Your vote is very important. Approval of the PDC merger proposal requires the affirmative vote of the holders of a majority of the outstanding PDC common stock, and approval of
the PDC issuance proposal requires the affirmative vote of a majority of votes cast by PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on such proposal.
Approval of both the PDC merger proposal and the PDC issuance proposal is a condition to the completion of the merger. PDC stockholders are requested to complete, date, sign and return the enclosed
proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes by phone or the Internet. Simply follow the instructions provided on the enclosed
proxy card. Abstentions will be counted as votes "AGAINST" the PDC merger proposal and the PDC issuance proposal. Broker non-votes and failures to vote will be counted as votes "AGAINST" the PDC
merger proposal but will have no effect on the PDC issuance proposal.
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BY ORDER OF THE BOARD OF DIRECTORS,
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/s/ JEFFREY C. SWOVELAND
Jeffrey C. Swoveland
Non-Executive Chairman of the Board
PDC Energy, Inc.
December 9, 2019
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NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 13, 2020
AT THE DENVER ENERGY CENTER, TOWER 2, 1625 BROADWAY, DENVER, COLORADO 80202
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of SRC Energy Inc., or SRC, will be held on January 13, 2020, at 8:00 a.m.,
Mountain Time, at the Denver Energy Center, Tower 2, 1625 Broadway, Denver, Colorado 80202, to consider and vote on the following proposals:
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to adopt and approve the Agreement and Plan of Merger, dated August 25, 2019 by and among PDC Energy Inc. and SRC (which, as it
may be amended from time to time, we refer to as the "merger agreement") and the merger of PDC and SRC pursuant to the merger agreement (the "merger"), such proposal being referred to as the "SRC
merger proposal");
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to approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to SRC's named executive officers that is
based on or otherwise relates to the merger contemplated by the merger agreement (the "non-binding compensation proposal"); and
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to approve the adjournment of the SRC special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve
the SRC merger proposal at the time of the SRC special meeting (the "adjournment proposal").
SRC
shareholder approval of the SRC merger proposal is required to complete the merger between PDC and SRC, as contemplated by the merger agreement. SRC shareholders will also be asked
to approve the non-binding compensation proposal and the adjournment proposal, which are not conditions to the merger. SRC does not intend to transact any other business at the SRC special meeting.
The record date for the SRC special meeting has been set as November 29, 2019. Only SRC shareholders of record as of the close of business on such record date are entitled to notice of, and to
vote at, the SRC special meeting or any subsequent reconvening of the SRC special meeting following any adjournments and postponements of the SRC special meeting. For additional information regarding
the SRC special meeting, see the section entitled "Special Meeting of SRC Shareholders" beginning on page 63 of the joint proxy statement/prospectus
accompanying this notice.
The SRC board of directors unanimously recommends that holders of SRC common stock vote "FOR" the SRC merger proposal, "FOR" the non-binding compensation proposal
and "FOR" the adjournment proposal.
The
SRC shareholder proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully and in its entirety before you vote. A
copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.
PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SRC SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON,
YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED
MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
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Your vote is very important. Approval of the SRC merger proposal by the SRC shareholders is a condition to the merger and requires the affirmative vote of the holders of a
majority of the outstanding shares of SRC common stock. Approval of the non-binding compensation proposal and the adjournment proposal require that the votes cast in favor of each proposal exceed the
votes cast against such proposal. SRC shareholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United
States, or to submit their votes by phone or the Internet. Simply follow the instructions provided on the enclosed proxy card. Abstentions, failures to vote and broker non-votes will have the same
effect as votes "AGAINST" the SRC merger proposal but will not count as votes "FOR" or "AGAINST" the non-binding compensation proposal or the adjournment proposal.
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/s/ CATHLEEN M. OSBORN
Cathleen M. Osborn
Executive Vice President,General Counsel
and Secretary
SRC Energy Inc.
December 9, 2019
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REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates by reference important business and financial information about PDC Energy, Inc.
(which we refer to as "PDC") and SRC Energy Inc. (which we refer to as "SRC") from other documents that are not included in or delivered with this joint proxy statement/prospectus, including
documents that PDC and SRC have filed with the U.S. Securities and Exchange Commission (which we refer to as the "SEC"). For a listing of documents incorporated by reference herein, see the sections
entitled "Where You Can Find More Information" and "Information Incorporated by Reference," beginning on
pages 191 and 192, respectively. This information is available for you to review free of charge through the SEC's website at www.sec.gov. The information contained on the website of the SEC is
expressly not incorporated by reference into this joint proxy statement/prospectus.
You
may request copies of this joint proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning PDC or SRC, without charge, upon
written or oral request to the PDC's or SRC's principal executive offices. The respective addresses and phone numbers of such principal offices are listed below.
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For PDC Stockholders:
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For SRC Shareholders:
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PDC Energy, Inc.
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SRC Energy Inc.
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1775 Sherman Street, Suite 3000
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1675 Broadway, Suite 2600
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Denver, Colorado 80203
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Denver, Colorado 80202
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Attention: Corporate Secretary
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Attention: Corporate Secretary
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Telephone: (303) 860-5800
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Telephone: (720) 616-4300
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To obtain timely delivery of these documents before the PDC special meeting, PDC stockholders must request the information no later than January 6, 2020
(which is five business days before the date of the PDC special meeting).
To obtain timely delivery of these documents before the SRC special meeting, SRC shareholders must request the information no later than January 6, 2020
(which is five business days before the date of the SRC special meeting).
In addition, if you have questions about the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy
statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, contact MacKenzie Partners, Inc., the proxy solicitor for PDC and SRC. You will not be
charged for any of these documents that you request.
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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on Form S-4 filed with the SEC by PDC (File No. 333-233933),
constitutes a prospectus of PDC under Section 5 of the Securities Act of 1933, as amended (which we refer to as the "Securities Act") with respect to the shares of common stock of PDC, par
value $0.01 per share (which we refer to as "PDC common stock"), to be issued to SRC shareholders pursuant to the Agreement and Plan of Merger, dated August 25, 2019 (which, as it may be
amended from time to time, we refer to as the "merger agreement"), by and between PDC and SRC.
This
document also constitutes a notice of meeting and proxy statement of each of PDC and SRC under Section 14(a) of the Securities Exchange Act of 1934, as amended (which we
refer to as the "Exchange Act").
PDC
has supplied all information contained or incorporated by reference herein relating to PDC, and SRC has supplied all information contained or incorporated by reference herein
relating to SRC. PDC and SRC have both contributed to the information relating to the merger and the merger agreement contained in this joint proxy statement/prospectus.
You
should rely only on the information contained in or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy or any investment decision in
connection with the merger agreement. PDC and SRC have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference herein. This joint
proxy statement/prospectus is dated December 9, 2019, and you should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than
such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the
incorporated document. Neither the mailing of this joint proxy statement/prospectus to the stockholders of PDC and shareholders of SRC, nor the issuance by PDC of PDC common stock pursuant to the
merger agreement, will create any implication to the contrary.
All
currency amounts referenced in this joint proxy statement/prospectus are in U.S. dollars.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS
The following are answers to certain questions that you may have regarding the PDC special meeting and SRC special meeting. PDC and SRC urge you
to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional
important information is also contained in the annexes to, and the documents incorporated by reference in, this document.
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Q:
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Why am I receiving this joint proxy statement/prospectus?
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A.
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You
are receiving this joint proxy statement/prospectus because PDC and SRC have entered into the merger agreement, pursuant to which, on the terms and subject to the
conditions included in the merger agreement, PDC has agreed to acquire SRC by means of a merger of SRC with and into PDC (the "merger") and your vote is required in connection with the merger. The
merger agreement, which governs the terms of the merger, is attached to this joint proxy statement/prospectus as Annex A.
PDC. The merger agreement and the merger of PDC and SRC pursuant to the merger agreement must be approved by PDC stockholders in accordance
with the Delaware General Corporation Law (which we refer to as the "DGCL"), and the issuance of shares of common stock in connection with the merger must be approved by the PDC
stockholders in accordance with the rules of The Nasdaq Global Select Market (which we refer to as "Nasdaq"), in order for the merger to be consummated. PDC is holding a special meeting of its
stockholders (which we refer to as the "PDC special meeting") to obtain those approvals. Your vote is very important. We encourage you to submit a proxy to have your shares of PDC common stock voted
as soon as possible.
SRC. The merger agreement and the merger of PDC and SRC pursuant to the merger agreement must be approved by the SRC shareholders in
accordance with the Colorado Business Corporation Act and the Colorado Corporations and Associations Act (which we refer to collectively as the "CBCA") in order for the merger to be consummated. SRC
is holding a special meeting of its shareholders (which we refer to as the "SRC special meeting") to obtain that approval. SRC shareholders will also be asked to vote on (i) a non-binding advisory
proposal to approve certain compensation that may be paid or become payable to SRC's named executive officers that is based on or otherwise relates to the merger and (ii) a proposal to approve
the adjournment of the SRC special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the SRC merger proposal at the time of the SRC special meeting.
