent that are no less favorable to Parent in the aggregate than the terms of
the Confidentiality Agreement; provided, further, that such confidentiality agreement may not contain provisions that prohibit Parent from complying with the provisions of this
Section
6.1
and Parent provides the Company
(x) as promptly as practicable and prior to providing any nonpublic information, a copy of such executed confidentiality agreement and (y) substantially concurrently with providing it to any such other Person, any
non-public
information (or access with respect thereto) to Parent and its Subsidiaries furnished to such other Person which was not previously furnished to the Company and (B) prior to taking any such actions,
the Parent Board determines in good faith, after consultation with its financial advisors and legal counsel, that (1) such Parent Alternative Proposal is, or would reasonably be expected to lead to, a Parent Superior Proposal and
(2) failure to take such action would be inconsistent with the directors fiduciary duties under applicable Law;
(ii) prior to the receipt of the Parent Stockholder Approval, in response to a bona fide written Parent Alternative Proposal
received by Parent after the Execution Date that did not result from, or was otherwise facilitated by, a breach of this
Section
6.1
, the Parent Board may effect a Parent Recommendation Change or to terminate this Agreement
pursuant to
Section
8.1(f)
in order to enter into a definitive agreement relating to such Parent Superior Proposal, if prior to taking such action the Parent Board reasonably determines in good faith after consultation with
its financial advisors and outside legal counsel that (A) such Parent Alternative Proposal is a Parent Superior Proposal and (B) failure to take such action would be inconsistent with the directors fiduciary duties under applicable
Law;
provided
,
however
, that prior to effecting such Parent Change in Recommendation or terminating this Agreement pursuant to
Section
8.1(f)
, (A) Parent shall have given at least five
(5) Business Days prior written notice to the Company that Parent has received such proposal,
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specifying the material terms and conditions of such proposal (including a copy of the most current version of the proposed agreement under which such Parent Superior Proposal is proposed to be
consummated and any other material documents (including financing commitments, if any) and correspondence in respect thereof, including the identity of the Person making such proposal), and, that Parent intends to take such action at the end of the
notice period, which notice shall specify the basis for such Parent Recommendation Change (such notice being referred to herein as a
Parent SP Recommendation Change Notice
), (B) during the five (5) Business Day period
starting after the date on which such notice is received, if requested by the Company, Parent shall, and shall cause its Subsidiaries and its Representatives to negotiate in good faith with the Company and the Companys Representatives (to the
extent the Company wishes to negotiate), which may be on a
non-exclusive
basis with respect to other negotiations or discussions permitted by this
Section
6.1
, to revise the terms and
conditions of this Agreement such that it would cause the Parent Alternative Proposal to no longer be a Parent Superior Proposal, and (C) following such five (5) Business Day period, the Parent Board after taking into account in good faith
any revisions to the terms of this Agreement committed to in writing by the Company and, after consultation with its financial advisors and outside legal counsel, shall have determined in good faith that the Parent Alternative Proposal remains a
Parent Superior Proposal and that the failure to take such action would be inconsistent with the directors fiduciary duties under applicable Law; each time material modifications to the terms of a Parent Alternative Proposal determined to be a
Parent Superior Proposal are made a new Parent SP Recommendation Change Notice shall be required, and in such case, the time periods set forth in the foregoing
clauses (B)
and (C) with respect to the new notice shall be three
(3) Business Days; and
(iii) prior to the obtaining of the Parent Stockholder Approval, the Parent Board may
make a Parent Recommendation Change of the type described in clause (i) or (ii) of the definition thereof in response to a Parent Intervening Event if prior to taking such action the Parent Board reasonably determines in good faith, after
consultation with its financial advisors and outside legal counsel, that the failure of the Parent Board to make such Parent Recommendation Change would be inconsistent with the Parent Boards fiduciary duties under applicable Law;
provided,
however
, that prior to effecting such Parent Recommendation Change (A) Parent shall have given the Company at least five (5) Business Days prior written notice informing the Company that Parent has determined that a Parent
Intervening Event has occurred or arisen (which notice will reasonably describe such Parent Intervening Event) and Parent intends to effect a Parent Recommendation Change at the end of the notice period (such notice being referred to herein as a
Parent Recommendation Change Notice
), (B) during the five (5) Business Day period starting after the date on which such Parent Recommendation Change Notice is received, if requested by the Company, Parent shall, and shall
cause its Subsidiaries and its Representatives to negotiate in good faith with the Company and the Companys Representatives (to the extent the Company wishes to negotiate), which may be on a
non-exclusive
basis with respect to other negotiations or discussions permitted by this
Section
6.1
, to revise the terms and conditions of this Agreement such that a failure of the
Parent Board to effect such a Parent Recommendation Change in response to such Parent Intervening Event would not be inconsistent with the directors fiduciary duties under applicable Law, and (C) following such five (5) Business Day
period after the date of the Parent Recommendation Change Notice, the Parent Board after taking into account in good faith any changes to the terms of this Agreement proposed by the Company and, after consultation with its financial advisors and
outside legal counsel, shall have reasonably determined in good faith that the failure to effect such a Parent Recommendation Change would be inconsistent with the Parent Boards fiduciary duties under applicable Law.
(e) No Parent Recommendation Change shall change the approval of this Agreement for purposes of DGCL, and in no event shall Parent or Parent
Board be permitted to rescind or amend the resolutions approving this Agreement as in effect on the Execution Date.
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6.2
Preparation of Proxy Statement and Registration
Statement
.
(a) As promptly as practicable following the Execution Date, Parent and New Parent, as applicable, shall prepare
and cause to be filed with the SEC, (i) a proxy statement (together with any amendments thereof or supplements thereto, the
Proxy Statement
) in order to seek the Parent Stockholder Approval and (ii) a registration
statement on Form
S-4,
to register the issuance of the New Parent Common Stock to be issued pursuant to the Parent Merger as Parent Merger Consideration (together with all amendments thereto, the
Registration Statement
), and in which the Proxy Statement will be included as a prospectus. Parent shall cause the Proxy Statement and the Registration Statement to comply as to form in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder and other applicable Law. The Company shall (i) cooperate with Parent in the preparation of the Proxy Statement and the Registration Statement;
(ii) use its reasonable best efforts to furnish the information required to be included by the SEC in the Proxy Statement and the Registration Statement and (iii) use its reasonable best efforts to provide such other assistance as may be
reasonably requested by Parent or Parents outside legal counsel in connection with the preparation, filing and distribution of the Proxy Statement and the Registration Statement. Each of Parent and New Parent shall use its reasonable best
efforts to have the Registration Statement declared effective, including the execution of any required undertaking to file post-effective amendments, and the Proxy Statement cleared by the SEC as promptly as is practicable after filing and keep the
Registration Statement effective for so long as necessary to consummate the Transactions, and each of Parent and New Parent shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the holders of Parent Common Stock as
promptly as reasonably practicable after the Registration Statement shall have been declared effective and the Proxy Statement shall have been cleared by the SEC. Each party shall also take any action required to be taken and make any necessary
filings under the Securities Act, the Exchange Act or any applicable state securities Laws in connection with the Transactions, this Agreement or the issuance of New Parent Common Stock in the Transactions. All filings by the Company or Parent with
the SEC in connection with the Transactions and all mailings to the stockholders of Parent in connection with the Transactions shall be subject to the reasonable opportunity for prior review and comment by the other party, which comments the Company
or Parent, as applicable, shall consider in good faith, acting reasonably.
(b) The Company and Parent each agrees, as to itself and its
Subsidiaries, to use reasonable best efforts so that none of the information supplied or to be supplied by it for inclusion or incorporation by reference in (i) the Registration Statement will, at the time the Registration Statement and each
amendment or supplement thereto, if any, becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not misleading and (ii) the Proxy Statement and any amendment or supplement thereto will, at the date of mailing to stockholders and at the time of the Parent Stockholder
Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statement was made, not misleading.
(c) If at any time prior to the Effective Time, any party discovers any information relating to the Company or Parent, or any of their
respective Affiliates, directors or officers that should be set forth in an amendment or supplement to either the Registration Statement or the Proxy Statement so that such documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly notify the other party and Parent shall promptly
cause to be filed with the SEC an appropriate amendment or supplement describing such information and, to the extent required by Law, disseminate such information to the stockholders of Parent. Nothing in this
Section
6.2(c)
shall limit the obligations of any party under
Sections 6.2(a),
6.2(b)
and
6.2(d)
.
(d) The parties shall notify each other promptly of the receipt of any correspondence, communications or comments from the SEC or the staff of
the SEC and of any request by the SEC or the staff of the SEC for
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amendments or supplements to the Proxy Statement or the Registration Statement or for additional information and shall supply each other with (i) copies of all correspondence and a
description of all material oral discussions between it or any of its respective Representatives, on the one hand, and the SEC or the staff of the SEC, on the other hand, with respect to the Proxy Statement, the Registration Statement or the
Transactions and (ii)
copies of all orders of the SEC relating to the Proxy Statement or the Registration Statement.
6.3
Stockholders Meeting; Recommendations
. Parent shall take, in accordance with the DGCL and its Organizational Documents, all actions reasonably necessary to mail the Proxy Statement to Parents stockholders and to establish a
record date, duly call, give notice of, convene and hold a meeting of its stockholders (the
Parent Stockholder Meeting
) as soon as reasonably practicable after the Registration Statement is declared effective for the purpose of
securing the Parent Stockholder Approval. Unless a Parent Recommendation Change is effected in accordance with
Section 6.1
, the Proxy Statement shall (i) state that the Parent Board has unanimously (A) approved this Agreement and the
Transactions; (B) determined that this Agreement and the Transactions are fair to and in the best interests of Parent and its stockholders; and (C) include the Parent Recommendation; and (ii) subject to the consent of the Parent Financial
Advisor, which consent has been obtained, include the Parent Fairness Opinion. Unless a Parent Recommendation Change is effected in accordance with
Section 6.1
, Parent shall use its reasonable best efforts to solicit from stockholders of
Parent votes in favor of the Parent Stockholder Approval. Notwithstanding any Parent Recommendation Change, this Agreement shall be submitted to the stockholders of Parent at the Parent Stockholder Meeting and nothing contained herein shall be
deemed to relieve Parent of such obligation unless this Agreement has been validly terminated pursuant to the terms hereof. In addition to the foregoing, Parent shall not submit to the vote of its stockholders any Parent Alternative Proposal or
other acquisition proposal other than the Transactions. Anything to the contrary contained in this Agreement notwithstanding, Parent may adjourn or postpone the Parent Stockholder Meeting (i) to the extent necessary to ensure that any required
supplement or amendment to the Proxy Statement that Parent has determined in good faith (after consultation with outside legal counsel) is necessary under applicable Law is provided to Parents stockholders, (ii) if, as of the time for
which the meeting of Parents stockholders is originally scheduled (as set forth in the Proxy Statement), there are insufficient shares of Parent Common Stock represented (either in person or by proxy) to constitute a quorum necessary to
conduct business at such meeting or (iii) with the consent of the Company, to solicit additional proxies necessary to obtain the Parent Stockholder Approval;
provided,
however
, that no adjournment may be to a date on or after
three (3) Business Days prior to the End Date.
6.4
Access to Information;
Confidentiality
.
(a) Subject to applicable Law, Parent will provide and will cause Parents Subsidiaries and its and their
respective directors, officers, employees, accountants, consultants, legal counsel, investment bankers, advisors, agents and other representatives (collectively,
Representatives
) to provide the Company and its authorized
Representatives, during normal business hours and upon reasonable advance notice, such reasonable access to the offices, employees, customers, suppliers, properties, books and records of Parent and its Subsidiaries (so long as such access does not
unreasonably interfere with the operations of Parent and its Subsidiaries) as the Company may reasonably request (including for the purposes of conducting environmental due diligence). Subject to applicable Law, the Company will provide and will
cause the Companys Subsidiaries and its and their respective Representatives to provide Parent and its authorized Representatives, during normal business hours and upon reasonable advance notice, such reasonable access to the offices,
employees, properties, books and records of the Company Entities (so long as such access does not unreasonably interfere with the operations of any Company Entities) as Parent may reasonably request (including for the purposes of planning the
operation of New Parent after the Effective Time and conducting environmental due diligence). No party shall have access to personnel records of the other party or any of its Subsidiaries relating to individual performance or evaluation records,
medical histories or other information that in such other partys good faith opinion the disclosure of which could subject such other party or any of its Subsidiaries to risk of liability. Notwithstanding anything to the contrary herein, no
party shall be permitted to conduct any sampling or analysis of any environmental media or building
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materials at any facility of the other party or its Subsidiaries without the prior written consent of such other party, which may be granted or withheld in its sole discretion.
(b) With respect to any information disclosed pursuant to this
Section
6.4
each of the Company and Parent shall
comply with, and shall cause each of its Subsidiaries and their respective Representatives to comply with, all of its obligations under the mutual nondisclosure and confidentiality agreement, dated October 9, 2017, previously executed by the
Company and Parent (the
Confidentiality Agreement
). No party shall be required to provide access to or disclose any information where such access or disclosure would jeopardize any attorney-client privilege of such party or any
Subsidiary of such party or contravene any Contract, Law or order (it being agreed that the parties shall use their respective reasonable best efforts to cause such information to be provided in a manner that would not result in such jeopardy or
contravention).
6.5
Efforts to Consummate; Notification
.
(a) Subject to the terms and conditions of this Agreement, each of the Company, Holdings and the Parent Parties will use their reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Law to consummate the Transactions, including using reasonable best efforts to, and with regards to clauses
(ii) and (iv), the Fund shall use its reasonable best efforts to, (i) cause the conditions precedent set forth in
Article VII
to be satisfied, (ii) obtain all necessary waivers, consents, approvals, permits, orders or
authorizations (including the expiration or termination of any waiting periods) from Governmental Entities and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental
Entities, if any) and take all steps as may be necessary to avoid, or to have terminated, if begun, any Proceeding by any Governmental Entity by the End Date, (iii) obtain all necessary waivers, consents, approvals, permits, orders or
authorizations from third parties, (iv) defend any investigations or Proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Transactions, including seeking to avoid the entry of, or to have
reversed, terminated, lifted or vacated, any stay, temporary restraining order or other injunctive relief or order entered by any Governmental Entity that could prevent or delay the Transactions or the consummation of the Transactions and
(v) execute and deliver additional instruments necessary to consummate the Transactions, and to fully carry out the purposes of, this Agreement.
(b) In furtherance and not in limitation of the foregoing, Parent, Holdings, the Fund and the Company shall (i) if at any time the
parties determine that a filing is required under the HSR Act with respect to the Transactions by a party or any of its Affiliates, such party shall make or cause to be made any such filings as promptly reasonably as practicable thereafter, and in
no event later than ten (10) Business Days after such determination, (ii) furnish to any other party as promptly as reasonably practicable all information required for any application or other filing to be made by the other party pursuant
to any applicable Law in connection with the Transactions, (iii) respond as promptly as reasonably practicable to any inquiries received from, and supply as promptly as reasonably practicable any additional information or documentation that may
be requested by, the Antitrust Division of the U.S. Department of Justice (the
DOJ
), the Federal Trade Commission (the
FTC
) or by any other Governmental Entity in respect of such registrations, declarations and
filings or such transactions, (iv) promptly notify the other party of any communication between that party and the FTC, the DOJ or any other Governmental Entity and of any material communication received or given in connection with any
proceeding by a private party, in each case regarding the application of a Regulatory Law to any of the Transactions, (v) discuss with and permit the other party (and its counsel) to review in advance, and consider in good faith the other
partys reasonable comments in connection with, any proposed filing or communication to the FTC, the DOJ, or any other Governmental Entity or, in connection with any proceeding by a private party to any other Person, relating to any Regulatory
Law or any investigation or other Proceeding pursuant to any Regulatory Law in connection with the Transactions, (vi) not participate or agree to participate in any meeting, telephone call or discussion with the FTC, the DOJ or any other
Governmental Entity in respect of any filings, investigation or inquiry relating to any Regulatory Law or any investigation or other Proceeding pursuant to any Regulatory Law in connection with this Agreement or the Transactions unless it consults
with the other party in advance and, to
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the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate in such meeting, telephone call or discussion, (vii) furnish the other party
promptly with copies of all correspondence and communications relating to any Regulatory Law or any investigation or other Proceeding pursuant to any Regulatory Law between them and their Affiliates and their respective Representatives on the one
hand, and the FTC, the DOJ or any other Governmental Entity or members of their respective staffs on the other hand, with respect to this Agreement and the Transactions, and (viii) act in good faith and use reasonable best efforts to cooperate
with the other party in connection with any such registrations, declarations and filings and in connection with resolving any investigation or other inquiry of any such agency or other Governmental Entity under the HSR Act or any other Regulatory
Law with respect to any such registration, declaration and filing or any such transaction. Anything to the contrary in this
Section
6.5(b)
notwithstanding, materials provided to the other party or its outside counsel may be
redacted to remove references concerning the valuation of Parent and its Subsidiaries or the Company Entities or as necessary to address reasonable privilege concerns. In furtherance and not in limitation of the foregoing, the Company, Holdings, the
Fund and Parent agree not to extend any waiting period under the HSR Act or enter into any agreement with any Governmental Entity not to consummate the Transactions, except with the prior written consent of the other parties, not to be unreasonably
withheld or delayed. From and after the Execution Date, the parties shall convene once every seven (7) days to undertake an assessment of whether any filings are required of any party under the HSR Act with respect to the Transactions (a
Filing Determination
);
provided
,
that
, once the date of the Parent Stockholder Meeting is set by Parent, the parties shall no longer be required to convene for a Filing Determination so long as the date of the
then-most-recent Filing Determination is within fifty (50) days of the date of the Parent Stockholder Meeting.
(c) Notwithstanding
the foregoing, nothing in this
Section 6.5
shall require, or be construed to require, the Fund, Holdings or any of their respective Affiliates (other than the Company and its Subsidiaries) to agree to (i) sell, divest, discontinue,
hold separate or limit any assets, businesses or interests, (ii) terminate, modify, or create any ventures, (iii) terminate or modify any existing relationships, contractual rights or obligations, (iv) effectuate any other changes or
restructurings, (v) create any contractual rights or obligations or firewalls, (vi) refrain from making any investment or acquisition, or (vii) any conditions relating to, or changes or restrictions in, the operations of any such
assets, businesses or interests; provided, that this Section
6.5(c) does not apply to the Company or its Subsidiaries.
6.6
Certain Notices
. The Company
and Parent shall each promptly advise the other party of (a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the Transactions or (b) upon receiving any
communication from any Governmental Entity or third party whose consent or approval is required for consummation of the Transactions that causes such party to believe that there is a reasonable likelihood that any such consent or approval will not
be obtained or that the receipt of any such consent or approval will be materially delayed.
6.7
Public Announcements
. The initial press release with respect to this Agreement and the Transactions shall be a release mutually agreed upon by the Company and Parent. Thereafter, the Company and Parent shall consult with each other and
provide each other with the opportunity to review and comment upon any press release or other public statements with respect to the Transactions or this Agreement and shall not issue any such other press release prior to such consultation, except as
may be required by applicable Law or any listing agreement related to the trading of the shares of either party on any securities exchange, in which case the party proposing to issue such press release or make such public announcement shall use
reasonable best efforts to consult in good faith with the other party and provide the other party with an opportunity to review and comment on the content of the proposed disclosure, which comments such party shall consider in good faith, acting
reasonable, before issuing any such press release or making any such public announcement;
provided, however
, that (i) each of the Company and Parent may make press releases or public announcements concerning this Agreement or the
Transactions that consist solely of information previously disclosed in previous press releases or announcements made by Parent and/or the Company in compliance with this
Section
6.7
and (ii) Parent may make any public
statements in response to questions by the press, analysts, investors or analysts or those participating in investor calls or industry conferences, so long as such statements consist solely of information
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previously disclosed in previous press releases, public disclosures or public statements made by Parent and/or the Company in compliance with this
Section
6.7
.
6.8
Indemnification of Directors and Officers
.
(a) From and after the Effective Time, New Parent shall indemnify and hold harmless (and advance funds in respect of each), in the same manner
as provided by the Company and Parent, as applicable, immediately prior to the Execution Date, each present and former director, officer and employee of the Company or Parent, or any of their respective Subsidiaries (in all of their capacities
(collectively, the
Indemnified Parties
)), against any costs or expenses (including reasonable attorneys fees and expenses and disbursements), judgments, fines, losses, claims, damages or liabilities incurred in connection
with any Proceeding, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such Indemnified Party is or was a director, officer or employee of the Company or any of its Subsidiaries, or Parent or any
of its Subsidiaries, whether asserted or claimed prior to, at or after the Effective Time (including with respect to acts or omissions by directors or officers of Parent or its Subsidiaries in their capacities as such arising in connection with the
Transactions), and shall provide advancement of expenses to the Indemnified Parties, in all such cases to the same extent that such persons are indemnified or have the right to advancement of expenses as of the Execution Date by the Company pursuant
to the Companys Organizational Documents and indemnification agreements, if any, or by any one of the Companys Subsidiaries pursuant to such Subsidiarys Organizational Documents and indemnification agreements of any Subsidiary of
the Company, if any, in existence on the Execution Date.
(b) New Parent agrees that, until the six (6) year anniversary date of the
Effective Time, New Parents Organizational Documents shall contain provisions no less favorable with respect to indemnification of the current and former directors and officers of the Company or of Parent than are provided in the New Parent
Certificate and the New Parent Bylaws, which provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any such individuals until the expiration of the statutes of limitations
applicable to such matters or unless such amendment, modification or repeal is required by applicable Law.
(c) For six (6) years
after the Effective Time, New Parent shall maintain in effect for the benefit of the Indemnified Parties an insurance and indemnification policy with an insurer with the same or better credit rating as the current carrier for Parent that provides
coverage for acts or omissions occurring prior to the Effective Time covering each such person covered by the officers and directors liability insurance policy of the Company on terms with respect to coverage and in amounts no less
favorable in the aggregate than those of the Companys directors and officers insurance policy in effect on the Execution Date;
provided, however
, that New Parent shall not be required to pay an annual premium for the D&O
Insurance in excess of 300% of the annual premium currently paid by Parent for such coverage; and
provided
,
further
,
however
, that if any annual premium for such insurance coverage exceeds 300% of such annual premium, New Parent
shall obtain as much coverage as reasonably practicable for a cost not exceeding such amount. New Parents obligations under this
Section
6.8(c)
may be satisfied by New Parent, or, with the approval (such approval not
to be unreasonably withheld) of the Company, Parent, purchasing a tail policy from an insurer with substantially the same or better credit rating as the current carrier for the Companys existing directors and officers
insurance policy, which (i) has an effective term of six (6) years from the Effective Time, (ii) covers each person covered by the Companys directors and officers insurance policy in effect on the Execution Date or
at the Effective Time for actions and omissions occurring prior to the Effective Time, and (iii) contains terms that are no less favorable in the aggregate than those of the Companys directors and officers insurance policy in
effect on the Execution Date. If such tail policy has been obtained by the Company prior to the Effective Time, New Parent shall cause such policy to be maintained in full force and effect, for its full term, and cause all obligations
thereunder to be honored by New Parent.
(d) The provisions of this
Section
6.8,
are (i) intended to be for
the benefit of, and will be enforceable by, each Indemnified Party and (ii) in addition to, and not in substitution for, any other rights to indemnification
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or contribution that any such Person may have by Contract or otherwise. New Parent shall pay all reasonable
out-of-pocket
expenses, including reasonable attorneys fees, that may be incurred by any Indemnified Party in enforcing the indemnity obligations provided in this
Section
6.8
unless it is ultimately determined that such Indemnified Party is not entitled to such indemnity.
(e) For a period of six (6) years after the Effective Time, if New Parent, or any of its successors or assigns, (i) consolidates
with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each
case, proper provision shall be made so that the successors and assigns of New Parent honor the indemnification obligations set forth in this
Section
6.8
.
6.9
Employee Matters
.
(a) For a period of one (1) year following the Closing Date, New Parent shall or shall cause its applicable Subsidiaries to provide
employees of the Company or its Subsidiaries who are employed as of the Effective Time and who continue in the employ of New Parent or any of its Subsidiaries following the Closing Date ( the
Continuing Employees
) with the
following for so long as they remain so employed compensation and benefits that are commensurate with the compensation and benefits provided to similarly situated employees of Parent.
(b) From and after the Closing, New Parent shall give each Continuing Employee full credit for all purposes under any employee benefit plans
sponsored, maintained or contributed to by New Parent or any of its Affiliates for such Continuing Employees service with any Company Entity and with any predecessor employer to the same extent recognized prior to the Closing under a
corresponding Company Benefit Plan;
provided
that the foregoing service recognition shall not apply (i) to the extent such credit would result in the duplication of benefits for the same period of service, (ii) for purposes of
benefit accrual under any defined benefit pension plan or retiree welfare plan, or (iii) for purposes of any benefit plan that is frozen or provides grandfathered benefits.