Your vote is very important. We encourage you to submit a proxy to have your shares of SRC common stock voted as soon as possible.
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Q:
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When and where will the special meetings take place?
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A:
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PDC. The PDC special meeting will be held at 8:00 a.m., Mountain Time, on January 13, 2020,
at the Denver Financial Center at 1775 Sherman Street, Denver, CO 80203.
SRC. The SRC special meeting will be held at 8:00 a.m., Mountain Time, on January 13, 2020, at the Denver Energy Center,
Tower 2, 1625 Broadway, Denver, Colorado 80202.
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Q:
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What matters will be considered at the special meetings?
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A:
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PDC. The PDC stockholders are being asked to consider and vote on :
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a proposal to adopt and approve the merger agreement and the merger of PDC and SRC pursuant to the merger agreement (which we refer to as the
"PDC merger proposal"); and
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a proposal to adopt and approve the issuance of shares of PDC common stock in connection with the merger (which we refer to as the "PDC
issuance proposal").
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Q:
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Is my vote important?
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A:
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PDC. Yes. Your vote is very important. The merger cannot be completed unless the PDC merger proposal is
approved by the affirmative vote of the holders of a majority of the outstanding shares of PDC common stock and the PDC issuance proposal is approved by the affirmative vote of a majority of votes
cast by PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on such proposal. Only PDC stockholders as of the close of business on the PDC record date are
entitled to vote at the PDC special meeting. The board of directors of PDC (which we refer to as the "PDC board" or the "PDC board of directors") unanimously recommends that such PDC stockholders vote
"FOR" the approval of the PDC merger proposal and the PDC issuance proposal.
SRC. Yes. Your vote is very important. The merger cannot be completed unless the SRC merger proposal is approved by the affirmative vote of
a majority of the outstanding shares of SRC common stock. Only SRC shareholders as of the close of business on the SRC record date are entitled to vote at the SRC special meeting. SRC shareholders
will also be asked to approve the non-binding compensation proposal and the adjournment proposal, which are not conditions to the merger. The board of directors of SRC (which we refer to as the "SRC
board" or the "SRC board of directors") unanimously recommends that such SRC shareholders vote "FOR" the approval of the SRC merger proposal, "FOR" the approval of the non-binding compensation
proposal and "FOR" the approval of the adjournment proposal.
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Q:
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If my shares of PDC common stock and/or SRC common stock are held in "street name" by my broker, bank or other nominee, will my broker, bank
or other nominee automatically vote those shares for me?
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A:
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If
your shares are held through a broker, bank or other nominee, you are considered the "beneficial holder" of the shares held for you in what is known as "street
name." You are not considered the "record holder" of those shares. If this is the case, this joint proxy statement/prospectus has been forwarded to you by your broker, bank or other nominee. If you
hold your shares in "street name," you must provide your broker, bank or other nominee with instructions on how to vote your shares. Otherwise, your broker, bank or other nominee cannot vote your
shares on any of the proposals to be considered at the PDC special meeting or the SRC special meeting, as applicable. A so-called "broker non-vote" will result if your broker, bank or other nominee
returns a proxy but you have not provided the broker, bank or nominee with instruction as to how the shares should be voted on a particular matter.
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PDC Proposals
Brokers,
banks or other nominees do not have discretionary authority to vote on the PDC merger proposal or the PDC issuance proposal. Broker non-votes will have the same effect as votes "AGAINST" the
PDC merger proposal but will have no effect on the PDC issuance proposal.
SRC Proposals
Brokers,
banks or other nominees do not have discretionary authority to vote on the proposals to be considered at the SRC special meeting. Broker non-votes will have the same effect as votes "AGAINST"
the SRC merger proposal but will have no effect on the non-binding compensation proposal or the adjournment proposal.
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Q:
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What PDC stockholder vote is required for the adoption and approval of the PDC merger proposal and the PDC issuance
proposal?
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A:
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The PDC merger proposal. Adoption and approval of the PDC merger proposal requires the affirmative vote
of the holders of a majority of the outstanding PDC common stock. Abstentions will have the same effect as votes "AGAINST" the proposal. Broker non-votes and failures to vote will have the same effect
as votes "AGAINST" the proposal.
The PDC issuance proposal. Adoption and approval of the PDC issuance proposal requires the affirmative vote of a majority of votes cast by
PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on such proposal. Abstentions will have the same effect as votes "AGAINST" the proposal. Broker non-votes
and failures to vote will not have any effect on the outcome of the vote on the proposal.
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Q:
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What SRC shareholder vote is required for the approval of the SRC merger proposal, the non-binding compensation proposal and the adjournment
proposal?
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A:
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The SRC merger proposal. Approval of the SRC merger proposal requires the affirmative vote of a majority
of the outstanding shares of SRC common stock entitled to vote on the proposal. Abstentions, broker non-votes and failures to vote will have the same effect as votes "AGAINST" the proposal.
The SRC non-binding compensation proposal. Approval of the non-binding compensation proposal requires that the votes cast in favor of the
proposal exceed the votes cast against the proposal. Neither abstentions, broker non-votes nor failures to vote will have any effect on the outcome of the vote. As an advisory vote, this proposal is
not binding upon SRC or the SRC board or PDC or the PDC board, and approval of this proposal is not a condition to completion of the merger.
The SRC adjournment proposal. Approval of the adjournment proposal requires that the votes cast in favor of the proposal exceed the votes
cast against the proposal. Neither abstentions, broker non-votes nor failures to vote will have any effect on the outcome of the vote. Approval of this proposal is not a condition to completion of the
merger.
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Q:
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Who will count the votes?
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A:
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The
votes at the PDC special meeting will be counted by Broadridge Corporate Issuer Solutions, Inc. ("Broadridge"), PDC's transfer agent, which will serve as
an independent inspector of elections. The votes at the SRC special meeting will also be counted by Broadridge, which will serve as an independent inspector of elections.
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Q:
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What will SRC shareholders receive if the merger is completed?
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A:
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As
a result of the merger, each share of SRC common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held in
treasury by SRC or shares owned by PDC and, in each case, not held on behalf of third parties (which we refer to collectively as the "cancelled shares")) will be converted into the right to receive
0.158 of a share of PDC common stock (which we refer to as the "exchange ratio"), with cash in lieu of any fractional shares (which we refer to as the "merger consideration"). For information
regarding the treatment of SRC equity awards, please see the Question and Answer directly below.
If
you receive the merger consideration and would otherwise be entitled to receive a fractional share of PDC common stock, you will receive cash in lieu of such fractional share, and you will not be
entitled to dividends, voting rights or any other rights in respect of such fractional share. For additional information regarding the merger consideration, see the sections entitled
"The MergerConsideration to SRC Shareholders" and "The Merger AgreementEffect of the Merger on Capital Stock; Merger
Consideration" beginning on pages 69 and 124, respectively.
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Q:
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What will holders of SRC equity awards receive in the merger?
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A:
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SRC RSU Awards
Immediately
prior to the effective time of the merger, each then outstanding restricted stock unit (or "RSU") award in respect of shares of SRC common stock, whether vested or unvested, will become
fully vested and will be cancelled and converted into the right to receive the merger consideration in respect of each share of SRC common stock subject to the award (less required tax withholdings).
SRC PSU Awards
Except
for the New PSU awards (as defined below), immediately prior to the effective time of the merger, each then outstanding performance stock unit (or "Current PSU") award in respect of shares of
SRC common stock, whether vested or unvested, will become automatically vested at the target (i.e., 100%) level and will be cancelled and converted into the right to receive the merger
consideration in respect of each share of SRC common stock subject to the award at target (less required tax withholdings). In addition, SRC will grant new performance stock unit ("New PSU") awards in
respect of shares of SRC common stock at the times, to the individuals, on the terms and in amounts specified in the merger agreement. The New PSU awards will be assumed or substituted by PDC and
converted automatically into new performance stock unit awards of PDC, subject to the same terms and conditions as were applicable to the New PSU awards immediately prior to the effective time of the
merger. The number of shares of PDC common stock covered by such assumed awards will be based on the number of SRC shares covered by such awards multiplied by the exchange ratio in the merger.
SRC Options
Immediately
prior to the effective time of the merger, each then outstanding option to purchase shares of SRC common stock will, whether vested or unvested, become fully vested, and each such option
that is "in the money" relative to the per-share value of the merger consideration for each share as determined pursuant to the merger agreement will be cancelled and converted into the right to
receive the merger consideration with respect to a number of shares of SRC common stock subject to the option, less a number of shares of SRC common stock equal to the value of the aggregate exercise
price of such option (less required tax withholdings). Immediately prior to the effective time of the merger, each then outstanding option to purchase shares of SRC common
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stock
that is "out of the money" relative to the per-share value of the merger consideration as determined pursuant to the merger agreement will be cancelled in exchange for no consideration.