(c) Between the date hereof and the Closing Date, if Parent advises the Company in writing at least ten (10) Business Days prior to the
Closing Date that Parent desires to take assignment of any agreement on Section 6.9(c) of the Company Disclosure Letter (which agreements constitute the only Company Benefit Plans providing for any actual or contingent severance liability,
other than the New Severance Arrangements (as defined below)), Holdings shall take all actions necessary to assign to the Company such agreement prior to the Effective Time, such that the Company shall be able to enforce the restrictive covenants
thereunder (it being understood that such assignment shall in no manner result in the Company assuming any obligations in respect of Holdings incentive programs or in respect of any compensatory arrangements other than the potential severance
payments referenced in such agreements). Notwithstanding anything to the contrary in this Agreement, the Company shall be entitled to adopt severance arrangements for employees of the Company that provide for potential severance obligations of the
Company to such employees (the
New Severance Arrangements
), provided that in no event shall the potential costs (including payroll Taxes) of the New Severance Arrangements exceed $3,500,000 in the aggregate.
(d) Without limiting
Section
11.6
, nothing in this Agreement shall constitute an amendment to, or be construed as
amending, any employee benefit plan sponsored, maintained or contributed to by any Person. The provisions of this
Section
6.9
are for the sole benefit of the parties hereto and nothing herein, expressed or implied, is
intended or will be construed to confer upon or give to any Person (including, for the avoidance of doubt, any Continuing Employee or other current or former employee (or spouse or dependent thereof) of Parent, New Parent, the Company or any of
their respective Subsidiaries, other than the parties hereto and their respective permitted successors and assigns), any legal or equitable or other rights or remedies (including with respect to the matters provided for in this
Section
6.9
) under or by reason of any provision of this Agreement. Nothing in this Agreement shall give any employee or other service provider of Parent, New Parent, the Company or any of their respective Subsidiaries or
any other Person any right to continued employment or service.
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6.10
Section 16(b) Matters
. Prior to
the Effective Time, Parent shall take all such steps as may be required to cause any disposition of equity securities of Parent (including derivative securities with respect there) or acquisition of equity securities of New Parent (including
derivative securities with respect thereto) resulting from the Transactions by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent or who will become subject to such reporting
requirements with respect to New Parent to be exempt under Rule
16b-3
under the Exchange Act in accordance with the terms and conditions set forth in
no-action
letters
issued by the SEC in similar transactions.
6.11
Takeover Laws
. If any Takeover Laws or any
anti-takeover provision or restriction on ownership in the Organizational Documents of Parent is or may become applicable to the Transactions, Parent and the Parent Board shall grant such approvals and take all such actions as are necessary or
advisable so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise act to eliminate or minimize the effects of such statute, regulation or provision in Parents
Organizational Documents on such transactions.
6.12
Exchange Listing
. Parent shall use its
reasonable best efforts to cause the New Parent Common Stock to be issued to Holdings and Parent stockholders pursuant to the Mergers to be approved for listing on the New York Stock Exchange (the
NYSE
), subject to official notice
of issuance, prior to the Effective Time.
6.13
Tax Matters
.
(a) Each of Parent, New Parent, the Company and Holdings (i) shall use its reasonable best efforts to cause the Mergers to together
qualify, and shall not take or knowingly fail to take (and shall cause any Subsidiaries and Affiliates of such party not to take or knowingly fail to take) any action that could reasonably be expected to prevent or impede the Mergers from together
qualifying, as a transaction described in Section 351 of the Code and (ii) shall use its reasonable best efforts to cause the Parent Merger to qualify, and shall not take or knowingly fail to take (and shall cause any Subsidiaries or
Affiliates of such party not to take or knowingly fail to take) any action that could reasonably be expected to prevent or impede the Parent Merger from qualifying, as a reorganization within the meaning of Section 368(a) of the
Code.
(b) Each of Parent, the Company and Holdings shall use its reasonable best efforts and shall cooperate with one another to obtain
the opinions of counsel referred to in
Sections 7.2(d)
and
7.3(d)
. Such opinions shall be based, in part, on (i) a duly executed certificate substantially in the form attached hereto as Exhibit C1 (the
Company Tax
Certificate
), (ii) a duly executed certificate substantially in the form attached hereto as Exhibit C2 (the
Holdings Tax Certificate
), (iii) a duly executed certificate substantially in the form attached hereto as
Exhibit C3 (the
Parent 351 Tax Certificate
), (iv) a duly executed certificate substantially in the form attached hereto as Exhibit C4 (the
Parent 368 Tax Certificate
), and (v) a duly executed certificate
substantially in the form attached hereto as Exhibit C5 (the
New
Parent 368 Tax Certificate
), in each case, dated as of the Closing Date (and, if requested, dated as of the date on which the Registration Statement is
declared effective by the SEC). Parent, New Parent, the Company and Holdings shall provide such other information as reasonably requested by each of Company Tax Counsel and Parent Tax Counsel for purposes of rendering the opinions described in
Sections 7.2(d)
and
7.3(d)
, as applicable. The Company (x) represents that it has been advised by Company Tax Counsel that, absent a relevant change in law prior to the Closing, the forms of tax certificates attached hereto as
Exhibit C1, Exhibit C2, and Exhibit C3, if duly executed and delivered to Company Tax Counsel immediately prior to the Closing, would be sufficient to enable Company Tax Counsel to deliver the opinion referred to in
Section
7.2(d)
and (y) acknowledges and agrees that nothing contained in such forms of tax certificates, if duly executed and delivered to Company Tax Counsel immediately prior to the Closing, would cause the opinion
referred to in
Section
7.2(d)
to fail to be reasonably satisfactory to the Company. Parent (x) represents that it has been advised by Parent Tax Counsel that, absent a relevant change in law prior to the Closing, the
forms of tax certificates attached hereto as Exhibit C1, Exhibit C2, Exhibit C3, Exhibit C4 and Exhibit C5, if duly executed and delivered to Parent Tax Counsel immediately prior to the Closing, would be sufficient to enable Parent Tax Counsel to
deliver the opinion referred to in
Section
7.3(d)
and (y) acknowledges
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and agrees that nothing contained in such forms of tax certificates, if duly executed and delivered to Parent Tax Counsel immediately prior to the Closing, would cause the opinion referred to in
Section
7.3(d)
to fail to be reasonably satisfactory to Parent.
(c) At Closing, Holdings shall deliver to
Parent a certification of
non-foreign
status duly executed by Holdings substantially in the form of the applicable sample certification set forth in Treasury Regulations
Section
1.1445-2(b)(2)(iv),
to the effect that Holdings is not a foreign person.
6.14
Financing
Cooperation
.
(a) The Company shall, and shall cause the Companys Subsidiaries and the Company Representatives to, in each
case, use their reasonable best efforts to provide to Parent all customary cooperation reasonably requested by Parent in connection with (x) any equity capital markets financing of Parent, and/or (y) in connection with any amendments to,
or consent solicitations or exchange offers with respect to, Parents or the Companys existing Indebtedness (any such transaction described in clause (x) or (y), a
Financing
);
provided
,
however
, that anything in this
Section
6.14
to the contrary notwithstanding, (1) in no event shall the reasonable best efforts of the Company, its Subsidiaries or Company Representatives
be deemed or construed to require such Persons to, and such Persons shall not be required, to provide such cooperation to the extent it would interfere unreasonably with the business or operations of the Company or any of the Companys
Subsidiaries, (2) neither the Companys board of directors nor any of the Companys Subsidiaries boards of directors (or equivalent bodies) shall be required to approve or adopt any Financing or agreements related thereto (or
any alternative financing) prior to the Effective Time, and (3) neither the Company nor any of the Companys Subsidiaries shall be required to execute or deliver any agreements, certificates or instruments in connection with any Financing
(or any alternative financing) (other than customary representation letters and authorization letters) that is not contingent on the Effective Time.
(b) The Company hereby consents to the use of its and the Companys Subsidiaries logos in connection with the Financing so long as
such logos are used solely in a manner that is not intended or reasonably likely to harm, disparage or otherwise adversely affect the Company or any of the Companys Subsidiaries or the reputation or goodwill of the Company or any of the
Companys Subsidiaries.
(c) Parent shall, promptly upon request by the Company, reimburse the Company for all documented and
reasonable
out-of-pocket
costs and expenses incurred by the Company or any of the Companys Subsidiaries in connection with such cooperation contemplated by this
Section
6.14
. Parent shall indemnify and hold harmless the Company, the Companys Subsidiaries and the Company Representatives from and against any and all liabilities, losses, damages, claims, costs, expenses,
interest, awards, judgments and penalties suffered or incurred by them in connection with the Financing (including any action taken in accordance with this
Section
6.14
) and any information utilized in connection therewith
(other than historical information provided in writing by the Company or the Companys Subsidiaries specifically for use in connection therewith), in each case, except to the extent any of the foregoing was suffered or incurred as a result of
bad faith, gross negligence, willful misconduct or material breach of this
Section
6.14
by the Company, any of the Companys Subsidiaries or the Company Representatives.
6.15
Treatment of Certain Indebtedness
. The Company shall, and shall cause each of its
Subsidiaries to, after the receipt of a request from Parent to do so, deliver lien terminations and instruments of discharge (including a customary payoff letter) with respect to the Existing Company Credit Agreement to be delivered at the Closing
and give any other notices requested by Parent in order to facilitate repayment of the Existing Company Credit Agreement. In addition, the Company will use reasonable best efforts to assist Parent, at Parents request, in facilitating the
termination, amendment, or assumption of any Derivative Transactions of the Company or any Subsidiary thereof in connection with the consummation of the Transactions.
6.16
Stockholder Litigation
.
Each party shall promptly notify the other party in writing
of any litigation related to this Agreement, the Mergers or the other Transactions that is brought against such party, its
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Subsidiaries and/or any of their respective directors and shall keep the other party informed on a reasonably current basis with respect to the status thereof. Parent shall give (i) the
Company the opportunity to participate, at its expense and subject to a customary joint defense agreement, in the defense or settlement of any such litigation, (ii) afford the Company a reasonable opportunity to review and comment on filings
and responses related thereto, which comments Parent shall consider and implement in good faith, acting reasonably and (iii) keep the Company apprised of, and consult with the Company with respect to, proposed strategy and any significant
decisions related thereto, and Parent shall not settle or offer to settle any such litigation without the prior written consent of the Company (not to be unreasonably withheld, conditioned or delayed).
6.17
Parent Covenants.
Parent shall use its reasonable best efforts to perform and comply with
its obligations under, to enforce its rights under, and to consummate or complete the transactions and matters contemplated by the Section 6.17 Agreements.
ARTICLE VII
CONDITIONS PRECEDENT
7.1
Conditions to Each Party
s Obligations to Effect the Transactions
. The respective obligations of each party to effect the Transactions are subject to the satisfaction or waiver (to the extent
permitted by Law) at or prior to the Closing of the following conditions:
(a)
Stockholder Approval
. The Parent Stockholder Approval
shall have been obtained.
(b)
Approvals
. Any waiting periods applicable to the Transactions under the HSR Act shall have been
terminated or expired.
(c)
No Injunctions or Restraints
. No Governmental Entity of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any decision, injunction, decree, ruling, Law or order (whether temporary, preliminary or permanent) that enjoins or otherwise prohibits or makes illegal the consummation of any of the Transactions.
(d)
Effectiveness of the Registration Statement
. The Registration Statement shall have been declared effective by the SEC under the
Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and be in effect and no Proceeding for that purpose shall be pending.
(e)
Exchange Listing
. The New Parent Common Stock to be issued in connection with the Transactions shall have been approved for listing
on the NYSE, subject to official notice of issuance.
7.2
Additional Conditions to the
Company
s Obligations
. The obligations of the Company to effect the Transactions are also subject to the satisfaction or waiver (to the extent permitted by Law) at or prior to the Closing of the following
conditions:
(a)
Representations and Warranties
. The representations and warranties of the Parent Parties (i) in this Agreement
(other than those described in clauses (ii), (iii) and (iv) below) shall be true and correct (disregarding all qualifications or limitations as to materiality or Parent Material Adverse Effect) in all respects as of the
Execution Date and as of the Closing Date as if remade on the Closing Date (except for representations and warranties made as of a specific date, which shall be true and correct in all respects as of such specific date), except where the aggregate
failure of such representations and warranties to be so true and correct has not had, and would not reasonably be expected to have a Parent Material Adverse Effect; (ii) in
Section
3.5
shall be true and correct in all
respects as of the Execution Date and as of the Closing Date as if remade on the Closing Date (except for representations and warranties made as of a specific date, which shall be true and correct other than in de minimis respects as of such
specific date) other than in de minimis respects; (iii) in
Sections
3.1
(first sentence
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only),
3.2
,
3.3(a)
,
3.19
,
3.21
and
3.22
shall be true and correct in all material respects as of the Execution Date and as of the Closing Date as though remade
on the Closing Date; and (iv) in
Section
3.8(c)
shall be true and correct in all respects as of the Execution Date and as of the Closing Date as though remade on the Closing Date.
(b)
Agreements and Covenants
. The Parent Parties shall have performed, or complied with, in all material respects with the agreements
and covenants required by this Agreement to be performed or complied with by such party on or prior to the Closing.
(c)
Compliance
Certificate
. The Company shall have received a certificate signed by a senior executive officer of Parent dated the Closing Date confirming that the conditions set forth in
Sections
7.2(a)
and
7.2(b)
have been
satisfied.
(d)
Tax Opinion
. The Company shall have received a written opinion from Vinson & Elkins LLP or KPMG LLP
(
Company Tax Counsel
), in form and substance reasonably satisfactory to the Company, dated as of the Closing Date, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such
opinion, the Mergers should together qualify as a transaction described in Section 351 of the Code. In rendering the opinion described in this
Section
6.2(d)
, Company Tax Counsel may rely upon the Company Tax
Certificate, the Holdings Tax Certificate, the Parent 351 Tax Certificate, and such other information requested by and provided to it by the Company, Holdings, New Parent and/or Parent for purposes of rendering such opinion.
(e)
Stockholders Agreement
. New Parent shall have delivered to the Company a duly executed copy of the Stockholders Agreement.
7.3
Additional Conditions to Parent
s Obligations
. The
obligations of Parent to effect the Transactions are also subject to the satisfaction or waiver (to the extent permitted by Law) at or prior to the Closing of the following conditions:
(a)
Representations and Warranties
. The representations and warranties of the Company (i) in this Agreement (other than those
described in clauses (ii), (iii) and (iv) below) shall be true and correct (disregarding all qualifications or limitations as to materiality or Company Material Adverse Effect) in all respects as of the Execution Date
and as of the Closing Date as if remade on the Closing Date (except for representations and warranties made as of a specific date, which shall be true and correct in all respects as of such specific date), except where the aggregate failure of such
representations and warranties to be so true and correct has not had, and would not reasonably be expected to have a Company Material Adverse Effect; (ii) in
Section
4.5
shall be true and correct in all respects as of
the Execution Date and as of the Closing Date as if remade on the Closing Date (except for representations and warranties made as of a specific date, which shall be true and correct other than in de minimis respects as of such specific date) other
than in de minimis respects; (iii) in
Sections 4.1
(first sentence only),
4.2
,
4.3(a)
,
4.19
and
4.20
shall be true and correct in all material respects as of the Execution Date and as of the Closing Date as
though remade on the Closing Date; and (iv) in
Sections 4.8(c)
shall be true and correct in all respects as of the Execution Date and as of the Closing Date as though remade on the Closing Date.
(b)
Agreements and Covenants
. The Company shall have performed, or complied with, in all material respects with the agreements and
covenants required by this Agreement to be performed or complied with by such party on or prior to the Closing.
(c)
Compliance
Certificate
. Parent shall have received a certificate signed by a senior executive of the Company dated the Closing Date confirming that the conditions set forth in
Sections
7.3(a)
and
7.3(b)
have been satisfied.
(d)
Tax Opinion
. Parent shall have received a written opinion from Wachtell, Lipton, Rosen & Katz (
Parent Tax
Counsel
), in form and substance reasonably satisfactory to Parent, dated as of the Closing Date, to
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the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the Mergers should together qualify as a transaction described in
Section 351 of the Code and/or the Parent Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. In rendering the opinion described in this
Section
7.3(d)
, Parent Tax
Counsel may rely upon the Company Tax Certificate, the Holdings Tax Certificate, the Parent 351 Tax Certificate, the New Parent 368 Tax Certificate, the Parent 368 Tax Certificate, and such other information requested by and provided to it by the
Company, Holdings, New Parent and/or Parent for purposes of rendering such opinion.
(e)
Stockholders Agreement
. Holdings and the
Fund shall have delivered to Parent duly executed copies of the Stockholders Agreement.
ARTICLE VIII
TERMINATION AND EXPENSES
8.1
Termination
. This Agreement may be terminated and the Transactions may be abandoned at any time prior to the Closing, whether before or after the receipt of the Parent Stockholder Approval:
(a) by mutual written consent of the Company and Parent in each case duly authorized by their respective boards of directors;
(b) by either the Company or Parent:
(i) if any Governmental Entity of competent jurisdiction shall have issued any order, decree, ruling or injunction or taken any
other action permanently restraining, enjoining or otherwise prohibiting the consummation of the Transactions and such order, decree, ruling or injunction or other action shall have become final and nonappealable, or if there shall be adopted
following the date of execution of this Agreement any Law that makes consummation of the Transactions illegal or otherwise prohibited;
provided,
however
, that the party seeking to terminate this Agreement pursuant to this
Section
8.1(b)(
i
)
has fulfilled its obligations under
Section
6.5
; or
(ii) if the Transactions shall not have been consummated on or before 5:00 p.m., Houston time, on June 4, 2018 (such date
the
End Date
);
provided, however
, that the right to terminate this Agreement under this
Section
8.1(b)(ii)
shall not be available to any party whose failure to fulfill any of its covenants or
agreements under this Agreement has been the principal cause of, or resulted in, the failure of the Transactions to occur on or before the End Date;
(c) by Parent if any of the representations or warranties of the Company was or becomes inaccurate or any breach or breaches by the Company of
any covenant or other agreement of such parties contained in this Agreement occurs and, (i) as a result of any such breach or inaccuracies, the condition set forth in
Section
7.3(a)
or
7.3(b)
, as applicable,
would not then be capable of being satisfied, and (ii) any such breaches or inaccuracies are not curable, or, if curable have not been cured prior to the earlier of (A) the Business Day prior to the End Date or (B) the date that is
sixty (60) days after the date that notice of such breach or inaccuracy is provided to the Company by Parent;
provided,
however
, that Parent shall not have the foregoing right to terminate if, at the time of such termination,
Parent is in material breach of any of its representations, warranties or covenants contained herein such as would result in any of the closing conditions set forth in
Section
7.2(a)
or
7.2(b)
not being satisfied;
(d) by the Company if any of the representations or warranties of Parent was or becomes inaccurate or any breach or breaches by Parent of
any covenant or other agreement of the parties contained in this Agreement occurs and, (i) as a result of any such breach or inaccuracies, the condition set forth in
Section
7.2(a)
or
7.2(b)
, as applicable,
would not then be capable of being satisfied, and (ii) any such breaches or inaccuracies are not curable, or, if curable have not been cured prior to the earlier of (A) the Business Day prior to the End Date or
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(B) the date that is sixty (60) days after the date that notice of such breach or inaccuracy is provided to Parent by the Company;
provided,
however
, that the Company
shall not have the foregoing right to terminate if, at the time of such termination, the Company is in material breach of any of its representations, warranties and covenants contained herein such as would result in any of the closing conditions set
forth in
Section
7.3(a)
or
7.3(b)
not being satisfied;
(e) by either the Company or Parent if the Parent
Stockholder Meeting (or any postponement or adjournment thereof) shall have concluded and the Parent Stockholder Approval shall not have been obtained;
(f) by Parent prior to receipt of the Parent Shareholder Approval in order to concurrently enter into a definitive agreement relating to a
Parent Superior Proposal if Parent has complied with
Section
6.1(d)
and subject to compliance with
Section
8.3(a)
; or
(g) by the Company if
(i) a Parent Recommendation Change has occurred (whether or not permitted by
Section
6.1
); or
(ii) a Parent Entity or its Representative shall have committed a material Willful Breach of its obligations under
Section
6.1
, other than in the case where (A) such material Willful Breach is a result of an isolated action by a Representative of Parent (other than any officer, director or employee of any Parent Entity) and
(B) Parent promptly remedied such material Willful Breach upon discovery thereof by Parent or any officer, director or employee of any Parent Entity.
8.2
Notice of Termination; Effect of Termination
.
(a) A terminating party shall provide notice of termination to the other party specifying with particularity the reason for such termination,
and any such termination in accordance with
Section
8.1
shall be effective immediately upon delivery of such written notice to the other party.
(b) In the event of termination of this Agreement by any party as provided in
Section
8.1
, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part of any party, except for this
Section
8.2
, the first sentence of
Section
6.4(b)
,
Section
8.3
,
Section
8.4
, and
Article
XI,
which shall remain in full force and effect;
provided,
however
, that, notwithstanding anything to the contrary
herein, no such termination shall relieve any party from liability for any damages resulting from or arising out of fraud or Willful Breach of this Agreement.
8.3
Termination Fee
.
(a) If this Agreement is terminated by the Company pursuant to (i)
Section 8.1(g)
or (ii)
Section 8.1(d)
due to a
Willful Breach of
Section
6.3
, Parent will pay to the Company the Termination Fee no later than two Business Days after the termination of this Agreement.
(b) If this Agreement is terminated by (i)(x) either the Company or Parent pursuant to
Section
8.1(e)
or
(y) the Company pursuant to
Section
8.1(d)
and (ii) a Parent Alternative Proposal is publicly proposed or publicly disclosed and not publicly withdrawn at least three (3) business days prior to the date of
the Parent Stockholder Meeting in the case of termination pursuant to
Section
8.1(e)
or a Parent Alternative Proposal shall have become known to the Parent Board in the case of a termination pursuant to
Section
8.1(d)
, and (iii) Parent enters into a definitive agreement with respect to, or consummates, a Parent Alternative Proposal within twelve (12) months after the date this Agreement is terminated, then Parent
will pay to the Company the Termination Fee (net of any Company Expenses previously paid) upon the occurrence of the earlier of such events. For purposes of clause (iii) of this
Section
8.3(b)
, any reference in the
definition of Parent Alternative Proposal to 15% shall be deemed to be a reference to 50%.
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(c) If the Company or Parent terminates this Agreement pursuant to Section 8.1(e), then
Parent shall pay the Company the Company Expenses no later than two Business Days after notice of termination of this Agreement.
(d) If
this Agreement is terminated by Parent pursuant to
Section
8.1(f)
(Parent Superior Proposal), Parent will pay to the Company the Termination Fee prior to or contemporaneously with the termination of this Agreement.
(e) Any payment of the Termination Fee or the Company Expenses will be made in cash by wire transfer of same day funds to an account
designated in writing by the recipient of such payment.
(f) Each of the parties acknowledges that the provisions of this
Section
8.3
are an integral part of the transactions contemplated hereby and that, without these agreements, the Company would not enter into this Agreement. Accordingly, if Parent fails to promptly pay the amount due
pursuant to this
Section
8.3
and if the Company commences a suit that results in a judgment against Parent for the amount set forth in this
Section
8.3
or a portion thereof, Parent shall pay the
Company (i) all fees, costs and expenses of enforcement (including attorneys fees as well as expenses incurred in connection with any such action) and (ii) interest on such amount or such portion thereof at the prime lending rate as
published in the
Wall Street Journal
, in effect on the date such payment is required to be made. The amounts payable by Parent pursuant to
Section
8.3(a)
constitute liquidated damages and not a penalty, and, other
than in the case of fraud or Willful Breach, shall be, together with any amounts payable pursuant to this
Section
8.3(f)
, the sole monetary remedy for the Company in the event of a termination of this Agreement where the
Termination Fee is payable by Parent and the Termination Fee is actually paid to the Company.
(g) As used herein,
Termination
Fee
means a cash amount equal to $22,500,000.
(h) As used herein, Company Expenses means a cash amount equal to
$4,000,000 to be paid in respect of the Companys costs and expenses in connection with the negotiation, execution and performance of this Agreement and the Transactions.
(i) In no event shall the Company be entitled to payment of the Termination Fee and payment of Company Expenses more than once each in
connection with this Agreement.
8.4
Expenses and Other Payments
. Except as otherwise
provided in this Agreement, including in this
Section
8.4
, each party shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Transactions, whether or
not the Transactions shall be consummated, except with respect to (i) costs and expenses of printing and mailing the Proxy Statement, (ii) all filing and other fees paid to the SEC in connection with the Transactions and (iii) all
fees paid in respect of any filing under the HSR Act or other Regulatory Law (which shall include any such fees payable by the ultimate parent entity of the Company with respect to the Mergers), which in each case shall be borne equally by Parent
and the Company.
ARTICLE IX
DEFINITIONS
9.1
Definitions
. For purposes of this Agreement, the following terms, when used in this Agreement with initial capital letters, shall have the respective meanings set forth in this Agreement:
Affiliate
means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, a specified Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management or policies of such other
Person, whether through the ownership of voting securities, by Contract or otherwise.
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Agreement
means this Agreement, as it may be amended from time to time.
Benefit Plan
means any employee benefit plan (as defined in Section 3(3) of ERISA), whether or not
subject to ERISA, and each other plan, policy, agreement or arrangement (whether written or oral) relating to stock options, stock purchases, stock awards, deferred compensation, bonus, severance, retention, employment, change of control,
retirement, pension, vacation, fringe benefits, supplemental benefits or other employee benefits.
Business
means the
business of exploring and developing oil and gas reserves from the Denver-Julesburg Basin as owned, operated or conducted directly or indirectly by the Company and/or any Affiliate of the Controlling Member that is managed by the management team of
Holdings and/or the Company.
Business Day
means any day on which the principal offices of the SEC in Washington, D.C.
are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized to close in the City of Denver in the United States of America.
Closing
has the meaning set forth in
Section
1.2
.
Closing Date
has the meaning set forth in
Section
1.2
.
Code
has the meaning set forth in the recitals.
Company
has the meaning set forth in the preamble hereto.
Company Benefit Plans
means each Benefit Plan sponsored, maintained or contributed to by the Company or its Subsidiaries
for the benefit of current or former employees of the Company or its Subsidiaries, or with respect to which the Company or any of its Subsidiaries has any liability.
Company Board
has the meaning set forth in the recitals.
Company Disclosure Letter
has the meaning set forth in
Article
IV
.
Company Entities
means the Company and its Subsidiaries, with each such entity a
Company Entity
.
Company Financial Statements
means (i) the unaudited consolidated balance sheets of the Company Entities as of
December 31, 2015 and 2016 and the unaudited consolidated statement of operations, members equity and cash flows of the Company for the years ended December 31, 2015 and 2016, and the related notes thereto and (ii) the unaudited
consolidated balance sheets of the Company Entities as of September 30, 2017 and the unaudited consolidated statement of operations, members equity and cash flows of the Company for the nine (9) months ended September 30, 2017.
Company Insurance Policies
has the meaning set forth in
Section
4.17
.
Company LLC Agreement
means the Amended and Restated Operating Agreement of the Company, dated as of January 22, 2015.
Company LLC Interest
means the Units in the Company, as such term is defined in the Company LLC Agreement.
Company Material Adverse Effect
means any Event that has a material adverse effect on the business, financial condition,
assets or results of operations of the Company Entities, taken as a whole;
provided
, that any effect to the extent resulting from any of the following Events shall not be considered when determining whether
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a Company Material Adverse Effect shall have occurred: (i) any change in general economic, political, business or other capital market conditions (including prevailing interest rates and any
effects on the economy arising as a result of acts of terrorism); (ii) any change or developments in prices for oil, natural gas or other commodities prices or for the Companys raw material inputs and end products; (iii) any change in
actual or relative commodity prices or any other change affecting the oil and gas exploration and production industry generally; (iv) any change in accounting requirements or principles imposed by GAAP or any change in Law after the Execution
Date; (v) any change resulting from the announcement of this Agreement or the announcement of the Transactions; (vi) any change resulting from compliance by the Company with the terms of this Agreement; (vii) any hurricane, tornado,
flood, earthquake or other force majeure event or other natural disaster; (viii) any act of war (whether or not declared), armed hostilities or terrorism; or (ix) the failure to meet any projections, guidance, budgets, forecasts or
estimates,
provided
that, in the case of this clause (ix) the underlying causes may be considered; except, in the case of each of clause (i), (ii), (iii), (vii) or (viii) to the extent the Company Entities, taken as a whole, are
disproportionately affected by such Event(s), relative to other similarly sized and situated companies in the oil and gas exploration and production industry, and then only to the extent of such disproportion.
Company Material Contracts
has the meaning set forth in
Section
4.12(b)
.
Company Related Person
has the meaning set forth in
Section
4.19
.
Company Reserve Engineer
has the meaning set forth in
Section
4.9(b)(i)
.
Company Reserve Reports
has the meaning set forth in
Section
4.9(b)(i)
.
Company Tax Certificate
has the meaning set forth in
Section
6.13(b)
.
Company Tax Counsel
has the meaning set forth in
Section
7.2(d)
.
Confidentiality Agreement
has the meaning set forth in
Section
6.4(b)
.
Contract
means any agreement, contract, lease, license, note, evidence of Indebtedness, mortgage, security agreement,
understanding, instrument or other legally binding arrangement; provided, however, Oil and Gas Leases shall not constitute a Contract.
Controlled Group Liability
means any and all liabilities (a) under Title IV of ERISA, (b) under Section 302
of ERISA, (c) under Sections 412, 430 or 4971 of the Code, or (d) as a result of failure to comply with the continuation coverage requirements of Section 601
et seq
. of ERISA and Section 4980B of the Code.
Creditors Rights
has the meaning set forth in
Section
3.2(b)
.
D&O Insurance
means the directors and officers insurance and indemnification policy with an insurance and
indemnification policy that provides coverage for events occurring prior to the Effective Time.
Delaware LP Act
means
the Delaware Revised Uniform Limited Partnership Act, as amended.
Derivative Transactions
means any swap transaction,
option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophe
Events, weather-related Events, credit-related Events or conditions or any indexes, or any other similar transaction (including any option with respect to any of these transactions) or combination of any of these transactions, including
collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such
transactions.
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DGCL
means the General Corporation Law of the State of Delaware, as
amended.
DLLCA
means the Limited Liability Company Act of the State of Delaware, as amended.
DOJ
has the meaning set forth in
Section
6.5(b)
.
Effective Time
has the meaning set forth in
Section
1.1(a)(ii)
.
Encumbrances
means liens, pledges, charges, hypothecations, mortgages, deeds of trust, security interests or similar
burdens or encumbrances.
End Date
has the meaning set forth in
Section
8.1(b)(ii)
.
Environmental Laws
means all Laws issued, promulgated or entered into, by or with any Governmental Entity, relating to
Hazardous Substances, natural resources, protection of the environment, or occupational health or workplace safety (to the extent relating to exposure to Hazardous Substances).
Environmental Permits
means all Permits required under applicable Environmental Laws.
Equity Interest
means any share, capital stock, partnership, limited liability company, membership, member or similar
interest in any Person, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable thereto or therefor.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
ERISA Affiliate
means any Person under common control with another Person within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
Event
means any event, change, development, effect,
condition, circumstance, occurrence or state of facts, or any combination of the foregoing.
Exchange Act
means the
Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Exchange Agent
has
the meaning set forth in
Section
2.2(a)
.
Exchange Fund
has the meaning set forth in
Section
2.2(a)
.
Execution Date
has the meaning set forth in the preamble hereto.
Existing Company Credit Agreement
means that certain Credit Agreement, dated as of November 18, 2016, among Fifth
Creek Energy Operating Company, LLC, as Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and an Issuing Bank, and Lender Party, BMO Capital Markets Corp. as Joint Lead Arrangers and Joint Bookrunners with JPMorgan Chase Bank, N.A., and
BMO Harris Bank N.A., as Syndication Agent for the Lenders.
Existing Parent Credit Facility
means that certain Third
Amended and Restated Credit Agreement, dated as of March 16, 2010, by among Bill Barrett Corporation, the financial institutions from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent, as amended, restated,
supplemented or otherwise modified.
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Existing Parent Notes Indentures
means that certain (i) Indenture,
dated as of July 8, 2009, and among Parent, the Guarantors from time to time party thereto, and Deutsche Bank Trust Company Americas, as trustee, as amended, supplemented or modified prior to the Execution Date, including by that certain Fourth
Supplemental Indenture, dated as of March 12, 2012, and (ii) Indenture, dated as of April 28, 2017, among Parent, the Guarantors from time to time party thereto, and Deutsche Bank Trust Company Americas, as trustee, as amended,
supplemented or modified prior to the Execution Date.
Financing
has the meaning set forth in
Section
6.14(a)
.
FTC
has the meaning set forth in
Section
6.5(b)
.
GAAP
means generally accepted accounting principles in the United States of America.
Governmental Entity
means any (a) nation, region, state, province, county, city, town, village, district or other
jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-Governmental Entity of any nature (including any governmental agency, branch, department, court or tribunal, or other entities), (d)
multinational organization or body or (e) body entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature.
Hazardous Substances
means all substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in the National
Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. § 300.5, or defined as such by, or regulated as such under, any Environmental Law, including any regulated pollutant or contaminant (including any constituent, raw material,
product or
by-product
thereof), petroleum or natural gas hydrocarbons or any liquid or fraction thereof, asbestos or asbestos-containing material, polychlorinated biphenyls, lead paint, any hazardous,
industrial or solid waste, and any toxic, radioactive, infectious or hazardous substance, material or agent.
Holdings Tax
Certificate
has the meaning set forth in Section 6.13(b).
HSR Act
means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
Hydrocarbons
means crude
oil, natural gas, casinghead gas, condensate, drip gas and gasoline and natural gas liquids and all other liquids and gaseous hydrocarbons and all products,
by-products
and other substances (including
minerals) produced, derived, refined or separated therefrom or otherwise associated therewith.
Indebtedness
means all
indebtedness, liabilities and obligations, now existing or hereafter arising, for money borrowed by a Person, or any contingent liability for or guaranty by a Person of any obligation of any other Person (including the pledge of any collateral or
grant of any security interest by a Person in any property as security for any such liability, guaranty or obligation) whether or not any of the foregoing is evidenced by any note, indenture, guaranty or agreement, but excluding all trade payables
incurred in the ordinary course of business.
Indemnified Parties
has the meaning set forth in
Section
6.8(a)
.
Intellectual Property
means patents, trademarks, copyrights, and trade
secrets.
IRS
means the United States Internal Revenue Service.
Knowledge
of a party means the actual knowledge of (a) the persons listed in Section 9.1(a) of the Parent
Disclosure Letter with respect to Parent or its Subsidiaries, or (b) the persons listed in Section 9.1(a) of the Company Disclosure Letter with respect to any Company Entity.
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Law
means any applicable federal, state, local, foreign or international
law, statute, code, ordinance, order, rule, rule of common law, regulation, judgment, decree, injunction or treaty.
Mergers
has the meaning set forth in the recitals hereto.
Multiemployer Plan
means any multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
New Parent
has the meaning set forth in the preamble hereto.
New Parent 368 Tax Certificate
has the meaning set forth in Section 6.13(b).
New Parent Board
has the meaning set forth in the recitals.
New Parent Bylaws
has the meaning set forth in
Section
1.3(a)
.
New Parent Certificate
has the meaning set forth in
Section
1.3(a)
.
New Parent Common Stock
means the common stock, par value $0.001 per share, of New Parent.
New Parent Restricted Stock Award
has the meaning set forth in
Section
2.5(b)
.
New Parent RSU Award
has the meaning set forth in
Section
2.5(c)
.
New Parent Stock Option
has the meaning set forth in
Section
2.5(a)
.
NYSE
has the meaning set forth in
Section
6.12
.
Oil and Gas Contracts
of any Person means any of the following Contracts to which such Person or any of its Subsidiaries is
a party (other than, in each case, an Oil and Gas Lease): all
farm-in
and
farm-out
agreements, areas of mutual interest agreements, joint venture agreements, development
agreements, production sharing agreements, operating agreements, unitization, pooling and communitization agreements, declarations and orders, division orders, transfer orders, royalty deeds, oil and gas sales agreements, exchange agreements,
gathering and processing Contracts and agreements, drilling, service and supply Contracts, geophysical and geological Contracts, land broker, title attorney and abstractor Contracts and all other Contracts relating to Hydrocarbons or revenues
therefrom and claims and rights thereto, and, in each case, all rights, titles and interests thereunder.
Oil and Gas
Leases
of any Person means all leases, prescriptive rights, subleases, licenses or other occupancy or similar agreements under which such Person or any of its Subsidiaries leases, subleases or licenses or otherwise acquires or obtains
operating rights in and to Hydrocarbons or any other real property.
Oil and Gas Properties
means (a) direct and
indirect interests in and rights with respect to Hydrocarbons and related properties and assets of any kind and nature, direct or indirect, including fee mineral interests, minerals in place, Oil and Gas Leases, working, leasehold interests and
operating rights and royalties, overriding royalties, production payments, net profit interests,
non-participating
royalty interests, executive interests, reversionary interests and other
non-working
interests and
non-operating
interests in and to Hydrocarbons in place or produced Hydrocarbons; (b) all interests in and all rights with respect to
Hydrocarbons and all revenues therefrom; (c) all Oil and Gas Leases and the interests in the units or communitized acreage with which the Oil and Gas Leases may have been pooled, communitized or unitized; (d) all Oil and Gas Contracts;
(e) all surface interests, fee interests, reversionary interests, reservations and concessions; (f) all easements, rights of way, surface use agreements, licenses and permits and other similar interests associated with, appurtenant to, or
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necessary for the operation or development of any of Oil and Gas Leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of
Hydrocarbons produced from (or otherwise attributable to) any Oil and Gas Leases (or lands unitized or pooled therewith); (g) all rights and interests in, under or derived from unitization and pooling agreements in effect with respect to the assets,
properties and interests described in
clauses (a)
and
(c)
above and the units created thereby which accrue or are attributable to the interest of the holder thereof; (h) all interests in machinery, equipment (including wells,
well equipment and well machinery), oil and gas production, gathering, transmission, treating, processing and storage facilities (including tanks, tank batteries, pipelines, flow lines, gathering systems and metering equipment), pumps, water plants,
electric plants, gasoline and gas platforms, processing plants, separation plants, refineries and testing and monitoring equipment, in each case, to the extent associated with, appurtenant to or necessary for the operation or development of any of
the Oil and Gas Leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of Hydrocarbons produced from (or otherwise attributable to) any Oil and Gas Leases (or lands unitized or pooled
therewith); and (i) all other interests of any kind or character associated with, appurtenant to, or necessary for the development and/or operation of any of the assets, properties and/or interests described in clauses (a) and (c) above
and/or the units created thereby which accrue or are attributable to the interest of the holder thereof.
Organizational
Documents
means, with respect to any Person, the articles of incorporation, certificate of incorporation, certificate of formation, certificate of limited partnership, bylaws, limited liability company agreement, operating agreement,
partnership agreement, stockholders agreement and all other similar documents, instruments or certificates executed, adopted or filed in connection with the creation, formation or organization of such Person, including any amendments thereto.
Parent
has the meaning set forth in the preamble hereto.
Parent 351 Tax Certificate
has the meaning set forth in
Section
6.13(b)
.
Parent 368 Tax Certificate
has the meaning set forth in
Section
6.13(b)
.
Parent Alternative Proposal
means any contract, proposal, offer or indication of interest relating to any transaction or
series of related transactions (other than transactions with the Company or any Company Subsidiary) involving: (a) any direct or indirect acquisition (by asset purchase, stock purchase, merger, or otherwise) by any Person or group of any
business or assets of Parent or any if its Subsidiaries (including capital stock of or ownership interest in any Subsidiary) that account for 15% or more of Parents and its Subsidiaries consolidated assets or generated 15% or more of
Parents and its Subsidiaries revenue or earnings before interest, Taxes, depreciation and amortization for the preceding twelve (12) months, or any license, lease or long-term supply agreement having a similar economic effect,
(b) other than except as set forth on Section 9.1(c) of the Parent Disclosure Letter, any direct or indirect acquisition of beneficial ownership or control of any securities of Parent after which any Person or group would beneficially own
or control securities representing 15% or more of the total voting power of any class of Parent securities (or that are exchangeable for or convertible into voting securities having such voting power) or any tender or exchange offer that if
consummated would result in any Person or group beneficially owning or controlling 15% or more of the total voting power of any class of Parent securities, (c) any merger, reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving Parent or any of its Subsidiaries whose assets, taken together constitute 15% or more of Parents consolidated assets based on fair market value.
Parent Benefit Plan
means each Benefit Plan sponsored, maintained or contributed to by Parent or its Subsidiaries for the
benefit of current or former employees of Parent or its Subsidiaries, or with respect to which Parent or any of its Subsidiaries has any liability.
Parent Board
has the meaning set forth in the recitals.
Parent Book-Entry Shares
has the meaning set forth in
Section
2.1(a)(i)
.
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Parent Certificate of Merger
has the meaning set forth in
Section
1.1(a)(ii)
.
Parent Certificates
has the meaning set forth in
Section
2.1(a)(i)
.
Parent Common Stock
means the common stock, par value $0.001 per share,
of Parent.
Parent Disclosure Letter
has the meaning set forth in
Article
III
.
Parent Entities
means Parent, New Parent and all of their respective Subsidiaries, with each such entity,
a
Parent Entity
.
Parent Equity Awards
means, collectively, the Parent Stock Options, the
Parent Restricted Stock Awards, and the Parent Performance Unit Awards.
Parent Exchange Ratio
means one.
Parent Fairness Opinion
means the opinion of the Parent Financial Advisor dated the date of this Agreement and addressed to
the Parent Board, to the effect that, as of the date of such opinion the Rio Grande Merger Consideration to be paid pursuant to this Agreement is fair, from a financial point of view, to Parent.
Parent Financial Advisor
has the meaning set forth in
Section
3.22
.
Parent Financial Statements
has the meaning set forth in
Section
3.7(b)
.
Parent Insurance Policies
has the meaning set forth in
Section
3.17
.
Parent Intervening Event
means any Event that did not result from any breach of this Agreement, and that was not known or
reasonably foreseeable by the Parent Board as of the date of this Agreement, which Event becomes known (or the unforeseen magnitude or material consequences thereof become known) to or by the Parent Board prior to obtaining Parent Stockholder
Approval;
provided,
however
, that none of the following shall constitute, or be taken into account in determining the existence of, a Parent Intervening Event: (i) the receipt, existence or terms of an actual or possible Parent
Alternative Proposal or Parent Superior Proposal or any proposal, offer, inquiry or request for information or request for negotiations or discussions that could reasonably be expected to lead to any Parent Alternative Proposal; (ii) any event,
fact, circumstance, development or occurrence relating to the Company or any of its affiliates that does not amount to a Company Material Adverse Effect, (iii) any change, in and of itself, in the price or trading volume of shares of Parent
Common Stock (it being understood that the underlying facts giving rise or contributing to such failure or change may be taken into account in determining whether there has been a Parent Intervening Event, to the extent otherwise permitted by this
definition), (iv) the consequences of the announcement of this Agreement or (v) any actions required to be taken (or required to be refrained from being taken) by the Parent Entities under this Agreement.
Parent Material Adverse Effect
means any Event that has a material adverse effect on the business, financial condition,
assets or results of operations of the Parent Entities, taken as a whole;
provided
, that any effect to the extent resulting from any of the following Events shall not be considered when determining whether a Parent Material Adverse Effect
shall have occurred: (i) any change in general economic, political, business or other capital market conditions (including prevailing interest rates and any effects on the economy arising as a result of acts of terrorism); (ii) any change or
developments in prices for oil, natural gas or other commodities prices or for Parents raw material inputs and end products; (iii) any change in actual or relative commodity prices or any other change affecting the oil and gas exploration
and production industry generally; (iv) any change in accounting requirements or principles imposed by GAAP or any change in Law after the Execution Date; (v) any change resulting from the announcement of this Agreement or the announcement
of the Transactions; (vi) any change resulting from compliance by Parent with the terms of this Agreement; (vii) any
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hurricane, tornado, flood, earthquake or other force majeure event or other natural disaster; (viii) any act of war (whether or not declared), armed hostilities or terrorism; or
(ix) (1) a decline in the trading price or trading volume of the Parent Common Stock, (2) any ratings downgrade or change in ratings outlook for the Parent or any of its Subsidiaries, or (3) the failure to meet any projections,
guidance, budgets, forecasts or estimates,
provided
, in the case of any of (1), (2) or (3) of this clause (ix), the underlying causes may be considered; except, in the case of each of clause (i), (ii), (iii), (vii) or (viii) to the
extent the Parent Entities, taken as a whole, are disproportionately affected by such Event(s) relative to other similarly sized and situated companies in the oil and gas exploration and production industry, and then only to the extent of such
disproportion.
Parent Material Contracts
has the meaning set forth in
Section
3.12(b)
.
Parent Merger
has the meaning set forth in the recitals.
Parent Merger Consideration
has the meaning set forth in
Section
2.1(a
)(
i
)
.
Parent Merger Sub
has the meaning set forth in the preamble hereto.
Parent Parties
has the meaning set forth in the preamble hereto.
Parent Performance Unit Award
has the meaning set forth in
Section
2.5(c)
.
Parent Preferred Stock
has the meaning set forth in
Section
3.5(a)
.
Parent Recommendation
has the meaning set forth in
Section
3.2(a)
.
Parent Recommendation Change
has the meaning set forth in
Section
6.1(b)
.
Parent Recommendation Change Notice
has the meaning set forth in
Section
6.1(d)(iii)
.
Parent Related Person
has the meaning set forth in
Section
3.20
.
Parent Reserve Report
means the reserve reports prepared by Netherland, Sewell & Associates, Inc. relating to the
Parent interests referred to therein as of December 31, 2016.
Parent Restricted Stock Award
has the meaning set
forth in
Section
2.5(b)
.
Parent SEC Documents
has the meaning set forth in
Section
3.7(a)
.
Parent Stock Option
has the meaning set forth in
Section
2.5
.
Parent Stockholder Approval
has the meaning set forth in
Section
3.18
.
Parent Stockholder Meeting
has the meaning set forth in
Section
6.3
.
Parent Superior Proposal
means a bona fide written Parent Alternative Proposal
made after the date of this Agreement that is not withdrawn, that in the reasonable good faith determination of the Parent Board, after consultation with its outside legal counsel and financial advisors, is more favorable to Parents
stockholders from a financial point of view than the Transactions, taking into account the likelihood of consummation and the likely timing of consummation and, to the extent applicable, the legal, financial, regulatory, timing and other aspects of
such proposal and this Agreement that the Parent Board considers relevant; provided that for purposes of the definition of Parent Superior Proposal, the references to 15% in the definition of Parent Alternative Proposal
shall be deemed to be references to 75%.
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Parent Surviving Corporation
has the meaning set forth in
Section
1.1(a)(i)
.
Parent Tax Counsel
has the meaning set forth in
Section
7.3(d)
.
Payoff Letter
has the meaning set forth in
Section
6.14
.
Permits
means all permits, approvals, consents, licenses, franchises,
exemptions and other authorizations, consents and approvals of or from Governmental Entities.
Permitted Encumbrances
means with respect to any Person, (a) statutory Encumbrances for Taxes not yet due and payable or the amount or validity of which is being contested in good faith by appropriate Proceedings and for which adequate accruals or reserves (based on
good faith estimates of management) have been established in accordance with GAAP, (b) mechanics, vendors, materialmens, carriers, workers, landlords, repairers, warehousemens, construction and
similar statutory Encumbrances arising or incurred in the ordinary course of business or with respect to liabilities that are not yet due and payable or, if due, are not delinquent or are being contested in good faith at appropriate Proceedings or
for which adequate accruals or reserves (based on good faith estimates of management) have been established, (c) Encumbrances imposed or promulgated by applicable Law or any Governmental Entity with respect to real property, including zoning,
entitlement, building and other land use regulations, (d) Encumbrances arising under workers compensation, unemployment insurance, social security, retirement and similar legislation, (g) Encumbrances relating to intercompany
borrowings among such Person and its wholly owned Subsidiaries, (e) lessors royalties, overriding royalties, and division orders and sales contracts covering Hydrocarbons, reversionary interests and similar burdens if and to the extent
the net cumulative effect of such burdens does not operate to reduce the net revenue interest at any time in any property to less than the net revenue interest set forth in Section 9.1(b) of the Company Disclosure Letter or Section 9.1(b)
of the Parent Disclosure Letter, (f) all other liens, charges, Encumbrances, contracts, agreements, instruments, obligations, defects and irregularities (including liens of operators relating to obligations not yet due or pursuant to which such
Person is not in default) that would not, individually or in the aggregate, be reasonably likely to reduce the net revenue interest set forth in Section 9.1(b) of the Company Disclosure Letter or Section 9.1(b) of the Parent Disclosure
Letter, or would not, individually or in the aggregate, be reasonably likely to prevent the production or receipt of proceeds of production therefrom, or would not, individually or in the aggregate, be reasonably likely to not increase the share of
costs above the working interest set forth in Section 9.1(b) of the Company Disclosure Letter or Section 9.1(b) of the Parent Disclosure Letter, or which would not, individually or in the aggregate, be reasonably likely to impair the
value, occupancy, use or development of any properties or the production of hydrocarbons therefrom, (j) other Encumbrances that would not, individually or in the aggregate, be reasonably likely to, materially impair the present or intended use,
value, occupancy, or development of any properties or the production of hydrocarbons therefrom or (m) Encumbrances securing Indebtedness of Parent or the Company or their respective Subsidiaries, to the extent the terms of such Indebtedness
require the incurrence of such Encumbrances.
Person
means an individual, a group (including a group under
Section 13(d) of the Exchange Act), a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Entity or any department, agency
or political subdivision thereof.
Proceeding
means any actions, suits, claims, hearings, inquiries, examinations,
investigations or other proceedings.
Production Burdens
means all royalty interests, overriding royalty interests,
production payments, net profits interests or other similar interests that constitute a burden on, and are measured by or are payable out of, the production of Hydrocarbons or the proceeds realized from the sale or other disposition thereof other
than Taxes and assessments of Governmental Entities.
Proxy Statement
has the meaning set forth in
Section
6.2(a)
.
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Registration Statement
has the meaning set forth in
Section
6.2(a)
.
Regulatory Law
means the Sherman Act of 1890, as amended, the Clayton
Antitrust Act of 1914, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal, state or foreign statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other Laws, including any
antitrust, competition or trade regulation Laws, that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening competition through merger or acquisition.
Release
means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning,
emptying, discharging, migrating, injecting, escaping, leaching, dumping, or disposing.
Representatives
has the
meaning set forth in
Section
6.4(a)
.
Rio Grande Certificate of Merger
has the meaning set
forth in
Section
1.1(b)(ii)
.
Rio Grande Merger
has the meaning set forth in the recitals.
Rio Grande Merger Consideration
has the meaning set forth in
Section
2.1(b)(i)
.