SRC Stock Bonus Awards
Immediately
prior to the effective time of the merger, each then outstanding bonus share unit ("Stock Bonus") award will become fully vested and will be cancelled and converted into the right to
receive the merger consideration in respect of each share of SRC common stock subject to the award (less required tax withholdings).
For
additional information regarding the treatment of SRC equity awards, see the section entitled "The Merger AgreementTreatment of SRC Equity Awards in the
Merger" beginning on page 125.
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Q:
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What equity stake will SRC shareholders hold in PDC immediately following the merger?
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A:
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Based
on the number of issued and outstanding shares of PDC common stock and SRC common stock as of November 6, 2019, and the exchange ratio of 0.158 of a
share of PDC common stock for each share of SRC common stock, holders of shares of SRC common stock as of immediately prior to the effective time of the merger would hold, in the aggregate,
approximately 39% of the issued and outstanding shares of PDC common stock immediately following the effective time of the merger (without giving effect to any shares of PDC common stock held by SRC
shareholders prior to the merger). The exact equity stake of SRC shareholders in PDC immediately following the effective time of the merger will depend on the number of shares of PDC common stock and
SRC common stock issued and outstanding immediately prior to the effective time of the merger, as provided in the section entitled "The Merger AgreementEffect of
the Merger on Capital Stock; Merger Consideration" beginning on page 124.
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Q:
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How do the PDC board and SRC board recommend that I vote?
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A:
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PDC. The PDC board unanimously recommends that PDC stockholders vote "FOR" the adoption and approval of
the PDC merger proposal and "FOR" the PDC issuance proposal. For additional information regarding how the PDC board recommends that PDC stockholders vote, see the section entitled
"The MergerRecommendation of the PDC Board of Directors and PDC's Reasons for the Merger" beginning on page 76.
SRC. The SRC board unanimously recommends that SRC shareholders vote "FOR" the approval of the SRC merger proposal, "FOR" the approval of
the non-binding compensation proposal and "FOR" the approval of the adjournment proposal. For additional information regarding how the SRC board recommends that SRC shareholders vote, see the section
entitled "The MergerRecommendation of the SRC Board of Directors and SRC's Reasons for the Merger" beginning on page 88.
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Q:
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Why are SRC shareholders being asked to vote on executive officer compensation?
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A:
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The
SEC has adopted rules that require SRC to seek a non-binding advisory vote on certain compensation that may be paid or become payable to SRC's named executive
officers that is based on or otherwise relates to the merger. For additional information regarding the non-binding compensation advisory proposal, see the section entitled "SRC
ProposalsNon-binding Compensation Proposal" beginning on page 68. SRC urges its shareholders to read the section entitled "The
MergerInterests of SRC Directors and Executive Officers in the Merger" beginning on page 115.
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Q:
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Why are the SRC shareholders being asked to vote on the adjournment proposal?
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A.
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In
the event that there are not sufficient votes to approve the SRC merger at the SRC special meeting, SRC will seek the SRC shareholders' approval of an adjournment
of the SRC special meeting to solicit additional proxies to approve the SRC merger proposal at a later SRC special meeting.
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Q:
-
If the SRC special meeting is adjourned or postponed, do I need to send new proxies?
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A:
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At
any subsequent reconvening of the SRC special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the
SRC special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent reconvening of the SRC special meeting.
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Q:
-
Who is entitled to vote at the special meeting?
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A:
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PDC special meeting. The PDC board has fixed November 29, 2019 as the record date for the PDC
special meeting (which we refer to as the "PDC record date"). All stockholders of record of PDC common stock as of the close of business on the PDC record date are entitled to receive notice of, and
to vote at, the PDC special meeting, provided that those shares remain outstanding on the date of the PDC special meeting. As of the PDC record date, there were 61,616,700 shares of PDC common stock
outstanding. Physical attendance at the PDC special meeting is not required to vote. Instructions on how to vote your shares without attending the PDC special meeting are provided below.
SRC special meeting. The SRC board has fixed November 29, 2019 as the record date for the SRC special meeting (which we refer to as
the "SRC record date"). All shareholders of record of SRC common stock as of the close of business on the SRC record date are entitled to receive notice of, and to vote at, the SRC special meeting,
provided that those shares remain outstanding on the date of the SRC special meeting. As of the SRC record date, there were 243,567,718 shares of SRC common stock outstanding. Physical attendance at
the SRC special meeting is not required to vote. Instructions on how to vote your shares without attending the SRC special meeting are provided in this section below.
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Q:
-
How many votes do I have?
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A:
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PDC stockholders. Each PDC stockholder of record is entitled to one vote for each share of PDC common
stock held of record by the stockholder as of the close of business on the PDC record date.
SRC shareholders. Each SRC shareholder of record is entitled to one vote for each share of SRC common stock held of record by the
stockholder as of the close of business on the SRC record date.
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Q:
-
What constitutes a quorum for the PDC special meeting and SRC special meeting?
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A:
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A
quorum is the minimum number of stockholders or shareholders, as applicable, necessary to hold a valid meeting.
Quorum for PDC special meeting. The presence at the PDC special meeting, in person or by proxy, of the holders of a majority of the
outstanding shares of PDC common stock entitled to vote at the PDC special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for either proposal or
vote to "abstain" in respect of one or both proposals, your shares of PDC common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the
PDC special meeting. Broker non-votes
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will
not be treated as present for purposes of determining the presence of a quorum at the PDC special meeting.
Quorum for SRC special meeting. The presence at the SRC special meeting, in person or by proxy, of the holders of one-third of the
outstanding shares of SRC common stock entitled to vote at the SRC special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for one or more proposals
or vote to "abstain" in respect of one or more proposals, your shares of SRC common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the
SRC special meeting. Broker non-votes will not be treated as present for purposes of determining the presence of a quorum at the SRC special meeting.
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Q:
-
What will happen to SRC as a result of the merger?
-
A:
-
If
the merger is completed, SRC will merge with and into PDC. As a result of the merger, the separate corporate existence of SRC will cease, and PDC will continue as
the surviving corporation in the merger. Shares of SRC common stock will no longer be publicly traded and will be delisted from the NYSE American.
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Q:
-
I own shares of SRC common stock. What will happen to those shares as a result of the merger?
-
A:
-
If
the merger is completed, your shares of SRC common stock will be converted into the right to receive the merger consideration. All such shares of SRC common stock
will cease to be outstanding and will automatically be cancelled. Each holder of a share of SRC common stock that was outstanding immediately prior to the effective time of the merger will cease to
have any rights with respect to shares of SRC common stock except the right to receive the merger consideration, any dividends or distributions made with respect to shares of PDC common stock with a
record date after the effective time of the merger, and any cash to be paid in lieu of any fractional shares of PDC common stock, in each case to be issued or paid upon the exchange of any
certificates or book-entry shares of SRC common stock for merger consideration. For additional information, see the sections entitled "The MergerConsideration to
SRC Shareholders" and "The Merger AgreementEffect of the Merger on Capital Stock; Merger Consideration" beginning
on pages 69 and 124, respectively.
-
Q:
-
Where will the PDC common stock that SRC shareholders receive in the merger be publicly traded?
-
A:
-
Assuming
the merger is completed, the shares of PDC common stock that SRC shareholders receive in the merger will be listed and traded on Nasdaq.
-
Q:
-
What happens if the merger is not completed?
-
A:
-
If
the SRC merger proposal is not approved by SRC shareholders or if the PDC merger proposal or the PDC issuance proposal is not approved by PDC stockholders or if
the merger is not completed for any other reason, SRC shareholders will not receive any merger consideration in connection with the merger, and their shares of SRC common stock will remain
outstanding. SRC will remain an independent public company and SRC common stock will continue to be listed and traded on the NYSE American. Additionally, if the SRC merger proposal is not approved by
SRC shareholders or if the merger is not completed for any other reason, PDC will not issue shares of PDC common stock to SRC shareholders, regardless of whether the PDC merger and issuance proposals
are approved. If the merger agreement is terminated under specified circumstances, either SRC or PDC (depending on the circumstances) may be required to pay the other party a
7
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termination
fee or other termination-related payment. For a more detailed discussion of the termination fees, see "The Merger
AgreementTermination" beginning on page 159.
-
Q:
-
What happens if the non-binding compensation proposal is not approved by SRC shareholders?
-
A:
-
This
vote is advisory and non-binding, and the merger is not conditioned or dependent upon the approval of the non-binding compensation proposal by SRC shareholders.
However, SRC and PDC value the opinions of SRC shareholders and PDC expects to consider the outcome of the vote, along with other relevant factors, when considering future executive compensation,
assuming the merger is completed. Because the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements with
SRC's named executive officers, such compensation will be payable regardless of the outcome of this advisory vote, if the SRC merger proposal is approved and the merger is consummated (subject only to
the contractual conditions applicable thereto). However, SRC seeks the support of its shareholders and believes that shareholder support is appropriate given the nature of the transaction and the
structure of SRC's executive compensation program.
-
Q:
-
What is a proxy and how can I vote my shares in person at the special meetings?