Rio Grande Merger Sub
has the meaning set forth in the preamble hereto.
Rio Grande Surviving Company
has the meaning set forth in
Section
1.1(b)(i)
.
SEC
means the United States Securities and Exchange Commission.
Section
6.17 Agreements
means the items set forth in
Section
9.1(d)
of the
Parent Disclosure Letter.
Securities Act
means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Stockholders Agreement
has the meaning set forth in
Section
1.5
.
Subsidiary
means with respect to any party, any corporation, partnership, limited liability company or other legal
entity or organization, whether incorporated or unincorporated, of which: (a) such party or any other Subsidiary of such party is a general partner or a managing member or has similar authority; or (b) at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation, partnership, limited liability company or other legal entity or
organization is, directly or indirectly, owned or controlled by such party or by any one or more of its Subsidiaries.
Takeover
Laws
has the meaning set forth in
Section
3.18
.
Tax
means any and all taxes,
duties, levies or other similar governmental assessments of any kind, including income, gross receipts, branch profits, license, payroll, employment, excise, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, ad valorem, value added, alternative or
add-on
minimum,
estimated tax and any other tax of any kind whatsoever, imposed by any Governmental Entity, including any interest, penalty or addition to tax imposed with respect thereto.
Tax Returns
means any return, report, statement, claim for refund, or information return filed or required to be filed with
any Governmental Entity relating to Taxes, including any schedule or attachment thereto and any amendment thereof.
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Termination Fee
has the meaning set forth in
Section
8.3(g)
.
Transaction Agreements
means this Agreement, the Confidentiality Agreement
and each agreement and certificate required to be delivered at the Closing pursuant to the terms of this Agreement.
Transactions
has the meaning set forth in the recitals.
Treasury Regulations
means the regulations promulgated by the United States Department of the Treasury pursuant to and in
respect of provisions of the Code. All references in this Agreement to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar or substitute, temporary or final Treasury Regulations.
WARN Act
has the meaning set forth in
Section
3.16(h)
.
Willful Breach
means a breach that is the consequence of an act by the breaching party or the failure by the breaching
party to take an act it is required to take under this Agreement where such breaching party knew that the taking of or failure to take such act would, or would be reasonably expected to, cause a material breach of this Agreement.
ARTICLE X
SURVIVAL
10.1
Non-Survival
of Representations and Warranties
. Except for this Article X, Section 6.8 (Indemnification of Directors and Officers) and Section 6.9 (Employee Matters), none of
the representations, warranties, covenants or other agreements in this Agreement, or in any schedule, certificate, instrument or other document delivered pursuant to this Agreement, shall survive the Effective Time or, except as provided in
Section 8.2, the termination of this Agreement. For the avoidance of doubt, this Section 10.1 shall not limit any covenant or agreement of the parties that by its terms contemplates performance in whole or in part after the Effective Time.
The Confidentiality Agreement shall survive termination of this Agreement in accordance with its terms.
ARTICLE XI
MISCELLANEOUS
11.1
Notices
. Any notice or other communication required or permitted under, or otherwise in
connection with, this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered in person; (b) when received when sent by email by the party to be notified;
provided, however
, that notice given by
email shall not be effective unless either (i) a duplicate copy of such email notice is promptly given by one other methods described in this
Section
11.1(a)
or (ii) the receiving party delivers a written
confirmation of receipt for such notice either by email or any other method described in this
Section
11.1(a)
; or (c) when delivered by a national courier (with confirmation of delivery), in each case addressed as
follows:
Notices to the Company (prior to the Transactions):
Fifth Creek Energy Operating Company, LLC
5251 DTC Parkway, Suite 420
Greenwood Village, Colorado 80111
Email: mstarzer@fifthcreekenergy.com
Attention: Michael R. Starzer
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And copies to (which shall not constitute notice):
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, TX 77002
Attention:
Jeffery B. Floyd
Douglas E. McWilliams
Shamus M. Crosby
dmcwilliams@velaw.com
scrosby@velaw.com
Notices to
Holdings or the Fund:
NGP Natural Resources XI, L.P.
5221 N. OConnor Blvd., 11th Floor
Irving, Texas 75039
Email:
jzlotky@ngptrs.com
Attention: jzlotky@ngptrs.com
And copies to (which shall not constitute notice):
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, TX 77002
|
Attention:
|
Jeffery B. Floyd
|
dmcwilliams@velaw.com
scrosby@velaw.com
Notices to Parent, New Parent and the Company (after the Transactions):
Bill Barrett Corporation
1099 18
th
Street, Suite 2300
Denver, CO 80202
|
Attention:
|
William M. Crawford
|
|
Email:
|
bcrawford@billbarrettcorp.com
|
|
|
kwonstolen@billbarrettcorp.com
|
And a copy to (which shall not constitute notice):
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York,
New York 10019
|
Telephone:
|
(212)
403-1000
|
11.2
Severability
. If
any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall
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nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner
to the end that Transactions are fulfilled to the extent possible.
11.3
Entire Agreement
.
This Agreement, the exhibits hereto, the Parent Disclosure Letter, the Company Disclosure Letter and the other documents delivered pursuant hereto and the Confidentiality Agreement constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter of this Agreement.
11.4
Assignment
. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties, in whole or in part (whether by operation of Law or otherwise), without the prior written consent of the other parties, and any attempted or purported assignment without such consent shall be null
and void. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
11.5
Extension; Waiver
. At any time prior to the Effective Time, the parties, by action taken
or authorized by their respective boards of directors, may to the extent legally allowed, (a) extend the time for performance of any of the obligations or other acts of the other parties hereunder, (b) waive any breach or inaccuracy in the
representations and warranties of the other contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other of any of the agreements or conditions contained herein. Notwithstanding the foregoing, no failure
or delay by any party in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any right hereunder. No agreement on the part of a party hereto to
any extension or waiver shall be valid unless set forth in an instrument in writing signed on behalf of such party.
11.6
Third Party Beneficiaries
. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and assigns, and nothing in this Agreement, express or implied, is intended
to or shall confer upon any other Person any right, benefit, claim, action or remedy of any nature whatsoever under or by reason of this Agreement, other than (a) the rights of any Indemnified Parties solely pursuant to
Section
6.8
(which shall not arise unless and until the Effective Time shall occur) and (b) the rights of Holdings to receive the Rio Grande Merger Consideration (which shall not arise unless and until the Effective
Time shall occur).
11.7
Interpretation
.
(a) The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to an Article, Section, Schedule or Exhibit, such reference shall be to an Article of, a Section of, a Schedule to or an Exhibit to this
Agreement unless otherwise indicated. Whenever the words
include
,
includes
or
including
are used in this Agreement, they shall be deemed to be followed by the words
without
limitation
. The words hereof, herein and hereunder and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(b) Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein shall mean United
States (U.S.) dollars,
$
refers to United States dollars and all payments hereunder shall be made in United States dollars by wire transfer in immediately available funds to such account as shall have been specified in writing by
the recipient thereof.
(c) The parties have participated jointly in negotiating and drafting this Agreement. In the event that an
ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly
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by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(d) Unless the context otherwise requires, as used in this Agreement, (i) words defined in the singular have the parallel meaning in the
plural and vice versa, (ii) words of one gender shall be construed to apply to each gender, (iii) the term
party
refers to a party to this Agreement and the term
parties
refers to all the parties to
this Agreement; provided, that, for the avoidance of doubt, the Fund shall be deemed a party solely for purposes of
Sections
6.5(a)(ii), 6.5(a)(iv), 6.5(b), and 6.5(c) and Holdings shall be deemed a party solely for purposes of
Sections
4.15(k)
,
6.5
,
6.9(c)
and
6.13
and (iv) a reference to any Person includes such Persons successors and permitted assigns.
(e) Writing, written and comparable terms refer to printing, typing and other means of reproducing words (including
electronic media) in a visible form. References to any statute shall be deemed to refer to such statute and to any rules or regulations promulgated thereunder. References to any Contract are to that Contract as amended, modified or supplemented
(including by waiver or consent) from time to time in accordance with the terms hereof and thereof. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the
date that is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day. References to any period of days will be deemed
to be to the relevant number of calendar days unless otherwise specified.
(f) The phrase made available with respect to
documents shall be deemed to include any documents included and available to Parent and its Representatives or the Company and its Representatives, as applicable, in the applicable virtual data rooms hosted by Merrill Corporation or Box, Inc.,
respectively in connection with the Transactions on or prior to 5:00 p.m. Houston, Texas time on December 4, 2017. The word extent in the phrase to the extent shall mean the degree to which a subject or other thing
extends, and such phrase shall not mean simply if.
11.8
Governing Law and Venue;
Consent to Jurisdiction
.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED
AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(b) The
parties hereby irrevocably submit to the personal jurisdiction of the courts of the State of Delaware and the Federal courts of the United States of America located in the State of Delaware solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the Transactions, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement
of this Agreement or if any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any
such document may not be enforced in or by such courts, and the parties irrevocably agree that all claims relating to such action, proceeding or transactions shall be heard and determined in such a Delaware State or Federal court. The parties hereby
consent to and grant any such court jurisdiction over the person of such parties and, to the extent permitted by Law, over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in
Section
11.1
or in such other manner as may be permitted by Law shall be valid and sufficient service thereof.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
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WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS. EACH PARTY CERTIFIES
AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS
SECTION
11.8(c)
.
11.9
Disclosure
Letter
s
. The Parent Disclosure Letter, the Company Disclosure Letter and all exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein.
The statements in the Parent Disclosure Letter and the Company Disclosure Letter relate to the provisions in the section of this Agreement to which they expressly relate;
provided
,
however
, that any information set forth in one
section of the Parent Disclosure Letter or the Company Disclosure Letter, as the case may be, shall also be deemed to apply to each other section to which its relevance is reasonably apparent. In the Parent Disclosure Letter and the Company
Disclosure Letter, (a) all capitalized terms used but not defined therein shall have the meanings assigned to them in this Agreement; (b) the section numbers correspond to the section numbers in this Agreement; and (c) inclusion of any
item in a disclosure letter (i) does not represent a determination that such item is material or establish a standard of materiality, (ii) does not represent a determination that such item did not arise in the ordinary course of business
and (iii)
shall not constitute, or be deemed to be, an admission to any third party concerning such item.
11.10
Specific Performance
. The parties acknowledge and agree that each would be irreparably damaged in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise
breached and that any
non-performance
or breach of this Agreement by any party could not be adequately compensated by money damages alone and that the parties would not have any adequate remedy at law. Each
party agrees that, in the event of any breach or threatened breach by any other party of any provisions contained in this Agreement, the
non-breaching
party shall be entitled (in addition to any other remedy
that may be available to it whether in law or equity, including monetary damages, except as limited by
Section
8.4
) to seek and obtain a decree or order of specific performance to enforce the observance and performance of
such provisions, and an injunction restraining such breach or threatened breach. Each party further agrees that no other party or any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a
condition to obtaining any remedy referred to in this
Section
11.10
, and each party irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument. The
parties further agree that they shall not object to the granting of any injunctive relief on the basis that an adequate remedy at law may exist.
11.11
Facsimiles; Counterparts
. This Agreement may be executed by facsimile signatures or by
electronic image scan transmission in .pdf format by any party and such signature shall be deemed binding for all purposes hereof, without delivery of an original signature being thereafter required. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.
11.12
Amendment
. Subject to the provisions of applicable Law, and except as otherwise provided
in this Agreement, this Agreement may be amended, modified or supplemented only by a written instrument executed and delivered by all the parties whether before or after approval of the Mergers or the other Transactions;
provided, however
,
that, after any such approval, no amendment shall be made for which applicable Law or the rules of any relevant stock exchange requires further approval by stockholders or members without such further approval.
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11.13
Representation by Counsel
. Each of the
parties agrees that it has been represented by independent counsel of its choice during the negotiation and execution of this Agreement and the documents referred to herein, and that it has executed the same upon the advice of such independent
counsel. Each party and its counsel cooperated in the drafting and preparation of this Agreement and the documents referred to herein, and any and all drafts relating thereto shall be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Therefore, the parties waive the application of any Law providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.
11.14
No Recourse
. Notwithstanding anything that may be expressed or implied in this Agreement,
each party covenants, agrees and acknowledges that no recourse under this Agreement, any other Transaction Agreement or any documents or instruments delivered in connection with this Agreement or any other Transaction Agreement shall be had against
any partys Affiliates or any of such partys or such parties Affiliates former, current or future direct or indirect equity holders, controlling persons, shareholders, directors, officers, employees, agents, members, managers,
general or limited partners or assignees (each a
Related Party
, and collectively, the
Related Parties
), in each case, other than the parties and each of their respective successors and permitted
assignees under this Agreement (and, in the case of any other Transaction Agreement, the applicable parties thereto and each of their respective successor and permitted assigns), whether by the enforcement of any assessment or by any legal or
equitable Proceeding, or by virtue of any applicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any of the Related Parties, as such, for any
obligation or liability of any Party under this Agreement or any documents or instruments delivered in connection herewith for any claim based on, in respect of or by reason of such obligations or liabilities or their creation.
[
Signature pages follow
]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year
first above written.
|
|
|
|
|
BILL BARRETT CORPORATION
|
|
|
By:
|
|
/s/ R. Scot Woodall
|
|
|
Name:
|
|
R. Scot Woodall
|
|
|
Title:
|
|
CEO and President
|
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RED RIDER HOLDCO, INC.
|
|
|
By:
|
|
/s/ R. Scot Woodall
|
|
|
Name:
|
|
R. Scot Woodall
|
|
|
Title:
|
|
CEO and President
|
|
RIO MERGER SUB, LLC
|
|
|
By:
|
|
/s/ R. Scot Woodall
|
|
|
Name:
|
|
R. Scot Woodall
|
|
|
Title:
|
|
Authorized Person
|
|
RIDER MERGER SUB, INC.
|
|
|
By:
|
|
/s/ R. Scot Woodall
|
|
|
Name:
|
|
R. Scot Woodall
|
|
|
Title:
|
|
CEO and President
|
|
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FIFTH CREEK ENERGY OPERATING COMPANY, LLC
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By:
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/s/ Michael R. Starzer
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Name:
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Michael R. Starzer
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Title:
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President, Chief Executive Officer and Secretary
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FIFTH CREEK ENERGY COMPANY, LLC, solely for the purposes of Sections 4.15(k), 6.5, 6.9(c), and 6.13
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By:
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/s/ Michael R. Starzer
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Name:
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Michael R. Starzer
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Title:
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Authorized Person
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NGP NATURAL RESOURCES XI, L.P., solely for the purposes of Sections 6.5(a)(ii), 6.5(a)(iv), 6.5(b) and 6.5(c)
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By:
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G.F.W. Energy XI, L.P., its general partner
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By:
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GFW XI, L.L.C., its general partner
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By:
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/s/ Tony R. Weber
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Name:
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Tony R. Weber
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Title:
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Authorized Person
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Annex B
FORM OF
STOCKHOLDERS AGREEMENT
OF
[ ]
Dated as of [], 2018
TABLE OF CONTENTS
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Page
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ARTICLE I GOVERNANCE MATTERS
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1.1
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Board Composition; Representation
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B-1
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1.2
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Vacancies
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B-3
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1.3
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Compensation; Indemnification
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B-3
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1.4
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Selection of Board Representatives; Committees
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B-3
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1.5
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Nomination of
Non-Investor
Directors
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B-4
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ARTICLE II RESTRICTED ACTIVITIES; PREEMPTIVE RIGHTS;
VOTING
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2.1
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Transfer Restrictions
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B-4
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2.2
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Restricted Activities
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B-5
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2.3
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Preemptive Rights
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B-6
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2.4
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ATM Offer and Election to Purchase
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B-8
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2.5
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Voting
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B-8
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2.6
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Amendment to Parent Certificate of Incorporation
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B-9
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2.7
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Removal and Replacement of the Chief Executive Officer
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B-9
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2.8
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Indebtedness
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B-9
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2.9
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Controlled Company
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B-9
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ARTICLE III REGISTRATION RIGHTS
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3.1
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Registration
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B-9
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3.2
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Expenses of Registration
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B-11
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3.3
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Obligations of the Company
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B-11
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3.4
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Suspension of Sales
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B-14
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3.5
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Termination of Registration Rights
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B-14
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3.6
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Furnishing Information
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B-14
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3.7
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Indemnification
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B-14
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3.8
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Assignment of Registration Rights
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B-16
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3.9
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Holdback; Lockup
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B-16
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3.10
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Rule 144
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B-17
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3.11
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Definitions
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B-17
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3.12
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Voluntary Forfeiture
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B-18
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ARTICLE IV DEFINITIONS
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4.1
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Defined Terms
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B-19
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4.2
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Terms Generally
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B-22
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ARTICLE V MISCELLANEOUS
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5.1
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Term
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B-23
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5.2
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Representations and Warranties
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B-23
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5.3
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Legends; Securities Act Compliance
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B-23
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5.4
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No Inconsistent Agreements
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B-24
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5.5
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Amendments and Waivers
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B-24
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5.6
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Successors and Assigns
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B-24
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5.7
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Severability
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B-24
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5.8
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Counterparts
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B-24
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5.9
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Entire Agreement
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B-24
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5.10
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Governing Law; Jurisdiction
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B-24
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5.11
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Waiver of Jury Trial
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B-25
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B-i
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Page
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5.12
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Specific Performance
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B-25
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5.13
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No Third-Party Beneficiaries
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B-25
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5.14
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Notices
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B-25
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Exhibits
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Exhibit A
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Initial Board Representatives
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Exhibit B
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Company Competitors
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B-ii
STOCKHOLDERS AGREEMENT
This Stockholders Agreement, dated as of [], 2018 (as it may be amended from time to time, this
Agreement
), is made
by and among [ ], a Delaware corporation (the
Company
), [Rio Grande Energy Company, LLC], a Delaware limited liability company (the
Investor
) and solely for the purposes of
Section
2.2
, the [Controlling Member] (the
Fund
).
R E C I T A L S
WHEREAS, the
Company, Fifth Creek Energy Operating Company, LLC, a Delaware limited liability company, Bill Barrett Corporation, a Delaware corporation, Rio Merger Sub, LLC, a Delaware limited liability company and a direct wholly owned Subsidiary of the Company
and Rider Merger Sub, Inc., a Delaware corporation and a direct wholly owned Subsidiary of the Company have entered into that certain Agreement and Plan of Merger dated as of the date hereof (as it may be amended from time to time, the
Merger Agreement
), pursuant to which, upon the terms and subject to the conditions set forth in the Merger Agreement, on the Closing Date, Parent and Rio Grande will become wholly owned subsidiaries of the Company in connection
with the consummation of the mergers (the
Mergers
) contemplated by the Merger Agreement;
WHEREAS, on the Closing Date,
the Investor will receive shares of common stock, par value $[0.001] per share, of the Company (
Company Common Stock
) in accordance with the terms of the Merger Agreement (the shares of Company Common Stock received by the
Investor on the Closing Date, the
Shares
) representing, in the aggregate, approximately []% of the outstanding shares of Company Common Stock, after giving effect to the issuance of such Shares; and
WHEREAS, each of the parties hereto wishes to set forth in this Agreement certain terms and conditions regarding the Investors ownership
of the Shares and certain rights and obligations related thereto.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
GOVERNANCE MATTERS
1.1
Board Composition; Representation
.
(a) At the Effective Time, the Company will cause the Board Representatives and
Non-Investor
Directors
listed in
Exhibit A
hereto to be appointed to the Board of Directors of the Company (the
Board
). Following the Effective Time until the Board Designation Expiration Date, the Company shall take any and all necessary
action to cause the Board to be comprised of no more than a total of eleven authorized directorships, and, without Company
Non-Affiliate
Approval, not less than eleven authorized directorships, and in no event
shall the total number of authorized directorships be less than the number that is one more than two times the Investor Director Number at such time;
provided
,
however
, that the Company, at the direction of the Investor, shall be
required to increase the size of the Board if required in order to permit the number of Board Representatives entitled to be designated by the Investor pursuant to this
Section
1.1
to be included on the Board.
(b) From and after the date of the Closing until the Board Designation Expiration Date, the manner for selecting nominees for election to the
Board will be as follows:
(i) In connection with each annual or special meeting of stockholders of the Company at which
directors are to be elected (each such annual or special meeting, an
Election Meeting
), the Investor
B-1
shall have the right to designate for nomination a number of Board Representatives as follows: (A) for so long as the Investor Percentage Interest is greater than or equal to 40% (provided
that for the period ending on the
six-month
anniversary of the Closing Date such percentage shall be 35%) of all of the outstanding shares of Company Common Stock, five (5) Board Representatives;
provided
, that at least two (2) of such Board Representatives must be Independent Directors; (B) for so long as the Investor Percentage Interest is less than 40% (provided that for the period ending on the
six-month
anniversary of the Closing Date such percentage shall be 35%) but greater than or equal to 30%, four (4) Board Representatives;
provided
, that at least one (1) of such Board
Representatives must be an Independent Director; (C) for so long as the Investor Percentage Interest is less than 30% but greater than or equal to 20%, two (2) Board Representatives; (D) for so long as the Investor Percentage Interest
is less than 20% but greater than or equal to 10%, one (1) Board Representative; and (E) if the Investor Percentage Interest is less than 10%, no Board Representatives.
(ii) The Investor shall give written notice to the Governance Committee (as defined below) of each such Board Representative no
later than the date that is sixty (60) days before the first anniversary of the date that the Companys annual proxy for the prior year was first mailed to the Companys stockholders and the Investor shall provide, or cause such
individual(s) to provide, to the Company, such information about such individuals and the nomination to the Company, at such times as the Company may reasonably request in order to ensure compliance with the Exchange Rules and the applicable
securities Laws, and to enable the Board of any committee thereof to make determinations with respect to the qualifications of the individual(s) to be Board Representative(s) (the
Required Information
);
provided
,
however
, that if the Investor fails to give such notice or the Required Information in a timely manner, then the Investor shall be deemed to have nominated the incumbent Board Representative or Board Representatives, as applicable, in a
timely manner;
provided
,
further
, that if the number of incumbent Board Representatives is less than the number of Board Representatives the Investor is entitled to designate pursuant to
Section
1.1(b)(i)
, the
Company and the Investor shall use their respective reasonable best efforts to mutually agree on the Board Representative or Board Representatives, as applicable, for such Election Meeting.
(iii) In the event that the Company amends its certificate of incorporation to provide that the Board shall be classified into
separate classes of directors, then proper provision shall be made such that the designees of the Investor shall be distributed as evenly as possible among such classes of directors in order to preserve the designation rights of the Investor in
accordance with this
Section
1.1
.
(c) From and after the date of the Closing until the Board Designation
Expiration Date, the Company shall take all actions necessary (to the extent such actions are permitted by Law) to cause the Board to include the Board Representative(s) entitled to be designated by the Investor pursuant to
Section
1.1(b
) and otherwise to reflect the Board composition contemplated by
Section
1.1
, including the following: (i) at each Election Meeting, include (x) the Board Representative(s)
entitled to be designated by the Investor pursuant to
Section
1.1(b)
and (y) the Nominated
Non-Investor
Directors in the slate of nominees recommended by the Board to the
Companys stockholders for election as directors, (ii) to solicit proxies in order to obtain stockholder approval of the election of the Board Representative(s) and the Nominated
Non-Investor
Directors, including causing officers of the Company who hold proxies (unless otherwise directed by the Company stockholder submitting such proxy) to vote such proxies in favor of the election of such Board Representative(s) and the Nominated
Non-Investor
Directors, (iii) to cause the Board Representative(s) and the Nominated
Non-Investor
Directors to be elected to the Board, including recommending that the
Companys stockholders vote in favor of the Board Representative(s) and the Nominated
Non-Investor
Directors in any proxy statement used by the Company to solicit the vote of its stockholders in
connection with each Election Meeting, (iv) if necessary, expanding the size of the Board and filling any resulting vacancies with individuals designated by the Investor pursuant to this
Section
1.1
and
(v) causing any director resignation or other similar policy of the Company to not be applicable to the Board Representatives.
B-2
(d) If at any time the number of Board Representatives serving on the Board exceeds the
Investor Director Number, then unless otherwise requested by the Board by action of the
Non-Affiliated
Directors, the Investor shall promptly (and in any event prior to the time the Board next takes any
action, whether at a meeting or by written consent) cause one or more such Board Representative(s) to resign from the Board such that, following such resignation(s), the number of Board Representatives serving on the Board does not exceed the
Investor Director Number. If at any time any Board Representative that was required pursuant to
Section
1.2(b)
to be an Independent Director ceases to be an Independent Director and as a result the number of Board
Representatives that constitute Independent Directors is less than the number of Board Representatives required to be Independent Directors pursuant to
Section
1.1(b)(i)
, then unless otherwise requested by the Board by
action of the
Non-Affiliated
Directors, the Investor shall promptly (and in any event prior to the time the Board next takes any action, whether at a meeting or by written consent) cause such Board
Representative to resign from the Board, it being understood that the Investor shall be entitled to fill the vacancy resulting therefrom in accordance with
Section
1.2(a)
.
(e) On the date that the Investor Percentage Interest is less than ten percent (10%), or at such earlier time that the Investor delivers an
irrevocable written waiver of its rights under this
Section
1.1
and
Section
1.2
to the Company, the Investor will have no further rights under this
Section
1.1
and
Section
1.2
.
1.2
Vacancies
.
(a) Subject to Sections
1.1
and
1.4
, if at any time the number of Board Representatives serving on the Board is less than the
total number of Board Representatives the Investor is entitled to designate pursuant to
Section
1.1(b)
, whether due to the death, resignation, retirement, disqualification or removal from office as a member of the Board of
a Board Representative or otherwise, the Board shall take all action (to the extent permitted by Law) required to fill the vacancy resulting therefrom with such replacement designated by the Investor as promptly as practicable. In furtherance
thereof, the Board shall use its reasonable best efforts, if requested by the Investor, to fill such vacancy prior to the time the Board next takes action on any other matter.
(b) In the event of any vacancy on the Board occurring due to the death, resignation, retirement, disqualification or removal from office as a
member of the Board of any
Non-Investor
Director, the Board shall take all action (to the extent permitted by Law) required to fill the vacancy resulting therefrom with such replacement selected by the
Non-Investor
Directors acting by Company
Non-Affiliate
Approval as promptly as practicable.
1.3
Compensation; Indemnification
. Each Board Representative shall be entitled to the
same expense reimbursement and advancement, exculpation and indemnification in connection with his or her role as a director as the other members of the Board, as well as reimbursement for documented, reasonable
out-of-pocket
expenses incurred in attending meetings of the Board or any committee of the Board of which such Board Representative is a member, if any, in each case to the same extent as the other members of
the Board. Each Board Representative shall be also entitled to any retainer, equity compensation or other fees or compensation paid to the
non-employee
Directors of the Company for their services as a
director, including any service on any committee of the Board;
provided
,
however
, that any such Board Representative that is an employee of the Fund or any of its Affiliates shall not receive any such equity compensation, but in lieu
thereof shall be entitled to receive cash compensation equal to twice the amount of any cash retainer or other cash fees or cash compensation paid to the
non-employee
Directors of the Company for their
services as a director, including any service on any committee of the Board.
1.4
Selection of Board Representative
s; Committees
. For purposes of this Agreement,
Board Representative
means any person designated by the Investor to be elected or appointed to the Board, or his or her replacement
designated in accordance with
Section
1.2
, provided, that such persons service as a director must not be prohibited by Law. The parties hereto agree that the persons listed on Exhibit A to this Agreement are qualified
for service pursuant to the foregoing sentence. Subject to applicable Law and stock exchange rules, until the Board Designation Expiration Date, each committee of the Board shall include at least one Board Representative.
B-3
1.5
Nomination of
Non-Investor
Directors
. Anything in the Certificate of Incorporation and the
By-Laws
of the Company notwithstanding and subject to
Section
1.2(b)
, the Governance Committee shall take all actions necessary to nominate incumbent
Non-Investor
Directors for election at an Election Meeting, unless otherwise approved
by the
Non-Affiliated
Directors acting by Company
Non-Affiliate
Approval.
ARTICLE II
RESTRICTED ACTIVITIES;
PREEMPTIVE RIGHTS; VOTING
2.1
Transfer Restrictions
.
(a) Other than solely in the case of a Transfer to an Affiliate of the Fund, or, if the Fund ceases to be an Affiliate of the Investor, to an
Affiliate of the Investor (provided that such Affiliate (i) has executed a customary joinder to this Agreement, in form and substance reasonably acceptable to the Company, in which such Affiliate agrees to be bound by the terms and conditions
of this Agreement applicable to the Investor and (ii) remains an Affiliate of the Fund, or the Investor, if applicable, throughout the Restricted Period), the Investor shall not Transfer any shares of Company Common Stock prior to the date that
is ninety (90) days after the Closing (such period, the
Restricted Period
). Following the Restricted Period, the Investor shall be free to Transfer any shares of Company Common Stock subject only to the restrictions set forth
in this Agreement and applicable Law.
(b) Until the Sunset Date, without Company
Non-Affiliate
Approval, the Investor shall not Transfer any shares of Company Common Stock to any Person or Group who:
(i) is a Company
Competitor;
(ii) individually or in the aggregate with all Affiliates, Beneficially Owns, or would, after giving effect to
such Transfer, Beneficially Own, 15% or more of the outstanding shares of Company Common Stock;
provided
that in the cases of clauses (i) and (ii) the restriction shall not apply to (A) Transfers into the public market effected
through an underwritten offering that qualifies as a public offering pursuant to the rules and regulations of the NYSE or that is otherwise broadly marketed, in each case, pursuant to an exercise of the registration rights provided for
in this Agreement; (B) Transfers in open market transactions through an ordinary brokerage transaction;
provided
that such Transfers are not undertaken with the purpose or intent of circumventing this
Section
2.1
; or (C) a Transfer to (1) an Affiliate of the Fund (provided that such Affiliate has executed a customary joinder to this Agreement, in form and substance reasonably acceptable to the Company, in which
such Affiliate agrees to be bound by the terms and conditions of this Agreement applicable to the Investor), it being understood, for the avoidance of doubt, that any direct or indirect Transfer of such Person that results in such Person ceasing to
remain an Affiliate shall be treated as a Transfer that is subject to the provisions of this
Section
2.1
or (2) any party or parties not affiliated with the Investor who are acquiring direct or indirect ownership of
the Company in a merger, tender offer or other transaction approved or recommended by the Board; or
(iii) is an Affiliate
of the Fund or, if the Fund ceases to be an Affiliate of the Investor, is an Affiliate of the Investor unless such Affiliate has executed a customary joinder to this Agreement, in form and substance reasonably acceptable to the Company, in which
such Affiliate agrees to be bound by the terms and conditions of this Agreement applicable to the Investor for so long as such Person remains an Affiliate of the Fund or the Investor, as applicable, it being understood, for the avoidance of doubt,
that any direct or indirect Transfer of such Person that results in such Person ceasing to remain an Affiliate shall be treated as a Transfer that is subject to the provisions of this
Section
2.1
.
(c) Any Transfer or attempted Transfer of Company Common Stock in violation of this
Section
2.1
shall, to the
fullest extent permitted by applicable Law, be null and void
ab initio
, and the Company shall not, and shall instruct its transfer agent and other third parties not to, record or recognize any such purported transaction on the share register
of the Company.
B-4
(d) In connection with any Transfer of Company Common Stock to an Affiliate of the Fund or
the Investor, that is permitted pursuant to this Agreement, the Company shall grant such approvals and take all other actions as are necessary to exempt such transaction from Section 203 of the DGCL.
2.2
Restricted Activities
.
(a) The Investor and the Fund shall not and shall cause their respective Controlled Affiliates not to, directly or indirectly, without the
Companys prior written consent:
(i) make any statement or proposal to the Board, any of the Companys
Representatives, or any of the Companys stockholders regarding, or make any public announcement, proposal or offer (including any solicitation of proxies as such terms are defined or used in Regulation 14A of the
Securities Exchange Act of 1934, as amended) with respect to, or otherwise solicit, seek or offer to effect (including, for the avoidance of doubt, indirectly by means of communication with the press or media) (1) any business combination,
merger, tender offer, exchange offer or similar transaction involving the Company or any of its Subsidiaries, (2) any restructuring, recapitalization, liquidation or similar transaction involving the Company or any of its Subsidiaries, or
(3) subject to
clause (vi)
below, any acquisition of any of the Companys loans, debt securities, equity securities or assets, or rights or options to acquire interests in any of the Companys loans, debt securities,
equity securities or assets;
provided
,
however
, that nothing in this
Section
2.2(a)(i)
shall prohibit the Fund or a Controlled Affiliate of the Fund from privately communicating any such statement or proposal
to the directors or Chief Executive Officer of the Company so long as such private communications do not, and would not reasonably be expected to, trigger public disclosure obligations of or for any Person (including, without limitation, the filing
of a Schedule 13D or Schedule 13G or any amendment thereof);
(ii) deposit any Voting Securities into a voting trust or
similar contract or subject any Voting Securities to any voting agreement, pooling arrangement or similar arrangement or other contract (other than solely between (A) the Investor and its Affiliates or (B) the Investor and any Permitted
Transferee with respect any shares of Company Common Stock Transferred to any such Permitted Transferee by the Investor as permitted by this Agreement) or grant any proxy with respect to any Voting Securities (other than (A) pursuant to
Section
2.5
or (B) otherwise to the Company or a Person specified by the Company in a proxy card provided to stockholders of the Company by or on behalf of the Company);
(iii) form, join or in any way participate in any Group with any Person with respect to any Voting Securities other than
forming, joining or in any way participating in a Group solely between or among (A) the Investor and its Affiliates or (B) the Investor and any Permitted Transferee with respect any shares of Company Common Stock Transferred to any such
Permitted Transferee by the Investor as permitted by this Agreement;
(iv) enter, agree to enter, propose or offer to enter
into any merger, business combination, recapitalization, restructuring, change in control transaction or other similar extraordinary transaction involving the Company or any of its Subsidiaries (unless such transaction is affirmatively publicly
recommended by the Board and there has otherwise been no breach of this
Section
2.2
in connection with or relating to such transaction);
(v) otherwise act with any Person, including by providing financing for another party, to seek to control or influence the
management, the Board or the policies of the Company;
(vi) acquire, agree or propose to acquire any Voting Securities of
the Company or any Subsidiary thereof, other than as a result of any stock split or stock dividend of Voting Securities or exercise of preemptive rights pursuant to
Section
2.3
;
(vii) call, or seek to call, a meeting of the stockholders of the Company or initiate any stockholder proposal for action by
stockholders of the Company, including nominating any Person to the Board (except pursuant to
Section
1.1
);
B-5
(viii) publicly disclose any intention, plan or arrangement prohibited by,
or inconsistent with, the foregoing; or
(ix) knowingly instigate, facilitate, encourage or assist any third party to do
any of the foregoing;
provided
that this
Section
2.2
shall in no way limit (x) the activities of any director of
the Company, so long as such activities are undertaken solely in his or her capacity as a director of the Company or (y) any
non-public
communications by and between (A) the Investor and its
Affiliates or (B) the Investor and any Permitted Transferee with respect to any shares of Company Common Stock Transferred to any such Permitted Transferee by the Investor as permitted by this Agreement;
provided
,
further
that
(other than as may be a violation of
clauses (i)
and
(ii)
above) the right or ability of the Investor or its Controlled Affiliates to exercise their rights under this Agreement or the exercise by the Investor or its Controlled
Affiliates of their right to vote shall not, in either case be deemed a breach of this
Section
2.2
. For purposes of this
Section
2.2
, the term Voting Securities shall be deemed to
include any security of the company that is convertible into a Voting Security at any time.
(b) The Investor further agrees, it shall not
and shall cause its Controlled Affiliates not to, without the prior written consent of the Company, publicly request the Company to amend or waive any provision of this
Section
2.2
(including this sentence) or do so in a
manner that would require the Company to publicly disclose such request.
(c) The provisions in this
Section
2.2
shall terminate on the Sunset Date.
(d) For the purposes of this
Section
2.2
, consent of the Company shall
require Company
Non-Affiliate
Approval.
2.3
Preemptive Rights
.
(a) Subject to the provisions of this
Section
2.3
(including
Section
2.3(f)
), the Company hereby grants to the Investor the right, subject to applicable Law, to purchase the Investors Pro Rata Portion of any additional shares of Voting Securities, other equity securities or any
securities convertible into, or exchangeable for Voting Securities or equity securities of the Company equity securities that the Company may from time to time propose to issue (collectively, the
New Securities
);
provided
that, for the avoidance of doubt, no Proposed Issuance (including any issuance of New Securities to the Investor) completed in compliance with this
Section
2.3
shall be applied in a circular manner to this
Section
2.3
so as to result in duplicative or iterative
pre-emptive
rights.
(b) The Company shall undertake commercially reasonable efforts to provide the Investor with advance written notice of any proposed issuance
subject to this
Section
2.3
(a
Proposed Issuance
). Prior to or in connection with the consummation of a Proposed Issuance, the Company shall promptly notify the Investor in writing (an
Issuance
Notice
). The Investor shall have a right to purchase the New Securities of the kind offered in such Proposed Issuance on the following terms:
(i) In the event a Proposed Issuance is conducted as a registered public offering, the Investor shall be entitled to purchase
such New Securities at the public offering price for such Proposed Issuance and on the same terms and at the same time as the New Securities are proposed to be Issued by the Company.
(ii) In the event the Proposed Issuance includes a separate closing for the issuance of New Securities pursuant to the
underwriters over-allotment or similar option, the Company shall provide a separate Issuance Notice to the Investor with respect to such issuance.
(iii) In the event the Proposed Issuance is conducted as an offering other than a public offering (e.g., a private placement),
Purchaser shall be entitled to purchase such New Securities at the same price that was paid by the purchasers of New Securities in such Proposed Issuance and on the same terms and at the same time as the New Securities are proposed to be Issued by
the Company.
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(c) The Investor shall have seven (7) calendar days from the receipt of an Issuance
Notice (the
Exercise Period
) to elect to purchase its Pro Rata Portion of the New Securities, at an
all-cash
purchase price per New Security (the
Per Security Offering
Price
) equal to: (i) in the case of
all-cash
consideration proposed to be received by the Company in respect of the Proposed Issuance, the cash purchase price per New Security set forth in the
Issuance Notice or (2) in the case of consideration other than
all-cash
consideration proposed to be received by the Company in respect of the Proposed Issuance, the per New Security price derived from
the aggregate fair market value of all consideration proposed to be received by the Company as of the date of closing of the Proposed Issuance. The Investor may exercise its election by delivering a written notice to the Company during the Exercise
Period. Such notice must indicate the specific amount of New Securities that the Investor desires to purchase and may not be conditioned in any manner not also available to other potential purchasers of the Proposed Issuance, except that it may be
conditioned on the consummation of the Proposed Issuance. The Investor, if so exercising its election, shall be entitled and obligated to purchase, that portion of the New Securities so offered to the Investor specified in the Investors notice
on the terms and conditions set forth in this
Section
2.3
. The failure of the Investor to exercise its election to purchase of its allotment of the New Securities during the Exercise Period shall be deemed a waiver by the
Investor of its rights under this
Section
2.3
with respect to such Proposed Issuance. The closing of any purchase by the Investor shall be consummated concurrently with the consummation of the Proposed Issuance;
provided
,
however
, that the closing of any purchase by any the Investor may be extended beyond the closing of the consummation of the Proposed Issuance to the extent necessary to obtain required governmental approvals (a
Closing Extension
), but for the avoidance of doubt the Company shall not be required to delay or extend the closing of the other portion of the Proposed Issuance to the extent not subject to such governmental approval requirement.
In the event of a Closing Extension, the Investors Investor Percentage Interest during such period shall be calculated as if such purchase of New Securities by the Investor had been consummated concurrently with the closing of the other
portion of the Proposed Issuance not subject to any governmental approval requirement.
(d) Subject to
Section
2.3(e)
, if the Investor fails to purchase its allotment of the New Securities within the time period described in
Section
2.3(c)
, the Company shall be free to complete the Proposed Issuance
within sixty (60) days following the date of the Issuance Notice to the extent and with respect to which the Investor failed to exercise the option set forth in this
Section
2.3
on terms no less favorable to the
Company (including with respect to consideration) than those set forth in the Issuance Notice (except that the amount of New Securities to be issued or sold by the Company may be reduced). If the Company has not completed the sale of New Securities
in accordance with the foregoing sentence, the Company shall provide a new Issuance Notice to the Investor on the terms and provisions set forth in
Section
2.3
.
(e) In the event that the Company has been advised by its outside counsel that the issuance of New Securities in full to the Investor pursuant
to this
Section
2.3
would require the approval of the Companys stockholders under applicable Law, including the rules of the New York Stock Exchange (the
NYSE
) or the rules of such other national
securities exchange on which the Company Common Stock is then listed or trading , the excess amount of such New Securities to the extent otherwise triggering such stockholder approval requirement will be excluded from the total number of New
Securities that the Investor would otherwise have a right to purchase pursuant to this
Section
2.3
.
(f) The
preemptive rights under this
Section
2.3
shall not apply to (i) issuance or sales of New Securities to employees, officers, directors, managers or consultants of the Company or any of its Subsidiaries pursuant to
employee benefits or similar employee or management equity incentive plans or arrangements of the Company or any Subsidiary thereof approved by the Compensation Committee by unanimous vote or approved by a majority of the issued and outstanding
Company Common Stock; (ii) issuances or sales to a Person (who are not affiliates of the Company) in connection with an acquisition (or series of related acquisitions), joint venture, business combination or merger; (iii) issuances of New
Securities by the Company to a wholly owned Subsidiary of the Company; or (iv) an ongoing
at-the-market
offering of equity securities or other similar offering of
equity securities (an
ATM Offering
).
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2.4
ATM Offer and Election to
Purchase
. The foregoing notwithstanding, if the Company conducts an ATM Offering, the Company shall not be required to provide the Investor with advance notice of any such ATM Offering;
provided
,
however
, that the Company shall be
required to offer (an
ATM Offer
) the Investor the opportunity to purchase New Securities of the same kind offered by the Company in the ATM Offering on a quarterly basis in arrears up to such aggregate amount as would enable the
Investor to maintain its Investor Percentage Interest, on the following terms:
(a) The ATM Offer shall be made in writing to the Investor
promptly following the end of each calendar quarter during which any New Securities were sold pursuant to an ATM Offering, but in any event no later than the tenth (10
th
) Business Day following
the end of such calendar quarter, which offer shall include the purchase price and number and type of New Securities that may be purchased;
(b) The Investor shall be entitled to purchase such New Securities at a price equal to the volume weighted average price at which such New
Securities were sold by the Company pursuant to such ATM Offering over the immediately preceding calendar quarter.
(c) The Investor shall
have seven (7) calendar days from the date of its receipt of the ATM Offer pursuant to this
Section
2.4
to elect to purchase, and to fully fund the purchase of, of any such New Securities. If the Investor does not
elect to purchase any New Securities and/or does not provide immediately available funds for the purchase of such New Securities to the Company within such seven (7) calendar day period, the Investors rights to purchase such New
Securities shall terminate.
2.5
Voting
. From and after the date of this Agreement,
until the Sunset Date, the Investor agrees (i) to cause all Voting Securities held by the Investor or any of its Controlled Affiliates or over which the Investor or any of its Subsidiaries otherwise has voting discretion or control to be
present at any Election Meeting either in person or by proxy; (ii) to vote such Voting Securities Beneficially Owned by it or any of its Subsidiaries or over which the Investor or any of its Subsidiaries otherwise has voting discretion or
control (A) in favor of all director nominees nominated by the Companys Nominating and Corporate Governance Committee (the
Governance Committee
) (including the Board Representatives and
Non-Investor
Directors nominated to the Board pursuant to
Sections 1.2(b)
and
1.5
(such nominated
Non-Investor
Directors, the
Nominated
Non-Investor
Directors
)), (B) against any other nominees and (C) against the removal of any
Non-Investor
Director unless the Governance Committee so recommends
in favor of such removal (such recommendation not to be made without the approval of the
Non-Affiliated
Directors acting by Company
Non-Affiliated
Approval), (iii) for
so long as the Investor Percentage Interest is greater than or equal to 30%, not to vote such Voting Securities in favor of any proposals by stockholders of the Company (including under Rule
14a-8
of the
Exchange Act), except at the Investors discretion either (A) in a manner that is proportionate to the manner in which all shares of Company Common Stock owned by other holders of Company Common Stock who are not Controlled Affiliates of
the Investor are voted with respect to such matter, so that, for any such matter, the shares of Company Common Stock owned by Investor or any of its Controlled Affiliates or over which the Investor or any of its Subsidiaries otherwise has voting
discretion or control shall reflect voting results with respect to shares voted for, shares voted against, shares abstained, shares withheld and broker
non-votes
proportionate to the aggregate voting results for shares of Company Common Stock that are owned by other holders of Company Common Stock that are not Controlled Affiliates of the Investor or
over which the Investor or any of its Subsidiaries otherwise does not have voting discretion or control and that are deemed present in person or by proxy at such stockholder meeting, or (B) in a manner that is consistent with the recommendation
of the Board, (iv) to not vote such Voting Securities in favor of any Change of Control Transaction submitted to the Companys stockholders for approval or adoption pursuant to which the
per-share
consideration to be received by the Investor or any of its Affiliates in respect of their shares of Company Common Stock in such Change of Control Transaction is different in amount or form from the
per-share
consideration to be received by other holders of Company Common Stock who are not Affiliates of the Investor or the Company in respect of their shares of Company Common Stock in such Change of Control Transaction, disregarding any right to select
cash
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and/or securities as consideration in such Change of Control Transaction that is offered generally to holders of Company Common Stock in such Change of Control Transaction, unless such Change of
Control Transaction is approved by the Board with Company
Non-Affiliate
Approval or any dissenters rights, and (v) not to take, alone or in concert with any other Persons, any action to remove or
oppose any
Non-Investor
Director or to seek to change the size or composition of the Board or otherwise seek to expand the Investors representation on the Board in each case in a manner inconsistent with
Section
1.1(b)
. As promptly as practicable following the record date for an Election Meeting or any annual or special meeting at which directors are to be removed, the Investor shall provide the Company a proxy for purposes
of effecting the immediately preceding sentence. For the avoidance of doubt, nothing in this
Section
2.5
shall require the Investor to vote any Voting Securities or cause any such Voting Securities to be voted in accordance
with the Boards recommendation with respect to any other matter requiring stockholder approval under Law that is not expressly addressed above.
2.6
Amendment to Parent Certificate of Incorporation
. The Company shall not amend, or
propose to amend, the Parent Certificate of Incorporation in any manner that is inconsistent with or would nullify or supersede any of the terms of this Agreement or would prevent any party hereto from complying with its obligations hereunder unless
such proposed amendment is approved by a majority of the entire Board as well as (1) a majority of the Board Representatives and (2) a majority of the
Non-Investor
Directors, in each case then
serving on the Board.
2.7
Removal and Replacement of the Chief Executive Officer
.
From the Effective Time until the Sunset Date, the Company agrees that the removal and/or replacement of the Chief Executive Officer of the Company, or appointment of a new Chief Executive Officer in the event of a vacancy in such office, shall
require approval of a majority of the Board including Company
Non-Affiliate
Approval.
2.8
Indebtedness
. During the period beginning on the Closing Date and ending on the one
year anniversary of the Closing Date, the Company shall not incur any Indebtedness, other than Indebtedness under the Existing Credit Facility, without the approval of a majority of the Board Representatives.
2.9
Controlled Company
. From the Effective Time until the Sunset Date, the Company shall
not elect to be treated as a controlled company under, nor avail itself of any controlled company exceptions to the corporate governance requirements of, the rules and regulations of the NYSE or any similar rules of such
other national securities exchange on which the Company Common Stock is then listed or trading, without the approval of a majority of the Board including Company
Non-Affiliate
Approval.
ARTICLE III
REGISTRATION RIGHTS
3.1
Registration
.
(a) The Company shall, as soon as practicable after the Closing Date, file a shelf registration statement under the Securities Act to permit
the public resale of all the Registrable Securities held by the Investor from time to time as permitted by Rule 415 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect) (a
Shelf Registration
Statement
) and use reasonable best efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable (but in any event, prior to expiration of the Restricted Period). Subject to
Section
3.4
, the Company shall use reasonable best efforts to keep such Shelf Registration Statement continuously effective, to be supplemented and amended to the extent necessary to ensure that such Shelf Registration
Statement is available or, if not available, that another registration statement is available, for the resale of all the Registrable Securities held by the Investor and other Holders and in compliance with the Securities Act and usable for resale of
such Registrable Securities for a period from the date of its initial effectiveness until the earlier of (i) the date on which all Registrable Securities covered by the Shelf Registration Statement have been sold thereunder in accordance with
the plan and method of distribution disclosed in the prospectus included in the Shelf Registration Statement, or otherwise cease to be Registrable Securities, and
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(ii) the date on which this Agreement terminates pursuant to
Section
5.1
. If the Company is a well-known seasoned issuer (as defined in Rule 405 under the
Securities Act) at the time of filing of the Shelf Registration Statement with the SEC, such Shelf Registration Statement shall be designated by the Company as an automatic Shelf Registration Statement.
(b) Subject to the eligibility of the Company to use a registration statement on Form
S-3
(a
Form
S-3
), any registration pursuant to this
Section
3.1
shall be effected by means of a Form
S-3
providing for an offering
to be made on a continuous basis pursuant to Rule 415 under the Securities Act in accordance with the methods and distribution set forth in the Shelf Registration Statement and Rule 415. If the Investor or any other holder of Registrable Securities
to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement intends to distribute any Registrable Securities included by it on the Shelf Registration Statement by means of an underwritten
offering (a
Underwritten Shelf Take-Down
), it shall promptly so advise the Company in writing and the Company shall take all reasonable steps to facilitate such distribution, including amending or supplementing the Shelf
Registration Statement as necessary in order to enable such Registrable Securities to be distributed pursuant to the Underwritten Shelf Take-Down and the actions required pursuant to
Section
3.3
;
provided
that the
Company shall not be required to facilitate, and the Investor (together with all other Holders) shall not be entitled to request, (i) more than six (6) Underwritten Shelf Take-Downs in the aggregate or (ii) an Underwritten Shelf
Take-Down unless the expected gross proceeds from such Underwritten Shelf Take-Down exceed $50,000,000. The lead underwriters in any such distribution shall be selected by the holders of a majority of the Registrable Securities to be distributed;
provided
that such selections are reasonably acceptable to the Company.