-
A:
-
A
proxy is a legal designation of another person to vote the stock you own.
PDC. Shares of PDC common stock held directly in your name as the stockholder of record as of the close of business on November 29,
2019, the PDC record date, may be voted in person at the PDC special meeting. If you choose to attend the PDC special meeting, you will need to bring valid, government-issued photo identification. If
you are a beneficial owner of PDC common stock but not the stockholder of record of such shares of PDC common stock, you will also need proof of stock ownership to be admitted to the PDC special
meeting. A recent brokerage statement or a letter from a
broker, bank or other nominee are examples of proof of ownership. Please note that if your shares are held in "street name" by a broker, bank or other nominee and you wish to vote at the PDC special
meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the
PDC special meeting. To request a legal proxy, contact your broker, bank or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to
the PDC special meeting.
Failure
to bring the appropriate documentation may delay your entry into or prevent you from attending the PDC special meeting. The doors to the meeting room will be closed promptly at the start of
the meeting and stockholders may not be permitted to enter after that time.
SRC. Shares of SRC common stock held directly in your name as the shareholder of record as of the close of business on November 29,
2019, the SRC record date, may be voted in person at the SRC special meeting. If you choose to attend the SRC special meeting, you will need to bring valid, government-issued photo identification. If
you are a beneficial owner of SRC common stock but not the shareholder of record of such shares of SRC common stock, you will also need proof of stock ownership to be admitted to the SRC special
meeting. A recent brokerage statement or a letter from a broker, bank or other nominee are examples of proof of ownership. Please note that if your shares are held in "street name" by a broker, bank
or other nominee and you wish to vote at the SRC special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and
present it to the inspector of election with your ballot at the SRC special meeting. To request a legal proxy, contact your broker, bank or other nominee holder of record. It is suggested you do so in
a timely manner to ensure receipt of your legal proxy prior to the SRC special meeting.
8
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Failure
to bring the appropriate documentation may delay your entry into or prevent you from attending the SRC special meeting. The doors to the meeting room will be closed promptly at the start of
the meeting and shareholders may not be permitted to enter after that time.
-
Q:
-
How can I vote my shares without attending the special meetings?
-
A:
-
PDC. If you are a stockholder of record of PDC common stock as of the close of business on
November 29, 2019, the PDC record date, you can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card. Please note that if you are a
beneficial owner who holds shares in street name, you must vote by submitting voting instructions to your broker, bank or other nominee, or otherwise by following instructions provided by your broker,
bank or other nominee. Phone and Internet voting may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or other nominee.
SRC. If you are a shareholder of record of SRC common stock as of the close of business on November 29, 2019, the SRC record date,
you can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card. Please note that if you are a beneficial owner who holds shares in street name,
you must vote by submitting voting instructions to your broker, bank or other nominee, or otherwise by following instructions provided by your broker, bank or other nominee. Phone and Internet voting
may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or other nominee.
-
Q:
-
What is the difference between holding shares as a holder of record and as a beneficial owner who holds shares in street
name?
-
A:
-
PDC. If your shares of PDC common stock are registered directly in your name with PDC's transfer agent,
Broadridge Corporate Issuer Solutions, Inc., you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your
shares are held in a stock brokerage account or by a broker, bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in "street name."
Access to proxy materials is being provided to you by your broker, bank or other nominee.
SRC. If your shares of SRC common stock are registered directly in your name with SRC's transfer agent, Corporate Stock
Transfer, Inc., you are considered the shareholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held in a stock
brokerage account or by a broker, bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in "street name." Access to proxy materials is
being provided to you by your broker, bank or other nominee.
-
Q:
-
What should I do if I receive more than one set of voting materials?
-
A:
-
You
may receive more than one set of voting materials relating to the PDC special meeting and/or the SRC special meeting if you hold shares of both PDC common stock
and SRC common stock or if you hold shares of PDC common stock and/or SRC common stock in "street name" and also directly in your name as a stockholder of record or shareholder of record, as
applicable, or otherwise or if you hold shares of PDC common stock and/or SRC common stock in more than one brokerage account.
Holders of record. For shares of PDC common stock and/or SRC common stock held directly, complete, sign, date and return each proxy card
(or cast your vote by phone or the Internet as provided on each proxy card) or otherwise follow the voting instructions provided in this joint proxy statement/prospectus in order to ensure that all of
your shares of PDC common stock and/or SRC common stock are voted.
9
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Shares in street name. For shares of PDC common stock and/or SRC common stock held in street name through a broker, bank or other nominee,
follow the instructions provided by your broker, bank or other nominee to vote your shares.
-
Q:
-
I am a participant in PDC's 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to my plan. How do I vote those
shares?
-
A:
-
If
you are a participant in PDC's 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan account as of the record date, you have the
right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be counted if your proxy card
is not received by the trustee by January 8, 2020. You cannot vote such shares at the PDC special meeting.
-
Q:
-
I hold shares of both PDC common stock and SRC common stock. Do I need to vote separately for each
company?
-
A:
-
Yes.
You will need to separately follow the applicable procedures described in this joint proxy statement/prospectus both with respect to the voting of shares of PDC
common stock and with respect to the voting of shares of SRC common stock in order to effectively vote the shares of common stock you hold in each company.
-
Q:
-
If a holder of shares gives a proxy, how will the shares of PDC common stock or SRC common stock, as applicable, covered by the proxy be
voted?
-
A:
-
If
you provide a proxy, regardless of whether you provide that proxy by phone, the Internet or by completing and returning the applicable enclosed proxy card, the
individuals named on the enclosed proxy card will vote your shares of PDC common stock or your shares of SRC common stock, as applicable, in the way that you indicate when providing your proxy in
respect of the shares of common stock you hold in each of PDC and SRC. When completing the phone or Internet processes or the proxy card, you may specify whether your shares of PDC common stock or SRC
common stock, as applicable, should be voted for or against, or abstain from voting on, all, some or none of the specific items of business to come before the PDC special meeting or the SRC special
meeting, as applicable.
-
Q:
-
How will my shares of common stock be voted if I return a blank proxy?
-
A:
-
PDC. If you sign, date and return your proxy and do not indicate how you want your shares of PDC common
stock to be voted, then your shares of PDC common stock will be voted "FOR" the adoption and approval of the PDC merger proposal and "FOR" the PDC issuance proposal, in accordance with the
recommendation of the PDC board.
SRC. If you sign, date and return your proxy and do not indicate how you want your shares of SRC common stock to be voted, then your shares
of SRC common stock will be voted "FOR" the approval of the SRC merger proposal, "FOR" the approval of the non-binding compensation advisory proposal and "FOR" the approval of the adjournment
proposal, in accordance with the recommendation of the SRC board.
-
Q:
-
Can I change my vote after I have submitted my proxy?
-
A:
-
PDC. Yes. If you are a stockholder of record of PDC common stock as of the close of business on the PDC
record date, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the PDC special meeting in one of the following
ways:
-
-
submit a new proxy card bearing a later date;
10
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-
-
vote again by phone or the Internet at a later time;
-
-
give written notice of your revocation to PDC's corporate secretary at 1775 Sherman Street, Suite 3000, Denver, CO 80203
stating that you are revoking your proxy; or
-
-
vote in person at the PDC special meeting. Please note that your attendance at the PDC special meeting will not alone serve to revoke your
proxy.
If
you are a beneficial owner of PDC common stock holding shares in street name as of the close of business on the PDC record date, you must follow the instructions of your broker, bank or other
nominee to revoke or change your voting instructions.
SRC. Yes. If you are a shareholder of record of SRC common stock as of the close of business on the SRC record date, whether you vote by
phone, the Internet or mail, you can change or revoke your proxy before it is voted at the SRC special meeting in one of the following ways:
-
-
submit a new proxy card bearing a later date;
-
-
vote again by phone or the Internet at a later time;
-
-
give written notice of your revocation to SRC's corporate secretary at 1675 Broadway, Suite 2600, Denver, CO 80202 stating
that you are revoking your proxy; or
-
-
vote in person at the SRC special meeting. Please note that your attendance at the SRC special meeting will not alone serve to revoke your
proxy.
If
you are a beneficial owner of SRC common stock holding shares in street name as of the close of business on the SRC record date, you must follow the instructions of your broker, bank or other
nominee to revoke or change your voting instructions.
-
Q:
-
Where can I find the voting results of the special meetings?
-
A:
-
Within
four business days following certification of the final voting results, PDC and SRC each intend to file the final voting results of its special meeting with
the SEC in a Current Report on Form 8-K.
-
Q:
-
If I do not favor the merger as a PDC stockholder or SRC shareholder, what are my rights?
-
A:
-
Under
Delaware law, PDC stockholders are not entitled to appraisal rights in connection with the merger or the issuance of shares of PDC common stock as contemplated
by the merger agreement.
Under
Colorado law, SRC shareholders are not entitled to dissenters' rights in connection with the merger.
-
Q:
-
Are there any risks that I should consider as a PDC stockholder and/or SRC shareholder in deciding how to
vote?