(c) The Company shall not be required to effect a
registration (including a resale of Registrable Securities from an effective Shelf Registration Statement) or an underwritten offering pursuant to this
Section
3.1
: (i) with respect to securities that are not
Registrable Securities or (ii) during any Permitted
Black-out
Period;
provided
that such right to delay a registration or underwritten offering shall be exercised by the Company only if the Company
has generally exercised (or is concurrently exercising) similar
black-out
rights against holders of similar securities that have registration rights.
(d) If, during a period when the Shelf Registration Statement is not effective or available (provided, for the avoidance of doubt, that the
failure of the Shelf Registration Statement to be effective or available shall not be a requirement for the Investor or any Holder to exercise its rights pursuant to this
Section
3.1(d)
and
Section
3.1(e)
with respect to any Piggyback Registration that is proposed to be an underwritten offering), the Company proposes to file a Registration Statement or prospectus supplement with respect to an offering of its
equity securities, other than a registration pursuant to
Section
3.1(a)
or a Special Registration, and the registration form to be filed may be used for the registration or qualification for distribution of Registrable
Securities, the Company will give prompt written notice to the Investor and all other Holders of its intention to effect such a registration (but in no event less than ten (10) Business Days prior to the anticipated filing date) and (subject to
clause (f)
below) will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within five (5) Business Days after the date of the Companys
notice (a
Piggyback Registration
). Any such person that has made such a written request may withdraw its Registrable Securities from such Piggyback Registration by giving written notice to the Company and the managing underwriter,
if any, on or before the pricing date of such Piggyback Registration. The Company may terminate or withdraw any registration under this
Section
3.1(d)
prior to the effectiveness of such registration, whether or not the
Investors or any other Holders have elected to include Registrable Securities in such registration.
Special Registration
means the registration of (i) equity securities and/or options or other rights in respect thereof solely
registered on Form
S-4
or Form
S-8
(or successor form) or (ii) shares of equity securities and/or options or other rights in respect thereof to be offered to
directors, members of management, employees, consultants, customers, lenders or vendors of the Company or its subsidiaries or in connection with dividend reinvestment plans.
(e) If the registration referred to in
Section
3.1(d)
is proposed to be underwritten, the Company will so advise the
Investor and all other Holders as a part of the written notice given pursuant to
Section
3.1(d)
. In such
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event, the right of any Investor and all other Holders to registration pursuant to this
Section
3.1
will be conditioned upon such persons participation in such
underwriting and the inclusion of such persons Registrable Securities in the underwriting, and each such person will (together with the Company and the other persons distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Any Holder so participating shall not be required to make any representations or warranties to or agreements with the
Company or the underwriters in connection with such underwriting agreement other than representations, warranties or agreements regarding such Holder, such Holders title to the Registrable Securities, such Holders authority to sell the
Registrable Securities, such Holders intended method of distribution, absence of liens with respect to the Registrable Securities, enforceability of the applicable underwriting agreement as against such Holder, receipt of all consents and
approvals with respect to the entry into such underwriting agreement and the sale of such Registrable Securities by such Holder and any other representations required to be made by such Holder under applicable law, rule or regulation,
and the
aggregate amount of the liability of such Holder in connection with such underwriting agreement shall not exceed such Holders net proceeds from such underwritten offering (i.e., less underwriting discounts and commissions). If any
participating person disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company and the managing underwriter prior to the execution of the underwriting agreement with respect thereto.
(f) If, in connection with a Piggyback Registration under
Section
3.1(d)
, the managing underwriters advise the
Company that in their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per
share offering price), the Company will include in such registration or prospectus only such number of securities that in the reasonable opinion of such underwriters can be sold without adversely affecting the marketability of the offering
(including an adverse effect on the per share offering price), which securities will be so included in the following order of priority:
(i) if the Piggyback Registration relates to an offering for the Companys own account, then (A)
first
, the
securities the Company proposes to sell, (B)
second
, Registrable Securities of the Investor and all other Holders who have requested registration of Registrable Securities pursuant to
Section
3.1(d)
, as
applicable, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, and (C)
third
, any other securities of the Company that have been requested to be so included, subject to the terms of this
Agreement; or
(ii) if the Piggyback Registration relates to an offering other than for the Companys own account,
then (A)
first
, (1) if such registration is being made at the request of Investor or any Holder pursuant to this Section 3.1, all Registrable Securities of the Investor and all other Holders who have requested registration of
Registrable Securities pursuant to
Section 3.1(b)
or
3.1(d)
, as applicable, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, or (ii) if such registration is not being made
at the request of Investor or any Holder pursuant to this
Section
3.1
, the securities sought to be registered by Persons who have sought to have securities of the Company registered pursuant to rights to demand such
registration and the Registrable Securities of the Investor and all other Holders who have requested registration of Registrable Securities pursuant to
Section
3.1(d)
, pro rata on the basis of the aggregate number of such
securities or shares owned by each such person and (B)
second
, the securities the Company proposes to sell.
3.2
Expenses of
Registration
. All Registration Expenses incurred in connection with any registration, qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be
borne by the holders of the securities so registered pro rata on the basis of the aggregate offering or sale price of the securities so registered.
3.3
Obligations of the Company
. The Company shall use its reasonable best efforts for so
long as there are Registrable Securities outstanding, to take such actions as are under its control to remain a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) if it becomes eligible for such status in the future (and
not become an ineligible issuer (as defined in Rule 405 under the Securities Act)). In addition,
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whenever required to effect the registration of any Registrable Securities or facilitate the distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the
Company shall, as expeditiously as reasonably practicable:
(a) Prepare and file with the SEC a prospectus supplement with respect to a
proposed offering of Registrable Securities pursuant to an effective Registration Statement, subject to this
Section
3.3
, keep such Registration Statement effective or such prospectus supplement current until the securities
described therein are no longer Registrable Securities.
(b) Prepare and file with the SEC such amendments and supplements to the
applicable Registration Statement and the prospectus or prospectus supplement used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders and any underwriters such number of copies of the
applicable Registration Statement and each such amendment and supplement thereto (including in each case all exhibits) and of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned or to be distributed by them.
(d) Use its reasonable best efforts to register and qualify the securities covered by such Registration Statement under such other securities
or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders or any managing underwriter(s), to keep such registration or qualification in effect for so long as such Registration Statement remains in effect, and to take any
other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such Holder;
provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.
(e)
Notify promptly each Holder of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the applicable prospectus, as then in
effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.
(f) Give prompt written notice to the Holders:
(i) when any Registration Statement filed pursuant to
Section
3.1
or any amendment thereto has been
filed with the SEC (except for any amendment effected by the filing of a document with the SEC pursuant to the Exchange Act) and when such Registration Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to any Registration Statement or the prospectus included therein
or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its
legal counsel of any notification with respect to the suspension of the qualification of Company Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;
(v) of the happening of any event that requires the Company to make changes in any effective Registration Statement or the
prospectus related to the Registration Statement in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made); and
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(vi) if at any time the representations and warranties of the Company
contained in any underwriting agreement contemplated by
Section
3.3(j)
cease to be true and correct.
(g) Use
its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any Registration Statement referred to in
Section
3.3(f)(iii)
at the earliest practicable time.
(h) Upon the occurrence of any event contemplated by
Section
3.3(e)
or
3.3(f)(v)
, promptly prepare a
post-effective amendment to such Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to the Holders and any underwriters, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(i) Use reasonable best efforts to procure the cooperation of the Companys transfer agent in settling any offering or sale of
Registrable Securities.
(j) If an Underwritten Shelf Take-Down is requested pursuant to
Section
3.1(b)
, enter
into an underwriting agreement in customary form, scope and substance and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing
underwriter(s), if any, to expedite or facilitate the underwritten disposition of such Registrable Securities, and in connection therewith in any underwritten offering (including making members of management and executives of the Company reasonably
available to participate in road shows, similar sales events and other marketing activities), (i) make such representations and warranties to the Holders that are selling stockholders and the managing underwriter(s), if any, with
respect to the business of the Company and its subsidiaries, and the Shelf Registration Statement, prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in customary form, substance and
scope, and, if true, confirm the same if and when requested, (ii) use its reasonable best efforts to furnish the underwriters with opinions of counsel to the Company, addressed to the managing underwriter(s), if any, covering the matters
customarily covered in such opinions requested in underwritten offerings, (iii) use its reasonable best efforts to obtain cold comfort letters from the independent certified public accountants and reserve engineers of the Company
(and, if necessary, any other independent certified public accountants of any business acquired by the Company for which financial statements and financial data are included in the Shelf Registration Statement) who have certified the financial
statements included in such Shelf Registration Statement, addressed to each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in cold comfort letters,
(iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures customary in underwritten offerings, and (v) deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to
clause
(i)
above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. Notwithstanding anything contained herein to the contrary, the Company shall not be
required to enter into any underwriting agreement or permit any underwritten offering absent an agreement by the applicable underwriter(s) to indemnify the Company in form, scope and substance as is customary in underwritten offerings by the
Company.
(k) (A) make available for inspection by a representative of Holders that are selling stockholders, the managing underwriter(s),
if any, and any attorneys or accountants retained by such Holders or managing underwriter(s), at the offices where normally kept, upon reasonable advance notice and during reasonable business hours, financial and other records, pertinent corporate
documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested (and of the type customarily provided in connection with due diligence conducted in
connection with a registered public offering of securities) by any such representative, managing underwriter(s), attorney or accountant in connection with such Shelf Registration Statement and (B) use reasonable best efforts to procure
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customary legal opinions and auditor and reserve engineer comfort letters in connection with the sale of Registrable Securities the Investor or any other Holder utilizing the Shelf
Registration Statement.
(l) Cause all such Registrable Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or, if no similar securities issued by the Company are then listed on any securities exchange, use its reasonable best efforts to cause all such Registrable Securities to be listed on the NYSE or the NASDAQ
Stock Market, as determined by the Company.
(m) If requested by Holders of a majority of the Registrable Securities being registered
and/or sold in connection therewith, or the managing underwriter(s), if any, promptly include in a prospectus supplement or amendment such information as the Holders of a majority of the Registrable Securities being registered and/or sold in
connection therewith or managing underwriter(s), if any, may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or such amendment as soon as
practicable after the Company has received such request.
(n) Timely provide to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
3.4
Suspension of Sales
. During (i) any Permitted
Black-out
Period or (ii) upon receipt of written notice from the Company that a Registration Statement, prospectus or prospectus supplement
contains or may contain an untrue statement of a material fact or omits or may omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that make inadvisable
use of such Registration Statement, prospectus or prospectus supplement, each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities until termination of such Permitted
Black-out
Period or until such Holder has received copies of a supplemented or amended prospectus or prospectus supplement, or until such Holder is advised in writing by the Company that the use of the
prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Companys expense) all copies, other than permanent file copies then in such Holders
possession, of the prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of receipt of such notice. The total number of days that any such suspension described in
clause (ii)
of
this paragraph may be in effect in any
180-day
period shall not exceed 30 days. The total number of days that any suspension periods described in clause (ii), together with any Permitted Blackouts Periods, may
collectively be in effect during any
12-month
period shall not exceed 120 days.
3.5
Termination of Registration Rights
. A Holders registration rights as to any securities held by such Holder shall terminate on the date such securities cease to qualify as Registrable Securities.
3.6
Furnishing Information
.
(a) Neither any Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405) in connection with the sale of
Registrable Securities without the prior written consent of the Company.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to
Section
3.3
that the Investors and/or the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be reasonably required to effect the registered offering of their Registrable Securities.
3.7
Indemnification
.
(a) The Company agrees to indemnify each Holder and, if a Holder is a person other than an individual, such Holders direct or indirect
partners, members or stockholders and each of such partners, members or stockholders partners, members or stockholders and, with respect to all of the foregoing Persons, each of their respective Affiliates, employees, directors,
officers, trustees or agents and controlling Persons within the
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meaning of the Securities Act and each of their respective representatives (each, an
Indemnitee
), against any and all Losses, joint or several, arising out of or based upon
(i) any untrue statement or alleged untrue statement of material fact contained in any Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any documents
incorporated therein by reference or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in writing for use by such Holder (or any amendment or supplement thereto) or any
omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
provided
, that the Company shall not be liable to
such Indemnitee in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (A) an untrue statement or omission made in such Registration
Statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto or contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or
authorized by it in writing for use by such Holder (or any amendment or supplement thereto), in reliance upon and in conformity with information regarding such Indemnitee or its plan of distribution or ownership interests which was furnished in
writing to the Company by such Indemnitee expressly for use in connection with such Registration Statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto, or
(B) offers or sales effected by or on behalf such Indemnitee by means of (as defined in Rule 159A) a free writing prospectus (as such term is defined in Rule 405) that was not authorized in writing by the Company;
(ii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company or any of its subsidiaries in connection with any such registration, qualification, compliance or sale of
Registrable Securities; (iii) any failure to register or qualify Registrable Securities in any state where the Company or its agents have affirmatively undertaken or agreed in writing that the Company (the undertaking of any underwriter being
attributed to the Company) will undertake such registration or qualification on behalf of the Holders of such Registrable Securities (
provided
that in such instance the Company shall not be so liable if it has undertaken its reasonable best
efforts to so register or qualify such Registrable Securities); or (iv) any actions or inactions or proceedings in respect of the foregoing whether or not an Indemnitee is a party thereto, whether such Registration Statement, final prospectus,
preliminary prospectus, free writing prospectus (as defined in Rule 405) or other document is issued pursuant to this Agreement or otherwise.
(b) In connection with any Registration Statement in which a Holder is participating, each such Holder shall, severally and not jointly,
indemnify the Company, its directors and officers, and each Person, if any, who controls the Company within the meaning of the Securities Act to the same extent as the foregoing indemnity provided for in
Section
3.7(a)
from
the Company to the Holders, but only to the extent arising out of or based upon information furnished in writing by such Holder, or on such Holders behalf, expressly for use in any Registration Statement or any prospectus, including any
amendment or supplement thereto. In no event shall the liability of such Holder hereunder be greater in amount than the dollar amount of the net proceeds (less underwriting discounts and commissions) received by such Holder under the sale of
Registrable Securities giving rise to such indemnification obligation.
(c) Any Person entitled to indemnification hereunder (the
Indemnified Party
) shall give prompt written notice to the Person against whom such indemnity may be sought (the
Indemnifying Party
) of any claim with respect to which it seeks indemnification;
provided
,
however
, the failure to give such notice shall not release the Indemnifying Party from its obligation, except to the extent that the Indemnifying Party has been actually and materially prejudiced by such failure to provide such notice on a
timely basis.
(d) In any case in which any such action is brought against any Indemnified Party, and it notifies an Indemnifying Party of
the commencement thereof, the Indemnifying Party will be entitled to participate therein, and, to the extent that it may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof and acknowledging the obligations of the Indemnifying Party with respect to such proceeding, the Indemnifying Party will not (so long as it shall continue
to have the right to defend, contest,
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litigate and settle the matter in question in accordance with this paragraph) be liable to such Indemnified Party hereunder for any legal or other expense subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, supervision and monitoring (unless (i) such indemnified party reasonably objects to such assumption on the grounds that there may be defenses
available to it which are different from or in addition to the defenses available to such Indemnifying Party and, as a result, a conflict of interest exists or (ii) the Indemnifying Party shall have failed within a reasonable period of time to
assume such defense and the Indemnified Party is or would reasonably be expected to be materially prejudiced by such delay, in either event the indemnified party shall be promptly reimbursed by the Indemnifying Party for the reasonable expenses
incurred in connection with retaining one separate legal counsel (for the avoidance of doubt, for all indemnified parties in connection therewith)). For the avoidance of doubt, notwithstanding any such assumption by an Indemnifying Party, the
indemnified party shall have the right to employ separate counsel in any such matter and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party except as provided in the
previous sentence. An Indemnifying Party shall not be liable for any settlement of an action or claim effected without its consent (which consent shall not be unreasonably withheld, conditioned or delayed). No matter shall be settled by an
Indemnifying Party without the consent of the indemnified party (which consent shall not be unreasonably withheld, conditioned or delayed), unless such settlement (x) includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation, (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any indemnified
party, and (z) does not involve any injunctive or equitable relief that would be binding on the indemnified party or any payment that is not covered by the indemnification hereunder.
(e) The indemnification provided for under this Agreement shall survive the Transfer of the Registrable Securities and the termination of this
Agreement.
(f) If the indemnification provided for in this
Section
3.7
is unavailable to a Indemnified Party
from the Person against the Indemnifying Party with respect to any Losses or is insufficient to hold the Indemnified Party harmless as contemplated therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnified Party, on the one hand, and the Indemnifying Party, on the other
hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party, on the one hand, and of the Indemnified Party, on the other
hand, shall be determined by reference to, among other factors, whether the untrue statement of a material fact or omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the
parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; the Company and each Holder agree that it would not be just and equitable if contribution pursuant to this
Section
3.7(f)
were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this
Section
3.7
. No Indemnified
Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent
misrepresentation.
3.8
Assignment of Registration Rights
. The rights of any Holder
to registration of Registrable Securities pursuant to
Article 3
(but no other rights hereunder) may be assigned by such Holder to a transferee or assignee of Registrable Securities (i) that is a Permitted Transferee of such Holder to
which there is Transferred at least $5,000,000 in Registrable Securities or (ii) to which there is Transferred to such transferee no less than $50,000,000 in Registrable Securities, as otherwise permitted by this Agreement;
provided
,
however
, that the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type of Registrable Securities that are being
assigned.
3.9
Holdback
; Lockup
. With respect to any underwritten offering of
Registrable Securities by the Investors or other Holders pursuant to this
Article
III
, (i) the Company agrees not to effect (other than
B-16
pursuant to such registration or pursuant to a Special Registration) any public sale or distribution, or to file any Registration Statement (other than such registration or a Special
Registration) covering any of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the period not to exceed ten (10) days prior and sixty (60) days following the date of
execution of the underwriting agreement with respect to such underwritten offering or such longer period up to ninety (90) days as may be requested by the managing underwriter and (ii) the Company agrees to cause each of its directors and
senior executive officers to execute and deliver, and each Holder also agrees to execute and deliver, customary lockup agreements in such form and for such time period up to ninety (90) days as may be requested by the managing underwriter;
provided that each Holder shall not be required to execute and deliver any lockup agreement different in form or substance as any lockup executed by the Companys directors and senior executive officers.
3.10
Rule 144
. With a view to making available to the Investor and Holders the benefits
of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of this Agreement;
(b) file with the SEC, in a timely manner,
all reports and other documents required of the Company under the Exchange Act;
(c) so long as an Investor or a Holder owns any
Registrable Securities, furnish to such Investor or such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act, and of the Exchange Act; a copy of
the most recent annual or quarterly report of the Company; and such other reports and documents as the Investor or Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without
registration; and
(d) take such further action as any Holder may reasonably request (including, without limitation (i) making its
Chief Executive Officer and Chief Financial Officer reasonably available to potential purchasers in a reasonable manner (by telephone where feasible) and except during periods when the Company has restricted access to investors in accordance with
its Regulation FD procedures and other policies and procedures required by applicable law; and (ii) executing a customary engagement letter that will provide for customary indemnification of a placement agent with respect to such placement),
all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act, and provided that the commission and fees for such placement shall be at the expense of the requesting
Holder
3.11
Definitions
. As used in this
Article
III
, the
following terms shall have the following respective meanings:
(a)
Holder
means the Investor and any other holder of
Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with
Section
3.8
.
(b)
Holders Counsel
means one counsel for the selling Holders chosen by Holders holding a majority interest in the
Registrable Securities being registered.
(c)
Permitted
Black-out
Period
means,
in the event that the Company determines in good faith that the registration would (x) reasonably be expected to materially adversely affect or materially interfere with any bona fide material financing of the Company or any material
transaction under consideration by the Company or (y) would require disclosure of material information that the Company has a bona fide business purpose for not disclosing and that has not been, and is not otherwise required to be, disclosed to
the public, a period of up to sixty (60) days;
provided
, that a Permitted Blackout Period described in this clause (ii) may not occur more than twice in any period of twelve (12) consecutive months.
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(d)
Register
,
registered
, and
registration
shall refer to a registration effected by preparing and (a) filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering
of effectiveness of such Registration Statement or (b) filing a prospectus and/or prospectus supplement in respect of an appropriate effective Registration Statement on Form
S-3.
(e)
Registrable Securities
means (A) all Company Common Stock held by the Holders from time to time and (B) any
equity securities issued or issuable directly or indirectly with respect to the securities referred to in the foregoing clause (A) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization,
reclassification, merger, amalgamation, arrangement, consolidation or other reorganization, provided that, once issued, such securities will cease to constitute Registrable Securities upon the earliest to occur of (i) when they are sold
pursuant to an effective Registration Statement under the Securities Act, (ii) when they are sold pursuant to Rule 144 and the transferee thereof does not receive restricted securities as defined in Rule 144, (iii) when they
shall have ceased to be outstanding or (iv) when they have been sold in a private transaction in which the transferors rights under this Agreement are not assigned to the transferee of the securities;
provided, however
, that any
Registrable Security shall cease to be a Registrable Security at such time that (A) the holder thereof (together with its Affiliates) ceases to hold at least 5.0% of the outstanding Company Common Stock, (B) such Registrable Security may
be sold by the holder thereof pursuant to Rule 144 without limitation thereunder on volume or manner of sale or information requirements thereunder and (C) at least two years have elapsed since the Closing Date. No Registrable Securities may be
registered under more than one Registration Statement at one time.
(f)
Registration Expenses
means all expenses
incurred by the Company in effecting any registration pursuant to this Agreement (whether or not any registration or prospectus becomes effective or final) or otherwise complying with its obligations under this
Article
III
,
including all registration, filing and listing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, expenses incurred by the Company in connection with any road show, the reasonable fees
and disbursements of Holders Counsel, and expenses of the Companys independent accountants in connection with any regular or special reviews or audits incident to or required by any such registration, but shall not include Selling
Expenses and the compensation of regular employees of the Company, which shall be paid in any event by the Company.
(g)
Rule
144
,
Rule 144A
,
Rule 158
,
Rule 159A
,
Rule 405
and
Rule 415
mean, in each case, such rule promulgated under the Securities Act (or any successor
provision), as the same shall be amended from time to time.
(h)
Selling Expenses
means all discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of Holders Counsel included in Registration Expenses).
3.12
Voluntary Forfeiture
. At any time, any holder of Registrable Securities (including
any Holder) may elect to forfeit its rights set forth in this
Article
III
from that date forward;
provided
, that a Holder forfeiting such rights shall nonetheless be entitled to participate under
Sections
3.1(d)-(f)
in any Pending Underwritten Offering to the same extent that such Holder would have been entitled to if the holder had not withdrawn; and
provided
,
further
, that no such forfeiture shall terminate a Holders rights
or obligations under
Section
3.5
with respect to any prior registration or Pending Underwritten Offering.
Pending Underwritten Offering
means, with respect to any Holder forfeiting its rights pursuant to
this
Section
3.12
, any underwritten offering of Registrable Securities in which such Holder has advised the Company of its intent to register its Registrable Securities either pursuant to
Section
3.1(b)
or
3.1(d)
prior to the date of such Holders forfeiture. In addition, Investor or any other Holder may deliver written notice (an
Opt-Out
Notice
) to the Company requesting that such Investor or Holder not receive notice from the Corporation of any proposed Underwritten Offering;
provided
,
however
, that Investor or other Holder, as applicable, may later revoke
any such
Opt-Out
Notice in writing. Following receipt of an
Opt-Out
Notice from Investor or
B-18
other Holder (unless subsequently revoked), the Company shall not, and shall not be required to, deliver any notice to Investor or such other Holder, as applicable, pursuant to
Section
3.1
.
ARTICLE IV
DEFINITIONS
4.1
Defined Terms
. Capitalized terms when used in this Agreement have the following meanings:
Action
means
any claim, action, suit, arbitration, litigation or proceeding.
Affiliate
means, with respect to any Person, any
Person who directly or indirectly Controls, is Controlled by, or is under common Control with the specified Person. Notwithstanding the foregoing, the Company shall be deemed to not be an Affiliate of the Fund and the Investor for purposes of this
Agreement.
Agreement
has the meaning set forth in the preamble.
ATM Offering
has the meaning set forth in
Section
2.4
.
Beneficially Own
with respect to any securities shall mean having beneficial ownership of such securities (as
determined pursuant to Rule
13d-3
under the Exchange Act without giving effect to the sixty
(60)-day
limitation on determining beneficial ownership contained in Rule
13d-3(d)),
including pursuant to any agreement, arrangement or understanding, whether or not in writing.
Board
has the meaning set forth in
Section
1.1
.
Board Designation Expiration Date
means the earlier of (i) the date on which the Investor Percentage Interest is less
than 10% and (ii) the date on which this Agreement is validly terminated pursuant to
Section
5.1
.
Board Representative
has the meaning set forth in
Section
1.4
.
Business Day
means any day on which banks are not required or authorized to close in the City of New York.
Change of Control Transaction
means the existence or occurrence of any of the following: (a) the sale, conveyance or
disposition of all or substantially all of the assets of the Company; (b) the consolidation, merger or other business combination of the Company with or into any other entity, immediately following which the then current stockholders of the
Company fail to own, directly or indirectly, at least Majority Voting Power; (c) a transaction or series of transactions in which any person or group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) acquires
Majority Voting Power (other than (i) a reincorporation or similar corporate transaction in which the Companys stockholders own, immediately thereafter, interests in the new parent company in essentially the same percentage as they owned
in the Company immediately prior to such transaction, or (ii) a transaction described in clause (b) (such as a triangular merger) in which the threshold in clause (b) is not passed) or (d) the replacement of a majority of the Board of
Directors with individuals who were not nominated or elected by at least a majority of the directors at the time of such replacement.
Closing
has the meaning set forth in the Merger Agreement.
Closing Date
has the meaning set forth in the Merger Agreement.
Company
has the meaning set forth in the preamble.
Company Common Stock
has the meaning set forth in the recitals.
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Company Competitor
means (a) any Person listed on
Exhibit A
hereto, or any Controlled Affiliate thereof or (b) (1) any Person whose primary business is oil and natural gas exploration and development in the Denver-Julesburg Basin or (2) any Affiliate of such Person (other than (i) a private
equity or similar firm that Controls the Person described in clause (b)(1) and (ii) such private equity or similar firms Affiliates, other than such Person and its Controlled Affiliates).
Company
Non-Affiliate
Approval
means the approval of a majority of the total number
of
Non-Affiliated
Directors.
Control
means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
DGCL
means the General Corporation Law of the State of Delaware, as amended.
Effective Time
has the meaning set forth in the Merger Agreement.
Exchange Act
means the Securities Exchange Act of 1934, as amended.
Existing Credit Facility
means that certain Third Amended and Restated Credit Agreement, dated as of March 16, 2010,
by among Bill Barrett Corporation, the financial institutions from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent, as amended, restated, supplemented or otherwise modified.
Form
S-3
has the meaning set forth in
Section
3.1(b)
.
Governance Committee
has the meaning set forth in
Section
2.4
.
Group
has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.
Indebtedness
means all indebtedness, liabilities and obligations, now existing or hereafter arising, for money borrowed by
a Person, or any contingent liability for or guaranty by a Person of any obligation of any other Person (including the pledge of any collateral or grant of any security interest by a Person in any property as security for any such liability,
guaranty or obligation) whether or not any of the foregoing is evidenced by any note, indenture, guaranty or agreement, but excluding all trade payables incurred in the ordinary course of business.
Indemnified Party
has the meaning set forth in
Section
3.7(c)
.
Indemnifying Party
has the meaning set forth in
Section
3.7(c)
.
Indemnitee
has the meaning set forth in
Section
3.7(a)
.
Investor
has the meaning set forth in the recitals hereto, provided that, for the avoidance of doubt, any transferee of
securities of the Company that is required to enter into, or enters into, a joinder agreeing to be bound by the terms of
Sections 2.1
,
2.2
and
2.5
of this Agreement applicable to Investors shall be deemed to be an Investor for
purposes of
Sections 2.1
,
2.2
and
2.5
of this Agreement.
Independent Director
means a director
who (i) is not an officer, director, principal, managing partner or employee of the Investor or the Fund or any of its Affiliates or any spouse, parent, child or sibling of any of the foregoing , (ii) would qualify as an Independent
Director pursuant to the listing standards of the NYSE, or, if the Company Common Stock is not then listed for trading on the NYSE, pursuant to the rules of the national securities exchange on which the Company Common Stock is then listed or
trading, with respect to the
B-20
Company, and (iii) receives no compensation from the Fund, the Investor or any Affiliate thereof for or related to his or her service as a director of the Company and such Persons
actual investment in the Fund does not exceed $1 million during such directors service as a director of the Company.
Investor Director Number
means the number of Board Representatives that the Investor is at such time (or would then be if
an Election Meeting were to be held at such time) entitled to designate pursuant to Section 1.1(b)(i).
Investor Percentage
Interest
means, as of any date of determination, the percentage represented by the quotient of (i) the number of Voting Securities that are then-Beneficially Owned by the Investor and its Affiliates and (ii) the number of all
then-outstanding Voting Securities.
Law
means any applicable federal, state, local, foreign or international law,
statute, code, ordinance, order, rule, rule of common law, regulation, judgment, decree, injunction or treaty.
Losses
means all losses, costs, interest, charges, expenses (including reasonable attorneys fees), obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, assessments or deficiencies.
Majority Voting Power
of the Company means a majority of the ordinary voting power in the election of directors of all the
outstanding Voting Securities of the Company.
Mergers
has the meaning set forth in the recitals.
Merger Agreement
has the meaning set forth in the recitals.
Nominated
Non-Investor
Directors
has the meaning set forth in
Section
2.5
.
Non-Affiliated
Directors
means a
director who qualifies as independent under the rules of the NYSE or the rules of such other national securities exchange on which the Company Common Stock is then listed or trading and who is not a Board Representative.
Non-Investor
Director
means a director who is not a Board Representative.
NYSE
has the meaning set forth in
Section
2.3(e)
.
Pending Underwritten Offering
has the meaning set forth in
Section
3.12
.
Permitted Transferee
means (i) any Affiliate of the Investor and (ii) any holder of membership interests in the
Investor and each of such holders direct and indirect equity holders.
Person
means an individual, a partnership,
a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a government or department or agency thereof.
Piggyback Registration
has the meaning set forth in
Section
3.1(d)
.
Pro Rata Portion
means, with respect to the Investor, on any issuance date for New Securities, the number of New Securities
equal to the product of (i) the total number of New Securities to be issued by the Company on such date and (ii) the Investor Percentage Interest, determined immediately prior to such issuance date.
Registration Statement
means the prospectus and other documents filed with the SEC to effect a registration under the
Securities Act.
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Representatives
has the meaning set forth in the Merger Agreement.
SEC
means the U.S. Securities and Exchange Commission.
Securities Act
means the Securities Act of 1933, as amended.
Shares
has the meaning set forth in the recitals.
Shelf Registration Statement
has the meaning set forth in
Section
3.1(b)
.
Special Registration
has the meaning set forth in
Section
3.1(d)
.
Subsidiary
means, with respect to any Person, another Person, (a) an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing Person or body or (b) more than fifty (50%) percent of the equity interests of which is owned directly or
indirectly by such first Person.
Sunset Date
means the earlier of: (i) the last day of the first period of six
continuous months during which the Investor Percentage Interest is less than 20% and (ii) the last day of the first period of six continuous months ending on or after the fifth (5
th
)
anniversary of the Closing Date during which the Investor Percentage Interest is less than 30%.
Transfer
means
(i) any direct or indirect offer, sale, lease, assignment, encumbrance, pledge, hypothecation, disposition or other transfer (by operation of law or otherwise), either voluntary or involuntary, or entry into any contract, option or other
arrangement or understanding with respect to any offer, sale, lease, assignment, encumbrance, pledge, hypothecation, disposition or other transfer (by operation of law or otherwise), of any capital stock or interest in any capital stock or
(ii) in respect of any capital stock or interest in any capital stock, to enter into any swap or any other agreement, transaction or series of transactions that hedges or transfers, in whole or in part, directly or indirectly, the economic
consequence of such ownership of such capital stock or interest in capital stock, whether any such transaction, swap or series of transactions is to be settled by delivery of securities, in cash or otherwise. Notwithstanding anything to the contrary
in this Agreement, a sale, transfer or other change in the ownership of any equity interests in a Person shall not be deemed to result in the Transfer of capital stock or any interest in capital stock held by such Person unless such sale, transfer
or other change in ownership results in a change of Control of such Person.
Underwritten Shelf Take-Down
has the
meaning set forth in
Section
3.1(b)
.
Voting Securities
means shares of Company Common Stock
and any other securities of the Company entitled to vote generally at any annual or special meeting of the Companys stockholders.
4.2
Terms Generally
. The words hereby, herein,
hereof, hereunder and words of similar import refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which such word appears. All references herein to Articles and Sections shall be
deemed references to Articles and Sections of this Agreement unless the context shall otherwise require. The words include, includes and including shall be deemed to be followed by the phrase without
limitation. References to $ or dollars means United States dollars. The definitions given for terms in this
Article
IV
and elsewhere in this Agreement shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. References herein to any agreement or letter (including the Merger Agreement) shall be deemed
references to such agreement or letter as it may be amended, restated or otherwise revised from time to time. If, and as often as, there is any change in the outstanding shares of Company Common Stock by reason of a share dividend or distribution,
or stock split or other subdivision, or in connection with a combination of stock,
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recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization or other similar capital transaction, appropriate anti-dilution adjustments will be
made in the provisions of this Agreement so as to fairly and equitably preserve the rights and obligations set forth herein.
ARTICLE V
MISCELLANEOUS
5.1
Term
. This Agreement will be effective as of the Closing Date and, except as
otherwise set forth herein will continue in effect thereafter until the earlier of (a) the time when no shares of Company Common Stock are held by the Investor or any other Holder and (b) its termination by the consent of all parties
hereto or their respective successors in interest.
5.2
Representations and
Warranties
. Each party hereto hereby represents and warrants to each other party to this Agreement that as of the date such party executes this Agreement: (a) it is duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its organization; (b) this Agreement has been duly and validly executed and delivered by such party and this Agreement constitutes a legal and binding obligation of such party , enforceable against the such party in
accordance with its terms; (c) the execution, delivery and performance by such party of this Agreement and the consummation by such party of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time,
or both (i) violate any Law applicable to it, or (ii) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which such party is a party or by which such party is bound, except
for such violations, conflicts, breaches or defaults that would not, in the aggregate, materially affect such partys ability to perform its obligations hereunder. The Investor hereby represents and warrants to the Company that: (i) is
acquiring its shares of Company Common Stock for its own account, solely for investment and not with a view toward, or for sale in connection with, any distribution thereof in violation of any federal or state securities or blue sky
laws, or with any present intention of distributing or selling such shares of Company Common Stock in violation of any such laws, (ii) has such knowledge and experience in financial and business matters and in investments of this type that it
is capable of evaluating the merits and risks of its investment in the shares of Company Common Stock and of making an informed investment decision and (iii) is an accredited investor within the meaning of Rule 501 of Regulation D
under the Securities Act.
5.3
Legends; Securities Act Compliance
.
(a) A copy of this Agreement shall be filed with the Secretary of the Company and kept with the records of the Company. Each Holder agrees
that all certificates, book entry shares or other instruments representing such Shares will bear a legend substantially in to the following effect:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENTS FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT) OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT THE SECURITIES MAY BE SOLD PURSUANT TO RULE 144 OR ANOTHER
AVAILABLE EXEMPTION UNDER THE SECURITIES ACT AND THE RULES AND REGULATIONS THEREUNDER. THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT WITH CERTAIN RESTRICTIONS ON TRANSFER, COPIES OF WHICH MAY BE OBTAINED FROM
THE COMPANY OR FROM THE HOLDER OF THIS CERTIFICATE. ANY ATTEMPTED TRANSFER OR DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE STOCKHOLDERS AGREEMENT SHALL BE NULL, VOID AND OF NO EFFECT.
(b) Notwithstanding
Section
5.3(a)
, at the request of the Investor or other applicable Holder, (i) at such time
as the restrictions described in the foregoing are no longer applicable to the Investor or such other Holder and
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(ii) with respect to restrictions that refer to the Securities Act or other Laws, upon receipt by the Company of an opinion of counsel to the effect that the first sentence of the foregoing
legend is no longer required under the Securities Act or other Laws, as the case may be, the Company will promptly cause such legend to be removed from any certificate or book entry share for any Shares held by the Investor or such other Holder.
5.4
No Inconsistent Agreements
. The Company will not hereafter enter into any
agreement with respect to its securities that violates or is inconsistent or conflicts with the rights granted to the holders of Registrable Securities in this Agreement.
5.5
Amendments and Waivers
. Except as otherwise provided herein, the provisions of this
Agreement may be amended or waived only upon the prior written consent of (i) the Company by Company
Non-Affiliate
Approval and (ii) the Investor. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law.
5.6
Successors and Assigns
. Except as set forth in
Section
3.8
, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto, in whole or in part
(whether by operation of law or otherwise), without the prior written consent of the other party;
provided
,
however
, that the Investor may assign it rights under (i)
Article I
to any Affiliate of the Investor;
provided
that such Affiliate (x) has executed a customary joinder to this Agreement, in form and substance reasonably acceptable to the Company, in which such Affiliate agrees to be subject to the terms and conditions of this Agreement
applicable to the Investor and (y) remains an Affiliate of the Fund for so long as
Article I
remains in Effect;
provided
,
further
, that no more than one Person shall be entitled to exercise the rights of the Investor under
Article I
at any time, and (ii)
Section 2.3
, in whole or in part, to any Affiliate of the Investor, provided that such Affiliate (x) has executed a customary joinder to this Agreement, in form and substance reasonably
acceptable to the Company, in which such Affiliate agrees to be subject to the terms and conditions of this Agreement applicable to the Investor and (y) remains an Affiliate of the Fund for so long as
Section
2.3
remains in effect. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective permitted successors and assigns. Any attempted assignment in violation of this
Section
5.6
shall be void.
5.7
Severability
. Whenever
possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
5.8
Counterparts
. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that each party need not sign the same counterpart.
5.9
Entire Agreement
. This Agreement (including the documents and the instruments
referred to in this Agreement), together with the Merger Agreement, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this
Agreement.
5.10
Governing Law; Jurisdiction
. This Agreement shall be governed by
and construed in accordance with the Laws of the state of Delaware applicable to contracts executed and to be performed wholly within such State and without reference to the choice or conflict of law principles (whether of the state of Delaware or
any other jurisdiction) that would result in the application of the Laws of a different jurisdiction. Each party hereto irrevocably submits to the jurisdiction of the Court of Chancery of the state of Delaware (or
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solely if such courts decline jurisdiction in any federal court located in the state of Delaware) any Action arising out of or relating to this Agreement, and hereby irrevocably agrees that all
claims in respect of such Action may be heard and determined in such court. Each party hereto hereby irrevocably waives, and agrees not to assert by way of motion, defense, counterclaim, or otherwise, the defense of an inconvenient forum to the
maintenance of such Action. The parties hereto further agree, (i) to the extent permitted by Law, that final and nonappealable judgment against any of them in any Action contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment and (ii) that service of process upon such party in any such action or
proceeding shall be effective if notice is given in accordance with
Section
5.14
.
5.11
WAIVER OF JURY TRIAL
. Each party hereto knowingly, intentionally, and
voluntarily waives to the fullest extent permitted by applicable Law trial by jury in any action, proceeding or counterclaim brought by any of them against the other arising out of or in any way connected with this Agreement, or any other agreements
executed in connection herewith or the administration thereof or any of the transactions contemplated herein or therein. No party hereto shall seek a jury trial in any lawsuit, proceeding, counterclaim or any other litigation procedure based upon,
or arising out of, this Agreement or any related instruments or the relationship between the parties hereto. No party hereto will seek to consolidate any such action in which a jury trial has been waived with any other action in which a jury trial
cannot be or has not been waived. Each party hereto certifies that it has been induced to enter into this agreement or instrument by, among other things, the mutual waivers and certifications set forth above in this
Section
5.11
. No party hereto has in any way agreed with or represented to any other party that the provisions of this
Section
5.11
will not be fully enforced in all instances.
5.12
Specific Performance
. The parties hereto agree that irreparable damage would occur
if any provision of this Agreement were not performed in accordance with the terms hereof and that, except as otherwise provided in
Section
5.10
, the parties shall be entitled to an injunction or injunctions or other
equitable relief to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court set forth in
Section
5.10
, in addition to any other remedy to which they are
entitled at law or in equity.
5.13
No Third-Party Beneficiaries
. Nothing in this
Agreement shall confer any rights upon any Person other than the parties hereto and each such partys respective heirs, successors and permitted assigns, all of whom shall be third-party beneficiaries of this Agreement;
provided
that
(i) any Person (other than the Investors) that becomes an Investor shall be an intended third-party beneficiary hereof and (ii) the Persons indemnified under
Article
III
are intended third-party beneficiaries of
Article
III
.
5.14
Notices
. All notices and other
communications to be given to any party hereunder shall be sufficiently given for all purposes hereunder if in writing and upon delivery if delivered by hand, one Business Day after being sent by courier or overnight delivery service, three
(3) Business Days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or when sent in the form of a facsimile or
e-mail
and receipt confirmation
is received, and shall be directed to the address, facsimile number or
e-mail
set forth below (or at such other address or facsimile number as such party shall designate by like notice):
If to the Company, to:
[]
B-25
with a copy (which shall not constitute notice) to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York,
New York 10019
If to the Investor, to:
[]
with a copy (which
shall not constitute notice) to:
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
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DMcWilliams@velaw.com
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If to the Fund, to:
[]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement by their authorized
representatives as of the date first above written.
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Signature Page to Stockholders Agreement
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Annex C
December 4, 2017
Board of Directors of Bill
Barrett Corporation
1099 18
th
Street, Suite 2300
Denver, Colorado 80202
Dear Members of the Board of
Directors:
You have requested our opinion as to the fairness, from a financial point of view, to Bill Barrett Corporation
(Parent) of the Rio Grande Merger Consideration (as defined below) to be paid pursuant to the Agreement and Plan of Merger (the Agreement), to be entered into by and among Parent, a newly incorporated wholly owned subsidiary
of Parent (New Parent), two wholly owned subsidiaries of New Parent (Parent Merger Sub and Rio Grande Merger Sub, and collectively, the Merger Subs), Fifth Creek Energy Operating Company, LLC (the
Company), Fifth Creek Energy Company, LLC (Holdings) and NGP Natural Resources XI, L.P. (the Fund, and together with Parent, New Parent, the Merger Subs, Holdings and the Company, the Parties). The
Agreement provides, among other things, that Parent Merger Sub will merge with and into Parent (the Parent Merger), and each issued and outstanding share of Parent Common Stock (other than Parent Common Stock held in the treasury of
Parent and shares of Parent Common Stock held by wholly owned Subsidiaries of Parent) will be converted into the right to receive one share of common stock of New Parent (the New Parent Common Stock). The Agreement also provides that Rio
Grande Merger Sub will merge with and into the Company (the Merger), and all issued and outstanding Company LLC Interests, in the aggregate, will be converted into the right to receive an aggregate of 100,000,000 shares of New Parent
Common Stock (the Rio Grande Merger Consideration). The transactions contemplated by the Agreement and the Exchange Agreement (as defined below) are referred to herein as the Transactions. Capitalized terms used but not
defined herein shall have the meanings given to them in the Agreement.
Tudor Pickering Holt & Co Advisors LP (TPH)
and its affiliates, including Perella Weinberg Partners, as part of their investment banking business, are regularly engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes.
TPH and its affiliates
also engage in securities trading and brokerage, private equity activities, investment management activities, equity research and other financial services, and in the ordinary course of these activities, TPH and its affiliates may from time to time
acquire, hold or sell, for their own accounts and for the accounts of their customers, (i) equity, debt and other securities (including derivative securities) and financial instruments (including bank loans and other obligations) of Parent, any
of the other Parties and any of their respective affiliates and (ii) any currency or commodity that may be material to the Parties or otherwise involved in the Transactions and the other matters contemplated by the Agreement. In addition, TPH
and its affiliates and certain of its and their employees, including members of the team performing services in connection with the Transactions, as well as certain private equity funds and investment management funds associated or affiliated with
TPH in which they may have financial interests, may from time to time acquire, hold or make direct or indirect investments in or otherwise finance a wide variety of companies, including the Parties, other potential purchasers or Transaction
participants or their respective affiliates. We have acted as financial advisor to Parent in connection with, and have participated in certain negotiations leading to, the Transactions
.
We expect to receive fees for our services, a portion of
which is contingent upon the consummation of the Transaction, and Parent has agreed to reimburse our expenses and indemnify us and certain related parties against certain liabilities arising out of our engagement. We have previously provided
services to certain equityholders and affiliates of the Parties as previously disclosed to you, and we may in the future provide investment banking or other financial services to the Parties or their respective
Heritage Plaza | 1111 Bagby, Suite
5100 | Houston, Texas 77002 | www.tphco.com
Tudor Pickering Holt & Co Advisors
LP | Members FINRA/SIPC
C-1
securityholders, affiliates or portfolio companies in the future. In connection with such investment banking
or other financial services, we may receive compensation.
In connection with this opinion, we have reviewed, among other things, (i) the financial terms of the draft of the Agreement provided to
us on December 4, 2017; (ii) the draft of the Stockholders Agreement (the Stockholders Agreement), by and between New Parent, Holdings and the Fund, provided to us on December 4, 2017; (iii) the draft of the Exchange Agreement
(the Exchange Agreement), by and among Parent and the holders party thereto, provided to us on December 4, 2017; (iv) annual reports to stockholders and Annual Reports on Form
10-K
of Parent
for the five years ended December 31, 2016; (v) certain interim reports to stockholders and Quarterly Reports on Form
10-Q
of Parent; (vi) certain other communications from Parent to its
stockholders; (vii) certain internal financial information and forecasts for the Company provided to us by management of Parent and certain internal financial information and forecasts for Parent and the combined company prepared by management
of Parent, both including and excluding (in the case of the combined company forecasts) the effects of an equity financing transaction proposed to be undertaken in connection with the Transactions (the Forecasts); (viii) certain publicly
available research analyst reports with respect to the future financial performance of Parent; and (ix) certain cost savings and operating synergies projected by the management of Parent to result from the Transactions (the
Synergies). We also have held discussions with members of the senior management of Parent regarding their assessment of the strategic rationale for, and the potential benefits of, the Transactions and the past and current business
operations, financial condition and future prospects of the Parties. In addition, we have reviewed the reported price and trading activity for Parent Common Stock, compared certain financial and, with respect to Parent, stock market information, for
the Company and Parent with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the oil and gas exploration and production industry
specifically and in other industries generally and reviewed such other documents, performed such other studies and analyses, and considered such other factors, as we considered appropriate.
For purposes of our opinion, we have assumed and relied upon, without assuming any responsibility for independent verification, the accuracy
and completeness of all of the financial, accounting, legal, tax, regulatory and other information provided to, discussed with or reviewed by or for us, or publicly available. In that regard, we have assumed with your consent that the Forecasts and
Synergies have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Parent and that such Forecasts and Synergies will be realized in the amounts and time periods contemplated thereby. We have also
assumed with your consent that (i) the executed Agreement, Stockholders Agreement and Exchange Agreement (together with any exhibits and schedules thereto) will not differ in any respect material to our analyses or opinion from the draft
versions we have examined, referenced above, (ii) all conditions to the consummation of the Transactions will be satisfied without amendment or waiver thereof or to any other term of the Agreement, and (iii) all governmental, regulatory or
other consents or approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on the Company, Parent, New Parent, the Merger Subs, the holders of New Parent Common Stock, Parent Common Stock or Company
LLC Interests or the expected benefits of the Transactions in any way meaningful to our analysis. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or
off-balance-sheet
assets and liabilities) of the Company or any of its subsidiaries or Parent or any of its subsidiaries and we have not been furnished with any such evaluation or appraisal. Our opinion does not
address any legal, regulatory, tax or accounting matters.
Our opinion does not address the underlying business decision of Parent to
engage in the Transactions, or the relative merits of the Transactions as compared to any other alternative transaction that might be available to Parent. This opinion addresses only the fairness from a financial point of view, as of the date
hereof, to Parent of the payment of the Rio Grande Merger Consideration pursuant to the Agreement. We do not express any view on, and our opinion does not address, any other term or aspect of the Agreement or the Transactions, including, without
limitation, the fairness of any
debt-to-equity
exchange transaction, equity financing transaction or other
Heritage
Plaza | 1111 Bagby, Suite 5100 | Houston, Texas 77002 | www.tphco.com
Tudor Pickering Holt & Co Advisors LP | Members FINRA/SIPC
C-2
financing transaction undertaken in connection with the Transactions, or the fairness of the Transactions to, or any consideration paid or received in connection therewith by, creditors or other
constituencies of the Company, Parent or New Parent or their subsidiaries; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company or Parent, or any class
of such persons, in connection with the Transactions, whether relative to the Rio Grande Merger Consideration pursuant to the Agreement or otherwise. We are not expressing any opinion as to the price at which the shares of New Parent Common Stock or
Parent Common Stock will trade at any time. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof. We assume no obligation to update,
revise or reaffirm our opinion and expressly disclaim any responsibility to do so based on circumstances, developments or events occurring or of which we become aware after the date hereof. Our engagement is on behalf of the Board of Directors of
Parent and not on behalf of any holder of Parent Common Stock or New Parent Common Stock or any other person. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of Parent
in connection with its consideration of the Transactions, and such opinion does not constitute a recommendation as to how the Board of Directors, Parent, the Company or its board of managers or any committee thereof, any holder of interests in
Parent, New Parent or the Company or any other person should act or vote with respect to such Transactions or any other matter. The issuance of this opinion has been approved by TPHs fairness opinion committee.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Rio Grande Merger Consideration to be paid
pursuant to the Agreement is fair, from a financial point of view, to Parent.
Very truly yours,
Tudor Pickering Holt & Co Advisors LP
Heritage
Plaza | 1111 Bagby, Suite 5100 | Houston, Texas 77002 | www.tphco.com
Tudor Pickering Holt & Co Advisors LP | Members FINRA/SIPC
C-3
Annex D
FORM OF
AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
OF
[ ]
[ ] (the Corporation), a
corporation organized and existing under and by virtue of the Delaware General Corporation Law, hereby certifies as follows:
1. The
original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on November 28, 2017 under the name [Red Rider Holdco, Inc.].
2. This Amended and Restated Certificate of Incorporation restates, integrates and further amends the Certificate of Incorporation of the
Corporation.
3. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the Delaware General Corporation Law.