-
A:
-
Yes.
You should read and carefully consider the risk factors set forth in the section entitled "Risk Factors"
beginning on page 41. You also should read and carefully consider the risk factors of PDC and SRC contained in the documents that are incorporated by reference in this joint proxy
statement/prospectus.
-
Q:
-
What happens if I sell my shares before the special meetings?
-
A:
-
PDC stockholders. The record date for PDC stockholders entitled to vote at the PDC special meeting is
earlier than the date of the PDC special meeting. If you transfer your shares of PDC common stock after the PDC record date but before the PDC special meeting, you will, unless special arrangements
are made, retain your right to vote at the PDC special meeting.
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SRC shareholders. The record date for SRC shareholders entitled to vote at the SRC special meeting is earlier than the date of the SRC
special meeting. If you transfer your shares of SRC common stock after the SRC record date but before the SRC special meeting, you will, unless special arrangements are made, retain your right to vote
at the SRC special meeting but will have transferred the right to
receive the merger consideration to the person to whom you transferred your shares of SRC common stock.
-
Q:
-
What are the material U.S. federal income tax consequences of the merger to SRC shareholders?
-
A:
-
SRC
and PDC intend for the merger to qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which
we refer to as the "Code"). It is a condition to each party's obligation to complete the merger that each of PDC and SRC receive an opinion of its respective outside counsel to the effect that the
merger will qualify as a "reorganization" within the meaning of Section 368(a) of the Code. Accordingly, it is expected that U.S. holders (as defined in the section entitled
"Material U.S. Federal Income Tax Consequences of the Merger") of shares of SRC common stock generally will not recognize any gain or loss for U.S.
federal income tax purposes upon receipt of PDC common stock in exchange for SRC common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional
share of PDC common stock).
The
material U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled "Material U.S. Federal Income Tax Consequences of the
Merger" beginning on page 163. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to
provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual
circumstances. In addition, it does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.
TAX
MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.
-
Q:
-
When is the merger expected to be completed?
-
A:
-
PDC
and SRC are working to complete the merger as quickly as possible. Subject to the satisfaction or waiver of the conditions described in the section entitled
"The Merger AgreementConditions to the Completion of the Merger" beginning on page 156, including the approval of the SRC merger
proposal by SRC shareholders at the SRC special meeting and the approval of the PDC merger proposal and the PDC issuance proposal by PDC stockholders at the PDC special meeting, the transaction is
expected to be completed in the first quarter of 2020. However, neither PDC nor SRC can predict the actual date on which the merger will be completed, nor can the parties assure that the merger will
be completed, because completion is subject to conditions beyond either PDC's or SRC's control.
-
Q:
-
If I am an SRC shareholder, how will I receive the merger consideration to which I am entitled?
-
A:
-
If
you are a holder of certificates that represent eligible shares of SRC common stock (which we refer to as "SRC common stock certificates"), a notice advising you
of the effectiveness of the merger and a letter of transmittal and instructions for the surrender of your SRC common stock certificates will be mailed to you as soon as practicable after the effective
time of the merger. After receiving proper documentation from you, the exchange agent will send to you (i) a
12
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statement
reflecting the aggregate whole number of shares of PDC common stock (which will be in uncertificated book-entry form) that you have a right to receive pursuant to the merger agreement and
(ii) a check in the amount equal to the cash payable in lieu of any fractional shares of PDC common stock and dividends and other distributions on the shares of PDC common stock issuable to you
as merger consideration.
If
you are a holder of book-entry shares representing eligible shares of SRC common stock (which we refer to as "SRC book-entry shares") which are held through the Depository Trust Company (which we
refer to as "DTC"), the exchange agent will transmit to DTC or its nominees as soon as reasonably practicable on or after the closing date, the merger consideration, cash in lieu of any fractional
shares of PDC common stock and any dividends and other distributions on the shares of PDC common stock issuable as merger consideration, in each case, that DTC has the right to receive.
If
you are a shareholder of record of SRC book-entry shares which are not held through DTC, the exchange agent will deliver to you, as soon as practicable after the effective time of the merger,
(i) a notice advising you of the effectiveness of the merger, (ii) a statement reflecting the aggregate whole number of shares of PDC common stock (which will be in uncertificated
book-entry form) that you have a right to receive pursuant to the merger agreement and (iii) a check in the amount equal to the cash payable in lieu of any fractional shares of PDC common stock
and dividends and other distributions on the shares of PDC common stock issuable to you as merger consideration.
No
interest will be paid or accrued on any amount payable for shares of SRC common stock eligible to receive the merger consideration pursuant to the merger agreement.
For
additional information on the exchange of SRC common stock for the merger consideration, see the section entitled "The Merger AgreementPayment for Securities;
Exchange" beginning on page 127.
-
Q:
-
If I am a holder of SRC common stock certificates, do I need to send in my stock certificates at this time to receive the merger
consideration?
-
A:
-
No.
Please DO NOT send your SRC common stock certificates with your proxy card. You should carefully review and follow the instructions set forth in the letter of
transmittal, which will be mailed to you, regarding the surrender of your stock certificates.
-
Q:
-
If I am an SRC shareholder, will the shares of PDC common stock issued in the merger receive a
dividend?
-
A:
-
After
the completion of the merger, the shares of PDC common stock issued in connection with the merger will carry with them the right to receive the same dividends
on shares of PDC common stock as the shares of PDC common stock held by all other holders of such shares for any dividend the record date for which occurs after the merger is completed.
-
Q:
-
Who will solicit and pay the cost of soliciting proxies?
-
A:
-
Both
PDC and SRC have retained MacKenzie Partners, Inc. (which we refer to as "MacKenzie Partners") to assist in the solicitation process.
PDC
will pay MacKenzie Partners a fee of $25,000, as well as reasonable and documented out-of-pocket expenses. PDC also has agreed to indemnify MacKenzie Partners against various liabilities and
expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).
13
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SRC
will pay MacKenzie Partners a fee of $25,000, as well as reasonable and documented out-of-pocket expenses. SRC also has agreed to indemnify MacKenzie Partners against various liabilities and
expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).
-
Q:
-
What is "householding"?
-
A:
-
To
reduce the expense of delivering duplicate proxy materials to shareholders who may have more than one account holding a corporation's common stock but who share
the same address, a corporation may adopt a procedure approved by the SEC called "householding." Under this procedure, certain stockholders of record or shareholders of record, as applicable, who have
the same address and last name will receive only one copy of proxy materials until such time as one or more of these shareholders notifies such corporation that they want to receive separate copies.
Neither PDC nor SRC has elected to institute householding in connection with the PDC special meeting or SRC special meeting.
-
Q:
-
What should I do now?
-
A:
-
You
should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, and return your completed, signed and dated proxy card by
mail in the enclosed postage-paid envelope or submit your voting instructions by phone or the Internet as soon as possible so that your shares of PDC common stock and/or SRC common stock will be voted
in accordance with your instructions.
-
Q:
-
Who can answer my questions about the PDC special meeting and/or SRC special meeting or the transactions contemplated by the merger
agreement?
-
A:
-
If
you have questions about the PDC special meeting or SRC special meeting or the information contained in this joint proxy statement/prospectus, or desire additional
copies of this joint proxy statement/prospectus or additional proxies, contact PDC's and SRC's proxy solicitor:
1407
Broadway, 27th Floor
New York, New York 10018
PDC@mackenziepartners.com
Call Collect: (212) 929-5500
Toll-Free: (800) 322-2885
-
Q:
-
Where can I find more information about PDC, SRC and the merger?
-
A:
-
You
can find out more information about PDC, SRC and the merger by reading this joint proxy statement/prospectus and, with respect to PDC and SRC, from various
sources described in the sections entitled "Where You Can Find More Information" and "Information Incorporated by
Reference," beginning on pages 191 and 192, respectively.
14
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SUMMARY
This summary highlights selected information included in this joint proxy statement/prospectus and does not contain all of the information that
may be important to you. You should read this joint proxy statement/prospectus and its annexes carefully and in their entirety and the other documents to which PDC and SRC refer before you decide how
to vote with respect to the proposals to be considered and voted on at the PDC special meeting or SRC special meeting. In addition, PDC and SRC incorporate by reference important business and
financial information about PDC and SRC into this joint proxy statement/prospectus, as further described in the sections entitled "Where You Can Find More
Information" and "Information Incorporated by Reference," beginning on pages 191 and 192, respectively. You may obtain the
information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions in the sections entitled "Where You Can Find More
Information" and "Information Incorporated by Reference," beginning on pages 191 and 192, respectively. Each item in this
summary includes a page reference directing you to a more complete description of that item in this joint proxy statement/prospectus.
Information About the Companies (page 56)
PDC Energy, Inc.
1775
Sherman Street
Suite 3000
Denver, CO 80203
Phone: (303) 860-5800
PDC
Energy, Inc. is a domestic independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas and
NGLs, with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. PDC's operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and its
Delaware Basin operations are primarily focused in the Wolfcamp zones.