4. The Certificate of Incorporation of the Corporation is hereby restated, integrated
and further amended to read in its entirety as follows:
FIRST: The name of the corporation is [] (hereinafter referred to as the
Corporation).
SECOND: The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville
Road, Suite 400, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at that address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware
General Corporation Law (the DGCL).
FOURTH: A. The total number of shares of all classes of stock which the Corporation shall
have authority to issue is 475,000,000, consisting of 400,000,000 shares of Common Stock, par value $0.001 per share (the Common Stock), and 75,000,000 shares of Preferred Stock, par value $0.001 per share (the Preferred
Stock).
B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of
shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware (such certificate being hereinafter referred to as a Preferred Stock Designation), to establish from time to time
the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any
series thereof, unless a vote of any such holders is required pursuant to the terms of any Preferred Stock Designation.
C. Each
outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common
Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any Certificate of Designations relating to any series of Preferred Stock) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate
of Incorporation (including any Certificate of Designations relating to any series of Preferred Stock) or otherwise.
D-1
FIFTH: The following provisions are inserted for the management of the business and the
conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot unless the bylaws
so provide.
C. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
D.
Special meetings of stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board. For purposes of this Amended and Restated Certificate of Incorporation, the
term Whole Board shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.
SIXTH: A. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors, the number of directors shall
be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. At each annual meeting of stockholders, each director, other than those who may be elected by the holders of any
series of Preferred Stock, shall be elected for a one year term expiring at the next succeeding annual meeting of stockholders. A director shall hold office until his or her successor shall have been duly elected and qualified, subject to his or her
prior death, resignation, retirement, disqualification or removal from office. If authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have
been created.
B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall, unless otherwise required by law
or by resolution of the Board of Directors, be filled only by a majority vote of the directors then in office, though less than a quorum (and not by stockholders). Directors so chosen shall serve for a term expiring at the next annual meeting of
stockholders or until such directors successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
C. At any meeting of the Board of Directors, a majority of the total number of the Whole Board shall constitute a quorum for all purposes. At
any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as
otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or
transmissions are filed with the minutes of proceedings of the Board of Directors.
D. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the bylaws of the Corporation. Except as provided in such advance notice
provision, the bylaws shall not contain any provision imposing director qualifications.
E. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote
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of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal the bylaws of the
Corporation. Any adoption, amendment or repeal of the bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board. The stockholders shall also have power to adopt, amend or repeal the bylaws of the
Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal
any provision of the bylaws of the Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to
authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal or modification.
NINTH: The Corporation reserves the
right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this
reservation; provided, however, that, notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the
holders of any class or series of the stock of this Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article NINTH, Article FIFTH, Article SIXTH, Article
SEVENTH, or Article EIGHTH.
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IN WITNESS WHEREOF, the undersigned hereby signs this Amended and Restated Certificate of
Incorporation on this [] day of [], 2018.
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By:
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Name:
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Title:
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Annex E
FORM OF
[ ]
AMENDED AND RESTATED BYLAWS
as of [], 2018
ARTICLE I STOCKHOLDERS
Section 1.
Annual Meeting
.
(1) An annual meeting of the stockholders, for the election of directors and for the transaction of such other business as may properly
come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months of the last annual meeting of stockholders.
(2) Nominations of persons for election to the Board of Directors and the proposal of business to be transacted by the stockholders may
be made at an annual meeting of stockholders (a)
pursuant to the Corporations notice with respect to such meeting, (b)
by or at the direction of the Board of Directors or (c)
by any stockholder of record of
the Corporation who was a stockholder of record at the time of the giving of the notice required in the following paragraph, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this section. For the
avoidance of doubt, the foregoing clause (c)
shall be the exclusive means for a stockholder to make nominations or propose business (other than business included in the Corporations proxy materials pursuant to Rule
14a-8
under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the Exchange Act)) at an annual meeting of stockholders.
(3) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause
(c)
of the foregoing paragraph, (1)
the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, (2)
such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware, (3)
if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined
in subclause (c)(iv) of this paragraph, such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporations voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporations voting shares reasonably believed by such
stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice and (4)
if no Solicitation
Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a
Solicitation Notice under this section. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 60 or more than 90 days prior to the first anniversary (the
Anniversary) of the date on which the Corporation first mailed its proxy materials for the preceding years annual meeting of stockholders; provided, however, that, subject to the last sentence of Section
1(4), if the
date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding years annual meeting or if no such meeting was held in the preceding year, notice by the stockholder to be
timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii)
the 10th day following the day on which public announcement of the date of such meeting is first
made. Such stockholders notice shall set forth:
a. as to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person as would be required to be disclosed in solicitations of proxies for the
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election of such nominees as directors pursuant to Regulation 14A under the Exchange Act and such persons written consent to serve as a director if elected;
b. as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons
for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and
c. as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a
party):
(i) the name and address of each such party;
(ii) (A) the class, series and number of shares of the Corporation that are owned, directly or indirectly, beneficially and of record by
each such party, (B)
any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares
of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital
stock of the Corporation or otherwise (a Derivative Instrument) directly or indirectly owned beneficially by each such party, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or
decrease in the value of shares of the Corporation, (C)
any proxy, contract, arrangement, understanding, or relationship pursuant to which either party has a right to vote, directly or indirectly, any shares of any security of the
Corporation, (D)
any short interest in any security of the Corporation held by each such party (for purposes of this Section
1(3), a person shall be deemed to have a short interest in a security if such person directly or
indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares
of the Corporation owned beneficially directly or indirectly by each such party that are separated or separable from the underlying shares of the Corporation, (F)
any proportionate interest in shares of the Corporation or Derivative
Instruments held, directly or indirectly, by a general or limited partnership in which either party is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (G)
any performance-related fees
(other than an asset-based fee) to which each such party is directly or indirectly entitled based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including
without limitation any such interests held by members of each such partys immediate family sharing the same household (which information set forth in this paragraph shall be supplemented by such stockholder or such beneficial owner, as the
case may be, not later than 10 days after the record date for determining the stockholders entitled to vote at the meeting; provided, that if such date is after the date of the meeting, not later than the day prior to the meeting);
(iii) any other information relating to each such party that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or the election of directors in a contested election pursuant to Section
14 of the Exchange Act; and
(iv) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the
case of a proposal, at least the percentage of the Corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporations voting
shares to elect such nominee or nominees (an affirmative statement of such intent, a Solicitation Notice).
(4) Notwithstanding anything in the second sentence of the third paragraph of this Section
1 to the contrary, in the event
that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors
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made by the Corporation at least 70 days prior to the Anniversary, a stockholders notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first
made by the Corporation. In no event shall an adjournment, or postponement of an annual meeting for which notice has been given, commence a new time period for the giving of a stockholders notice.
(5) A person shall not be eligible for election or reelection as a director at an annual meeting of stockholders unless the person is
nominated (i)
by or at the direction of the Board of Directors or (ii)
by a stockholder in accordance with Section
1(2)(c) or (ii). Only such business shall be conducted at an annual meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures set forth in this section. The chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the
meeting has been made in accordance with the procedures set forth in these Amended and Restated Bylaws and, if any proposed nomination or business is not in compliance with these Amended and Restated Bylaws, to declare that such defectively proposed
business or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(6) For purposes of
these Amended and Restated Bylaws, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(7) Notwithstanding the foregoing provisions of this Section
1, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section
1. Nothing in this Section
1 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporations proxy statement pursuant to Rule
14a-8
under the Exchange Act.
Section 2.
Special Meetings
.
(1) Special meetings of the stockholders, other than those required by statute, may be called at any time by the Board of Directors
acting pursuant to a resolution adopted by a majority of the Whole Board. For purposes of these Amended and Restated Bylaws, the term Whole Board shall mean the total number of authorized directors whether or not there exist any
vacancies in previously authorized directorships. The Board of Directors may postpone or reschedule any previously scheduled special meeting.
(2) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to
the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting
(a)
by or at the direction of the Board of Directors or (b)
by any stockholder of record of the Corporation who is a stockholder of record at the time of giving of notice provided for in this paragraph, who shall be entitled
to vote at the meeting and who delivers a written notice to the Secretary setting forth the information set forth in Section
1(3)(a) and 1(3)(c) of this Article I. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders only if the stockholders notice required by the preceding sentence shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the
close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall an adjournment, or postponement of a special meeting for which notice has been given, commence a new time period for the giving of a stockholders notice. A person shall not be eligible for election or
reelection as a director at a special meeting unless the person is nominated (i)
by or at the direction of the Board of Directors or (ii)
by a stockholder in accordance with the notice procedures set forth in this Article I.
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(3) Notwithstanding the foregoing provisions of this Section
2, a
stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section
2. Nothing in this Section
2 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section
3.
Notice of Meetings
.
Notice of the place, if any, date, and time of all meetings of the stockholders, the means of remote communications, if any, by which
stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining
stockholders entitled to notice of the meeting, shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting as of the record
date for determining the stockholders entitled to notice of the meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Amended and
Restated Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the
meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, notice of the place, if any, date, and time of
the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith. If after the adjournment a
new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting, which record date shall not precede the date on which the resolution
fixing the record date is adopted by the Board of Directors and, except as otherwise required by law, shall not be more than sixty (60) nor less than ten (10) days before the date of such adjourned meeting, and shall give notice of the
adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting. At any adjourned meeting, any business may be transacted which might have been transacted at
the original meeting.
Section
4.
Quorum
.
At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law or by the rules of any stock exchange upon which the Corporations securities are listed.
Where a separate vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on
that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, if any,
date, or time.
Section
5.
Organization
.
Such person as the Board of Directors may have designated or, in the absence of such a person, the Chairman of the Board or, in his or her
absence, the Chief Executive Officer of the Corporation, or in his or her absence, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present,
in person or by proxy, shall call to order any meeting
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of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman of the meeting
appoints.
Section
6.
Conduct of Business
.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in order. The chairman shall have the power to adjourn the meeting to another place, if any, date and time. The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
Section
7.
Proxies and Voting
.
At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original writing or transmission.
The Corporation may, and to the
extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or the rules of any stock exchange
upon which the Corporations securities are listed, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.
Section
8.
Stock List
.
The officer who has charge of the stock ledger of the Corporation shall, at least 10 days before every meeting of stockholders, prepare and
make a complete list of stockholders entitled to vote at any meeting of stockholders; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the
stockholders entitled to vote as of the 10th day before the meeting date, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in his or her name. Such list shall be open to the
examination of any stockholder for a period of at least 10 days prior to the meeting in the manner provided by law.
A stock list shall
also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine (a) the identity of the stockholders entitled to examine such stock list and to vote at the
meeting and (b) the number of shares held by each of them.
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ARTICLE II BOARD OF DIRECTORS
Section
1.
Number, Election and Term of Directors
.
Subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances and subject to
Section 1.1 of the Stockholders Agreement, if then in effect, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. At each annual
meeting of stockholders, each director, other than those who may be elected by the holders of any series of Preferred Stock, shall be elected for a one year term expiring at the next succeeding annual meeting of stockholders. A director shall hold
office until his or her successor shall have been duly elected and qualified, subject to his or her prior death, resignation, retirement, disqualification or removal from office. If authorized by a resolution of the Board of Directors, directors may
be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created.
Section
2.
Newly Created Directorships and Vacancies
.
Subject to the rights of the holders of any series of preferred stock then outstanding and subject to Section 1.2 of the Stockholders
Agreement, if then in effect, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall, unless otherwise required by law or by resolution of the Board of Directors, be filled only by a majority vote of the directors then in office, though less than a quorum (and not by stockholders). Directors so chosen
shall serve for a term expiring at the next annual meeting of stockholders or until such directors successor shall have been duly elected and qualified. No decrease in the number of authorized directors shall shorten the term of any incumbent
director.
Section
3.
Regular Meetings
.
Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall
have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required.
Section
4.
Special Meetings
.
Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, the President or by a
majority of the Whole Board and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five (5) days before the meeting or by telephone or by telegraphing or telexing or by facsimile or electronic transmission of the same not less than twenty-four (24) hours before the meeting. Unless
otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.
Section
5.
Quorum
.
At any meeting of the Board of Directors, a majority of the total number of the Whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.
Section
6.
Participation in Meetings By Conference Telephone
.
Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board of Directors or committee by means
of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.
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Section
7.
Conduct of Business
.
At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board of Directors may from time to
time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or the Stockholders Agreement or required by law. Action may be taken by the Board of Directors without a
meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors. Such filing shall
be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section
8.
Compensation of Directors
.
Unless otherwise restricted by the Amended and Restated Certificate of Incorporation, the Board of Directors shall have the authority to fix
the compensation of the directors, subject to Section 1.3 of the Stockholders Agreement, if then in effect. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or paid a stated salary or paid other compensation as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed compensation for attending committee meetings.
ARTICLE III
COMMITTEES
Section
1.
Committees of the Board of Directors
.
The Board of Directors may from time to time designate committees of the Board of Directors, with such lawfully delegable powers and duties as
it thereby confers, to serve at the pleasure of the Board of Directors and shall elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified
from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.
Section
2.
Conduct of Business
.
Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings;
one-third
(1/3) of the members shall constitute a quorum unless the committee shall consist
of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all
members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such committee. Such filing shall be in paper form if
the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
ARTICLE IV
OFFICERS
Section
1.
Generally
.
The officers of the Corporation shall consist of a Chairman, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary,
a Treasurer and such other officers as may from time to time be appointed by
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the Board of Directors, including but not limited to a Chief Operating Officer and/or a Chief Financial Officer. Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders or at such other time as the Board of Directors selects. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any number of offices may be held by the same person. The salaries of officers elected by the Board of Directors shall be fixed from time to time by the Board of Directors or by such officers as may be designated by
resolution of the Board of Directors.
Section
2.
Chairman of the Board
.
The Chairman of the Board or his designee as provided in this Article IV shall preside at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board shall exercise and perform such other powers and duties as may from time to time be assigned to the Chairman by the Board of Directors.
Section
3.
Chief Executive Officer
.
Subject to the provisions of these Amended and Restated Bylaws, to Section 2.7 of the Stockholders Agreement, if then in effect, and to
the direction of the Board of Directors, the Chief Executive Officer shall be elected by the Board of Directors. The Chief Executive Officer shall be responsible for the general management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to the office of Chief Executive Officer or which are delegated to him or her by the Board of Directors. The Chief Executive Officer shall have power to sign all stock
certificates, contracts and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. In addition, the Chief Executive Officer
shall, in the absence of the Chairman of the Board, or at his or her request, preside at all meetings of the stockholders and of the Board of Directors and shall exercise and perform such other powers and duties as may from time to time be assigned
to the Chief Executive Officer by the Board of Directors.
Section
4.
President
.
The Board of Directors may elect a President. He or she shall have general responsibility for the management and control of the operations of
the Corporation and shall perform all duties and have all powers which are commonly incident to the office of President or which are delegated to him or her by the Board of Directors or the Chief Executive Officer. Subject to the direction of the
Board of Directors and the Chairman of the Board, the President shall have power to sign all stock certificates, contracts and other instruments of the Corporation that are authorized and shall have general supervision of all of the other officers
(other than the Chairman of the Board, the Chief Executive Officer or any Vice Chairman), employees and agents of the Corporation.
Section
5.
Vice President
.
Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One (1) Vice President
shall be designated by the Board of Directors to perform the duties and exercise the powers of the President in the event of the Presidents absence or disability.
Section
6.
Treasurer
.
The Treasurer shall have the responsibility for maintaining the financial records of the Corporation. He or she shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer also shall perform such other duties as the Board of Directors
may from time to time prescribe.
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Section
7.
Secretary
.
The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors.
He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe.
Section
8.
Delegation of Authority
.
The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
Section
9.
Removal
.
Subject to Section 2.7 of the Stockholders Agreement, if then in effect, any officer of the Corporation may be removed at any time, with
or without cause, by the Board of Directors.
Section
10.
Action with Respect to Securities of Other
Corporations
.
Unless otherwise directed by the Board of Directors, the President or the Chief Executive Officer or any officer of the
Corporation authorized by the President or the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE V STOCK
Section
1.
Certificates of Stock
.
Shares of stock of the Corporation may be certificated or uncertificated, as provided under the Delaware General Corporation Law. Each
stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of
shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile.
Section
2.
Transfers of Stock
.
Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these Amended and Restated Bylaws, an outstanding certificate for
the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.
Section
3.
Record Date
.
In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the
Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be
more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless
the Board of Directors
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determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board
of Directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned
meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 3 at the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of
any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section
4.
Lost, Stolen or Destroyed Certificates
.
In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as
the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.
Section
5.
Regulations
.
The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of
Directors may establish.
ARTICLE VI NOTICES
Section
1.
Notices
.
If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such
stockholders address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the
manner provided in Section 232 of the Delaware General Corporation Law.
Section
2.
Waivers
.
A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before
or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any
meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice.
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ARTICLE VII MISCELLANEOUS
Section
1.
Facsimile Signatures
.
In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Amended and Restated Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.
Section
2.
Corporate Seal
.
The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section
3.
Reliance upon Books, Reports and Records
.
Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the
performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other persons professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section
4.
Fiscal Year
.
The fiscal year of the Corporation shall be as fixed by the Board of Directors.
Section
5.
Time Periods
.
In applying any provision of these Amended and Restated Bylaws which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
Section
6.
Stockholders Agreement
.
The Corporation shall be bound by and act in accordance with the provisions of the Stockholders Agreement, dated as of [], 2018, by and
among the Corporation and certain of its stockholders, as the same may be amended or waived from time to time (the Stockholders Agreement), for so long as it is in effect. If any provisions of these Amended and Restated Bylaws shall
conflict with any provision of the Stockholders Agreement, if then in effect, the applicable provision of the Stockholders Agreement shall control, provided that such provision is not contrary to applicable law or otherwise unenforceable.
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section
1.
Right to Indemnification
.
Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a proceeding), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a
director, officer or trustee of another corporation or of a
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partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an indemnitee), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
Section
2.
Right to Advancement of Expenses
.
In addition to the right to indemnification conferred in Section 1 of this Article VIII, an indemnitee shall have the right to be paid by
the Corporation the expenses (including attorneys fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an advancement of expenses); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise.
Section
3.
Right of Indemnitee to Bring Suit
.
If a claim under Section 1 or 2 of this Article VIII is not paid in full by the Corporation within sixty (60) days after a written
claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its directors who are not parties to such action,
a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal
counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.
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Section
4.
Non-Exclusivity
of Rights
.
The rights to indemnification and to the advancement of
expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporations Amended and Restated Certificate of Incorporation, Amended and Restated
Bylaws, agreement, vote of stockholders or directors or otherwise.
Section
5.
Insurance
.
The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section
6.
Indemnification of Employees and Agents of the Corporation
.
The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
Section
7.
Nature of Rights
.
The rights conferred upon indemnitees in this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitees heirs, executors and administrators. Any amendment, alteration or repeal of this Article VIII that adversely affects any right of an indemnitee or
its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or
repeal.
ARTICLE IX EXCLUSIVE FORUM FOR ADJUDICATION OF DISPUTES
Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any derivative
action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim for or based on breach of a fiduciary duty owed by any current or former director or officer or other employee of the Corporation to the Corporation or
to the Corporations stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (c) any action asserting a claim against the Corporation or any current or former director or officer or other
employee of the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws (each as may be amended from time to time), (d) any
action asserting a claim relating to or involving the Corporation that is governed by the internal affairs doctrine, or (e) any action asserting an internal corporate claim as that term is defined in Section 115 of the Delaware
General Corporation Law shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware).
ARTICLE X AMENDMENTS
In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized to adopt, amend and repeal
these Amended and Restated Bylaws subject to the power of the holders of capital stock of the Corporation to adopt, amend or repeal the Amended and Restated Bylaws; provided,
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however, that, with respect to the power of holders of capital stock to adopt, amend and repeal Bylaws of the Corporation, notwithstanding any other provision of these Amended and Restated Bylaws
or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, these Amended and
Restated Bylaws or any preferred stock, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to adopt, amend or repeal any provision of these Amended and Restated Bylaws. Anything to the contrary herein notwithstanding any amendment to Section 6 of Article VII of these Amended and
Restated Bylaws by the Board of Directors shall require the affirmative vote of (a) a majority of the Whole Board, including the affirmative vote of a majority of the Board Representatives (as defined in the Stockholders Agreement) or
(b) the holders of at least 80% of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
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SPECIALMEETING OF BILL BARRETT CORPORATION Date:
March 16, 2018 Time: 8:30 AM (Mountain Time) Place: 1099 18th Street, Suite 2300, Denver, Colorado 80202 Please make your marks like this: Use dark black pencil or pen only The Board of Directors Recommends a Vote FOR proposals 1,
2, 3 and 4. For Against Abstain Directors Recommend 1: To adopt the Agreement and Plan of Merger, dated as of December 4, 2017, by and among Bill Barrett Corporation, Fifth Creek Energy Operating Company, LLC, Red Rider Holdco, Inc., Rio Merger
Sub, LLC, Rider Merger Sub, Inc. and, for limited purposes set forth in the merger agreement, Fifth Creek Energy Company, LLC and NGP Natural Resources XI, L.P. For 2: To approve on an advisory (nonbinding) basis, the compensation that may become
payable to Bill Barrett Corporations named executive officers in connection with the consummation of the mergers. For 3: To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are
not sufficient votes to adopt the merger agreement. For 4: To approve the amendment to the Bill Barrett Corporation 2012 Equity Incentive Plan. For Authorized Signatures -This section must be completed for your Instructions to be executed. Please
Sign Here Please Date Above Please Sign Here Please Date Above Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and
authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. Please separate carefully at the perforation and return just this portion in the envelope provided Special Meeting of BILL BARRETT
CORPORATION to be held on March 16, 2018 for Holders as of February 13, 2018 This proxy is being solicited on behalf of the Board of Directors being solicited on behalf of the Board of Directors VOTE BY: INTERNET TELEPHONE Go To
www.proxypush.com/BBG
866-240-5213
Cast your vote online. OR Use any touch-tone telephone. View Meeting Documents. MAIL Have your Proxy Card/Voting Instruction Form
ready. Follow the simple recorded instructions. OR Mark, sign and date your Proxy Card/Voting Instruction Form. Detach your Proxy Card/Voting Instruction Form. Return your Proxy Card/Voting Instruction Form in the postage-paid envelope provided. The
undersigned hereby appoints R. Scot Woodall and Kenneth A. Wonstolen, and each or either of them, as the true and lawful attorneys of the undersigned, with full power of substitution and revocation, and authorizes them, and each of them, to vote all
the shares of capital stock of Bill Barrett Corporation which the undersigned is entitled to vote at said meeting and any adjournment thereof upon the matters specified and upon such other matters as may be properly brought before the meeting or any
adjournment thereof, conferring authority upon such true and lawful attorneys to vote in their discretion on such other matters as may properly come before the meeting and revoking any proxy heretofore given. THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, SHARESWILL BE VOTED FOR THE PROPOSALS IN ITEMS 1, 2, 3 AND 4. All votes must be received by 11:59 P.M., Eastern Time, March 15, 2018. All votes for 401(k) participants must be received by
11:59 P.M., Eastern Time, March 12, 2018. PROXY TABULATOR FOR BILL BARRETT CORPORATION P.O. BOX 8016 CARY, NC 27512-9903 EVENT # CLIENT #
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Proxy Bill Barrett Corporation Special
Meeting of Stockholders March 16, 2018, 8:30 AM (Mountain Time) This Proxy is Solicited on Behalf of the Board of Directors The undersigned appoints R. Scot Woodall and Kenneth A. Wonstolen (the Named Proxies) and each of them as
proxies for the undersigned, with full power of substitution, to vote the shares of common stock of Bill Barrett Corporation, a Delaware corporation (the Company), the undersigned is entitled to vote at the Special Meeting of
Stockholders of the Company to be held at 1099 18th Street, Suite 2300, Denver, Colorado 80202, on March 16, 2018 at 8:30 AM (Mountain Time) and all adjournments thereof. The purpose of the Annual Meeting is to take action on the following: 1.
To adopt the Agreement and Plan of Merger, dated as of December 4, 2017, by and among Bill Barrett Corporation, Fifth Creek Energy Operating Company, LLC, Red Rider Holdco, Inc., Rio Merger Sub, LLC, Rider Merger Sub, Inc. and, for limited
purposes set forth in the merger agreement, Fifth Creek Energy Company, LLC and NGP Natural Resources XI, L.P. 2. To approve on an advisory
(non-binding)
basis, the compensation that may become payable to Bill
Barrett Corporations named executive officers in connection with the consummation of the mergers. 3. To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient
votes to adopt the merger agreement. 4: To approve the amendment to the Bill Barrett Corporation 2012 Equity Incentive Plan. The Board of Directors of the Company recommends a vote FOR proposals 1, 2, 3 and 4. This proxy, when properly
executed, will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR proposals 1, 2, 3 and 4. In their discretion, the Named Proxies are authorized to vote upon such other matters that may properly
come before the Special Meeting or any adjournment or postponement thereof. You are encouraged to specify your choice by marking the appropriate box (SEE REVERSE SIDE) but you need not mark any box if you wish to vote in accordance with the Board of
Directors recommendation. The Named Proxies cannot vote your shares unless you sign and return this card. To attend the meeting and vote your shares in person, please mark this box. Please separate carefully at the perforation and return just
this portion in the envelope provided.
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