SRC Energy Inc.
1675
Broadway
Suite 2600
Denver, CO 80202
Phone: (720) 616-4300
SRC
is an independent oil and gas company engaged in the acquisition, development, and production of oil, natural gas, and natural gas liquids in the DJ Basin in Colorado. The DJ Basin
contains hydrocarbon-bearing deposits in several formations, including the Niobrara, Codell, Greenhorn, Shannon, Sussex, J-Sand, and D-Sand. The area has produced oil and natural gas for over fifty
years and benefits from established infrastructure, long reserve life, and multiple service providers. SRC's oil and natural gas activities are focused in the Wattenberg Field, in Weld County,
Colorado, an area that covers the western flank of the DJ Basin. Currently, SRC is focused on the horizontal development of the Codell formation as well as the three benches of the Niobrara formation,
which are all characterized by relatively high liquids content.
The Merger and the Merger Agreement (page 123)
The terms and conditions of the merger are contained in the merger agreement, which is attached to this document as Annex A and is
incorporated by reference herein in its entirety. PDC and SRC encourage you to read the merger agreement carefully and in its entirety, as it is the legal document that governs the merger.
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The
PDC board of directors and the SRC board of directors each has unanimously approved and adopted the merger agreement and the transactions contemplated by the merger agreement.
Pursuant to the terms and subject to the conditions included in the merger agreement, PDC has agreed to acquire SRC by means of a merger of SRC with and into PDC, with PDC surviving the merger.
Merger Consideration (page 124)
As a result of the merger, each eligible share of SRC common stock (other than shares held in treasury by SRC or shares owned by PDC and, in
each case, not held on behalf of third parties (which we refer to collectively as the "cancelled shares")) issued and outstanding immediately prior to the effective time of the merger will be
converted into the right to receive 0.158 of a share of PDC common stock, with cash in lieu of any fractional shares (which we refer to as the "merger consideration").
SRC
shareholders will not be entitled to receive any fractional shares of PDC common stock in the merger, and no SRC shareholders will be entitled to dividends, voting rights or any
other rights in respect of any fractional shares of PDC common stock. Each holder of shares of SRC common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a
fraction of a share of PDC common stock (after taking into account all certificates and book-entry shares delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to the product of (i) such fractional part of a share of PDC common stock multiplied by (ii) the volume weighted average price of PDC common stock for the five consecutive trading
days ending on the date that is two business days prior to the closing date as reported by Bloomberg L.P.
Risk Factors (page 41)
The merger and an investment in PDC common stock involve risks, some of which are related to the transactions contemplated by the merger
agreement. You should carefully consider the information about these risks set forth under the section entitled "Risk Factors" beginning on page 41,
together with the other information included or incorporated by reference in this joint proxy statement/prospectus, particularly the risk factors contained in PDC's and SRC's Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings they make with the SEC. SRC shareholders should carefully consider the risks set out in
that section before deciding how to vote with respect to the SRC merger proposal, non-binding compensation proposal and the adjournment proposal to be considered and voted on at the SRC special
meeting, and PDC stockholders should carefully consider the risks set out in that section before deciding how to vote with respect to the PDC merger proposal and the PDC issuance proposal to be
considered and voted on at the PDC special meeting. For additional information, see the sections entitled "Where You Can Find More Information" and
"Information Incorporated by Reference," beginning on pages 191 and 192, respectively.
Treatment of SRC Equity Awards (page 125)
SRC RSU Awards
Immediately prior to the effective time of the merger, each then outstanding RSU award in respect of shares of SRC common stock, whether vested
or unvested, will become fully vested and will be cancelled and converted into the right to receive the merger consideration in respect of each share of SRC common stock subject to the award as of
immediately prior to the effective time of the merger (less required tax withholdings).
SRC PSU Awards
Except for the New PSU awards, immediately prior to the effective time of the merger, each then outstanding Current PSU award in respect of
shares of SRC common stock, whether vested or
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unvested,
will become automatically vested at the target (i.e., 100%) level and will be cancelled and converted into the right to receive the merger consideration in respect of each share of
SRC common stock subject to the award at target (less required tax withholdings).
New SRC PSU Awards
In addition, SRC will grant New PSU awards in respect of shares of SRC common stock at the times, to the individuals and on the terms and in the
amounts specified in the merger agreement. Immediately prior to the effective time of the merger, each then outstanding New PSU award will be assumed or substituted by PDC and converted automatically
into a performance stock unit award of PDC, subject to the same terms and conditions as were applicable to the New PSU awards immediately prior to the effective time of the merger. The number of
shares of PDC common stock covered by such assumed awards will be based on the number of SRC shares covered by such awards multiplied by the exchange ratio in the merger.
SRC Options
Immediately prior to the effective time of the merger, each then outstanding option to purchase shares of SRC common stock will, whether vested
or unvested, become fully vested, and each such option that is "in the money" relative to the per-share value of the merger consideration as determined pursuant to the merger agreement will be
cancelled and converted into the right to receive the merger consideration for each share with respect to a number of shares of SRC common stock subject to the option, less a number of shares of SRC
common stock equal to the value of the aggregate exercise price of such option (less required tax withholdings). Immediately prior to the effective time of the merger, each then outstanding option to
purchase shares of SRC common stock that is "out of the money" relative to the per-share value of the merger consideration as determined pursuant to the merger agreement will be cancelled in exchange
for no consideration.
SRC Stock Bonus Awards
Immediately prior to the effective time of the merger, each then outstanding Stock Bonus award, whether vested or unvested, will become fully
vested and will be cancelled and converted into the right to receive the merger consideration in respect of each share of SRC common stock subject to the award (less required tax withholdings).
Recommendation of the PDC Board of Directors and PDC's Reasons for the Merger (page 76)
The PDC board unanimously recommends that you vote "FOR" the PDC merger proposal and "FOR" the PDC issuance proposal. For the factors considered
by the PDC board in reaching this decision and additional information on the recommendation of the PDC board, see the section entitled "The MergerRecommendation of
the PDC Board of Directors and PDC's Reasons for the Merger" beginning on page 76.
Recommendation of the SRC Board of Directors and SRC's Reasons for the Merger (page 88)
The SRC board unanimously recommends that you vote "FOR" the SRC merger proposal, "FOR" the non-binding compensation proposal and "FOR" the
adjournment proposal. For the factors considered by the SRC board in reaching this decision and additional information on the recommendation of the SRC board, see the section entitled
"The MergerRecommendation of the SRC Board of Directors and SRC's Reasons for the Merger" beginning on page 88.
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Opinions of Financial Advisors (page 80)
Opinion of J.P. Morgan, PDC's financial advisor
PDC retained J.P. Morgan Securities LLC ("J.P. Morgan") as its financial advisor in connection with the proposed merger.
At
the meeting of the PDC board of directors on August 25, 2019, J.P. Morgan rendered its oral opinion to the PDC board of directors that, as of such date and based upon and
subject to the various factors, assumptions and limitations set forth in the opinion, the exchange ratio applicable to the conversion of each outstanding share of SRC common stock into PDC common
stock in the proposed merger was fair, from a financial point of view, to PDC. J.P. Morgan confirmed its August 25, 2019, oral opinion by delivering its written opinion, dated August 25,
2019, to the PDC board of directors that, as of such date, the exchange ratio in the proposed merger was fair, from a financial point of view, to PDC.
The full text of the written opinion of J.P. Morgan, dated August 25, 2019, which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. The
summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. PDC's stockholders are urged to
read the opinion in its entirety. J.P. Morgan's opinion was addressed to the PDC board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed
merger, was directed only to the exchange ratio in the proposed merger and did not address any other aspect of the proposed merger. J.P. Morgan expressed no opinion as to the fairness of any
consideration to be paid in connection with the proposed merger to the holders of any class of securities, creditors or other constituencies of PDC or as to the underlying decision by PDC to engage in
the proposed merger. The issuance of J.P. Morgan's opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any stockholder of PDC as to how
such stockholder should vote with respect to the proposed merger or any other matter. For a description of the opinion that the PDC board of directors received from J.P. Morgan, see the section
entitled "The MergerOpinion of J.P. Morgan, PDC's Financial Advisor" beginning on page 80.
Opinions of Citi and Goldman Sachs, SRC's financial advisors
Opinion of Citi
The SRC board retained Citigroup Global Markets Inc. (which we refer to as "Citi") as financial advisor to SRC in connection with the
merger. In connection with the engagement of Citi, the SRC board requested that Citi evaluate the fairness, from a financial point of view, to holders (other than PDC and its affiliates) of SRC common
stock of the exchange ratio provided for in the merger agreement. On August 25, 2019, at a meeting of the SRC board at which the merger was approved, Citi rendered to the SRC board an oral
opinion, subsequently confirmed by delivery of a written opinion dated August 25, 2019, to the effect that, as of the date of its opinion and based on and
subject to the matters described in its opinion, the exchange ratio was fair, from a financial point of view, to holders (other than PDC and its affiliates) of SRC common stock.
The full text of Citi's written opinion, dated August 25, 2019, which describes the assumptions made, procedures followed, matters considered and
limitations and qualifications on the review undertaken, is attached to this joint proxy statement/prospectus as Annex C and is incorporated into this joint proxy statement/prospectus by
reference. The description of Citi's opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Citi's opinion. Citi's opinion was
addressed to, and provided for the information of the SRC board (in its
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capacity as such) in connection with its evaluation of the exchange ratio from a financial point of view and did not address any other terms, aspects or implications of the merger. Citi expressed no
view as to, and its opinion did not address, the underlying business decision of SRC to effect or enter into the merger, the relative merits of the merger as compared to any alternative business
strategies that might exist for SRC or the effect of any other transaction in which SRC might engage or consider. Citi's opinion is not intended to be and does not constitute a recommendation to any
securityholder as to how such securityholder should vote or act on any matters relating to the merger or otherwise. For a description of the opinion that the SRC board received from Citi, see
"The MergerOpinions of Citi and Goldman Sachs, SRC's Financial Advisors" and Annex C.
Opinion of Goldman Sachs
Goldman Sachs & Co. LLC (which we refer to as "Goldman Sachs") delivered its opinion to the SRC board that, as of
August 25, 2019 and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the
holders (other than PDC and its affiliates) of shares of SRC common stock.
The full text of the written opinion of Goldman Sachs, dated August 25, 2019, which sets forth assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with the opinion, is attached as Annex D. Goldman Sachs provided its opinion for the information and assistance of the SRC board in
connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of SRC common stock should vote with respect to the merger or any
other matter. For a description of the opinion that the SRC board received from Goldman Sachs, see "The MergerOpinions of Citi and Goldman Sachs, SRC's Financial
Advisors" and Annex D.
Special Meeting of PDC Stockholders (page 57)
Date, Time, Place and Purpose of the PDC Special Meeting
The PDC special meeting will be held on January 13, 2020, at 8:00 a.m., Mountain Time, at the Denver Financial Center
at 1775 Sherman Street, Denver, CO 80203. The purpose of the PDC special meeting is to consider and vote on the PDC merger proposal and the PDC issuance proposal. Adoption and approval
of the PDC merger proposal and the PDC issuance proposal by PDC stockholders is a condition to the obligation of PDC and SRC to complete the merger.
Record Date and Outstanding Shares of PDC Common Stock
Only stockholders of record of issued and outstanding shares of PDC common stock as of the close of business on November 29, 2019 (which
we refer to as the "PDC record date") are entitled to notice of, and to vote at, the PDC special meeting or any subsequent reconvening of the PDC special meeting following any adjournments and
postponements of the PDC special meeting.
As
of the PDC record date, there were 61,616,700 shares of PDC common stock issued and outstanding and entitled to vote at the PDC special meeting. You may cast one vote for each share
of PDC common stock that you held as of the close of business on the PDC record date.
A
complete list of PDC stockholders entitled to vote at the PDC special meeting will be available for inspection at PDC's principal office at 1775 Sherman Street, Suite 3000,
Denver, CO 80203 during regular business hours for a period of no less than 10 days before the PDC special meeting and during the PDC special meeting at the Denver Financial Center at 1775
Sherman Street, Denver, CO 80203.
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Quorum; Abstentions and Broker Non-Votes
A quorum of PDC stockholders is necessary for PDC to hold a valid meeting. The presence at the PDC special meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of PDC common stock entitled to vote at the PDC special meeting constitutes a quorum.
If
you submit a properly executed proxy card, even if you do not vote for the proposal or vote to "abstain" in respect of the proposal, your shares of PDC common stock will be counted
for purposes of determining whether a quorum is present for the transaction of business at the PDC special meeting. Broker non-votes will not be considered present and entitled to vote at the PDC
special meeting for the purpose of determining the presence of a quorum.
Executed
but unvoted proxies will be voted in accordance with the recommendation of the PDC board.
Required Vote to Adopt and Approve the PDC Merger Proposal and the PDC Issuance Proposal
Adoption and approval of the PDC merger proposal requires the affirmative vote of the holders of a majority of the outstanding PDC common stock,
and approval of the PDC issuance proposal requires the affirmative vote of a majority of votes cast by PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on
such proposal. Abstentions will have the same effect as votes "AGAINST" each proposal. Broker non-votes and failures to vote will have the same effect as votes "AGAINST" the PDC merger proposal but
will not have any effect on the outcome of the vote on the PDC issuance proposal.
The
PDC merger proposal and the PDC issuance proposal are described in the section entitled "PDC Proposals" beginning on page 62.
Voting by PDC Directors and Executive Officers
As of the PDC record date, PDC directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 354,199
shares of PDC common stock, or approximately 0.57% of the total outstanding shares of PDC common stock as of the PDC record date.
PDC
currently expects that all of its directors and executive officers will vote their shares "FOR" the PDC merger proposal and the PDC issuance proposal.
Adjournment
If a quorum is not present or if there are not sufficient votes for the approval of the PDC merger proposal and the PDC issuance proposal, PDC
expects that the PDC special meeting will be adjourned by the chairman of the PDC special meeting to solicit additional proxies. At any subsequent reconvening of the PDC special meeting, all proxies
will be voted in the same manner as they would have been voted at the original convening of the PDC special meeting, except for any proxies that have been validly revoked or withdrawn prior to the
subsequent meeting.
Special Meeting of SRC Shareholders (page 63)
Date, Time, Place and Purpose of the SRC Special Meeting
The SRC special meeting will be held on January 13, 2020, at 8:00 a.m., Mountain Time, at the Denver Energy Center,
Tower 2, 1625 Broadway, Denver, Colorado 80202. The purpose of the SRC special meeting is to consider and vote on the SRC merger proposal, the non-binding compensation proposal and the
adjournment proposal. Approval of the SRC merger proposal is a condition to the obligation of SRC and PDC to complete the merger. Approval of the non-binding compensation proposal and the adjournment
proposal is not a condition to the obligation of either SRC or PDC to complete the merger.
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Record Date and Outstanding Shares of SRC Common Stock
Only shareholders of record of issued and outstanding shares of SRC common stock as of the close of business on November 29, 2019 (which
we refer to as the "SRC record date") are entitled to notice of, and to vote at, the SRC special meeting or any subsequent reconvening of the SRC special meeting following or any subsequent
reconvening of the SRC special meeting following any adjournments and postponements of the SRC special meeting.
As
of the close of business on the SRC record date, there were 243,567,718 shares of SRC common stock issued and outstanding and entitled to vote at the SRC special meeting. You may cast
one vote for each share of SRC common stock that you held as of the close of business on the SRC record date.
A
complete list of SRC shareholders entitled to vote at the SRC special meeting will be available for inspection at SRC's principal office at 1675 Broadway, Suite 2600, Denver, CO
80202 during regular business hours for a period of no less than 10 days before the SRC special meeting and during the SRC special meeting at the Denver Energy Center, Tower 2, 1625 Broadway,
Denver, CO 80202.
Quorum; Abstentions and Broker Non-Votes
A quorum of SRC shareholders is necessary for SRC to hold a valid meeting. The presence of the holders of one-third of the outstanding shares of
SRC common stock entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum.
If
you submit a properly executed proxy card, even if you do not vote for the proposal or vote to "abstain" in respect of the proposal, your shares of SRC common stock will be counted
for purposes of determining whether a quorum is present for the transaction of business at the SRC special meeting. Broker non-votes will not be considered present and entitled to vote at the SRC
special meeting for the purpose of determining the presence of a quorum.
Executed
but unvoted proxies will be voted in accordance with the recommendations of the SRC board.
Required Vote to Adopt and Approve the SRC Merger Proposal
Adoption and approval of the SRC merger proposal requires the affirmative vote of a majority of the outstanding shares of SRC common stock
entitled to vote on the proposal. Abstentions, broker non-votes and failures to vote will have the same effect as votes "AGAINST" the proposal.
The
SRC merger proposal is described in the section entitled "SRC Proposals" beginning on page 68.
Required Vote to Approve the Non-binding Compensation Proposal
Approval of the non-binding compensation proposal requires that the votes cast in favor of the proposal exceed the votes cast against the
proposal. Neither abstentions, broker non-votes nor failures to vote will have any effect on the outcome of the vote.
The
non-binding compensation proposal is described in the section entitled "SRC Proposals" beginning on page 68.
Required Vote to Approve the Adjournment Proposal
Approval of the adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither
abstentions, broker non-votes nor failures to vote will have any effect on the outcome of the vote.
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The
adjournment proposal is described in the section entitled "SRC Proposals" beginning on page 68.
Voting by SRC Directors and Executive Officers
As of the SRC record date, SRC directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 1,943,818
shares of SRC common stock, or approximately 0.80% of the total outstanding shares of SRC common stock as of the SRC record date.
SRC
currently expects that all of its directors and executive officers will vote their shares "FOR" the SRC merger proposal, "FOR" the non-binding compensation proposal and "FOR" the
adjournment proposal.
Adjournment
If a quorum is not present or if there are not sufficient votes for the approval of the SRC merger proposal and the SRC shareholders approve the
adjournment proposal, SRC expects that the SRC special meeting will be adjourned by the chairman of the meeting to solicit additional proxies in accordance with the merger agreement. At any subsequent
reconvening of the SRC special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the SRC special meeting, except for any proxies that
have been validly revoked or withdrawn prior to the subsequent reconvening of the SRC special meeting.
Interests of PDC Directors and Executive Officers in the Merger (page 114)
In considering the recommendation of the PDC board with respect to the PDC merger proposal and the PDC issuance proposal, PDC stockholders
should be aware that the directors and executive officers of PDC have interests in the merger that may be different from, or in addition to, the interests of PDC stockholders generally. These
interests are described in more detail in the section entitled "The MergerInterests of PDC Directors and Executive Officers in the Merger"
beginning on page 114. The members of the PDC board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in unanimously
approving the merger agreement and in determining to recommend that PDC stockholders approve the PDC merger proposal and the PDC issuance proposal.
Board of Directors and Management of PDC Following Completion of the Merger (page 114)
In connection with the merger, PDC and SRC have agreed that two members of the SRC board, to be mutually agreed by PDC and SRC (the "SRC
Designees"), will be appointed to the PDC board simultaneously with the effectiveness of the merger. PDC and SRC expect the SRC Designees to be Lynn A. Peterson and Paul J. Korus, subject to final
agreement among the companies after consideration of independence and other factors. The closing of the merger is not expected to result in other changes to the PDC board or executive management. PDC
will continue to be headquartered in Denver, Colorado.
Interests of SRC Directors and Executive Officers in the Merger (page 115)
In considering the recommendation of the SRC board with respect to the SRC merger proposal, SRC shareholders should be aware that the directors
and executive officers of SRC have certain interests in the merger that may be different from, or in addition to, the interests of SRC shareholders generally. The members of the SRC board were aware
of these interests and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in unanimously approving the merger agreement and in determining to
recommend that SRC shareholders approve the SRC merger proposal.
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These
interests include:
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-
Immediately prior to the effective time of the merger, each then outstanding RSU award in respect of shares of SRC common stock, whether vested
or unvested, will become fully vested and will be cancelled converted into the right to receive the merger consideration in respect of each share of SRC common stock subject to the award as of
immediately prior to the effective time of the merger (less required tax withholdings);
-
-
Except for the New PSU awards, immediately prior to the effective time of the merger, each then outstanding Current PSU award in respect of
shares of SRC common stock, whether vested or unvested, will become automatically vested at the target (i.e., 100%) level and will be cancelled and converted into the right to receive the
merger consideration in respect of each share of SRC common stock subject to the award at target (less required tax withholdings);
-
-
Immediately prior to the effective time of the merger, each then outstanding option to purchase shares of SRC common stock will, whether vested
or unvested, become fully vested, and each such option that is "in the money" relative to the per-share value of the merger consideration for each share as determined pursuant to the merger agreement
will be cancelled and converted into the right to receive the merger consideration with respect to a number of shares of SRC common stock subject to the option, less a number of shares of SRC common
stock equal to the value of the aggregate exercise price of such option (less required tax withholdings);
-
-
Immediately prior to the effective time of the merger, each then outstanding Stock Bonus award, whether vested or unvested, will become fully
vested and will be cancelled and converted into the right to receive the merger consideration in respect of each share of SRC common stock subject to the award (less required tax withholdings);
-
-
Prior to closing, SRC will grant New PSU awards in respect of shares of SRC common stock at the times, to the individuals and on the terms and
in the amounts specified in the merger agreement. Immediately prior to the effective time of the merger, each then outstanding New PSU award will be assumed or substituted by PDC and converted
automatically into a performance stock unit award of PDC, subject to the same terms and conditions as were applicable to the New PSU awards immediately prior to the effective time of the merger. The
number of shares of PDC common stock covered by such assumed awards will be equal to the number of SRC shares covered by such awards multiplied by the exchange ratio in the merger;
-
-
SRC may grant transaction bonuses (the "Transaction Bonuses") to SRC's executive officers and other employees, and to SRC's non-employee
directors;
-
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Annual cash incentive awards for 2019 will be paid at target at the earlier of the effective time of the merger and the time that they are
normally paid, and if the merger occurs after December 31, 2019, executive officers may be entitled to pro-rated annual bonuses for 2020;
-
-
Mr. Peterson's employment agreement and severance compensation agreements with SRC's executive officers provide for enhanced severance
payments and benefits upon a qualifying termination of employment in connection with the merger;
-
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Two members of the SRC board will be appointed to the PDC board immediately after the effective time of the merger and paid remuneration
consistent with PDC's director remuneration. The remaining directors will be eligible for a transaction bonus not to exceed an aggregate $150,000.00; and
-
-
SRC's directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.
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For
a more complete description of these interests, see "The MergerInterests of SRC Directors and Executive Officers in the
Merger."
Conditions to the Completion of the Merger (page 156)
Each party's obligation to complete the merger is subject to the satisfaction or waiver of the following mutual conditions:
-
-
PDC Stockholder Approval. The PDC merger proposal must have been approved
by the holders of a majority of the outstanding shares of common stock of PDC and the PDC issuance proposal must have been approved by the affirmative vote of a majority of PDC shares present in
person or by proxy at the PDC special meeting and entitled to vote on the proposal.
-
-
SRC Shareholder Approval. The SRC merger proposal must have been approved
by the affirmative vote of a majority of the outstanding shares of SRC common stock entitled to vote on the SRC merger proposal.
-
-
Regulatory Approval. Any waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (which we refer to as the "HSR Act") applicable to the merger and the other transactions contemplated by the merger agreement must have expired or been terminated.
-
-
No Injunctions or Restraints. No governmental entity of the United States
or any state thereof having jurisdiction over PDC or SRC shall have issued any order, decree, ruling, injunction or other action that is in effect (whether temporary, preliminary or permanent)
restraining, enjoining or otherwise prohibiting the consummation of the merger and no law that makes the consummation of the merger illegal or otherwise prohibited shall have been adopted after the
date of the merger agreement.
-
-
Effectiveness of the Registration Statement. The registration statement,
of which this joint proxy statement/prospectus forms a part, must have been declared effective by the SEC under the Securities Act and must not be the subject of any stop order or proceedings
seeking a stop order.
-
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Nasdaq Listing. The shares of PDC common stock issuable to SRC shareholders
pursuant to the merger agreement must have been authorized for listing on Nasdaq, upon official notice of issuance.
The
obligations of PDC to complete the merger are subject to the satisfaction or waiver of further conditions, including:
-
-
the accuracy of the representations and warranties of SRC contained in the merger agreement as of the date of the agreement and as of the
closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;
-
-
SRC having performed and complied with in all material respects all of its obligations under the merger agreement required to be performed or
complied with at or prior to the effective time of the merger;
-
-
SRC having not experienced a "Company Material Adverse Effect" as defined in the merger agreement;
-
-
PDC having received a certificate of SRC signed by an executive officer of SRC, dated as of the closing date, confirming that the conditions
set forth in the three bullets directly above have been satisfied; and
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-
-
PDC having received an opinion of its outside counsel to the effect that the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
The
obligation of SRC to complete the merger is subject to the satisfaction or waiver of the following additional conditions:
-
-
the accuracy of the representations and warranties of PDC contained in the merger agreement as of the date of the agreement and as of the
closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;
-
-
PDC having performed and complied with in all material respects all of its respective obligations under the merger agreement required to be
performed or complied with by it at or prior to the effective time of the merger;
-
-
PDC not having experienced at "Parent Material Adverse Effect" as that term is defined in the merger agreement;
-
-
SRC having received a certificate of PDC signed by an executive officer of PDC, dated as of the closing date, confirming that the conditions in
the three bullets directly above have been satisfied; and
-
-
SRC having received an opinion of its outside counsel to the effect that the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
No Solicitation (page 137)
No Solicitation by PDC
PDC has agreed that, from and after the date of the merger agreement, PDC will, and will cause its affiliates and subsidiaries, and its and
their respective directors, officers and representatives to, immediately cease, and cause to be terminated, any solicitation, encouragement, discussion or negotiations that commenced prior to and were
ongoing as of that date with respect to a PDC competing proposal (as defined in the section entitled "The Merger AgreementNo Solicitation; Changes of
RecommendationDefinitions of Competing Proposals" beginning on page 143).
PDC
has also agreed that, from and after the date of the merger agreement until the effective time of the merger or the termination of the merger agreement, PDC will not, and will cause
its affiliates and subsidiaries, and its and their respective directors, officers and representatives not to, and will not announce any intention to, directly or
indirectly:
-
-
initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a PDC
competing proposal;
-
-
engage in any discussions or negotiations with any person with respect to a PDC competing proposal;
-
-
furnish any non-public information regarding PDC or its subsidiaries, or access to the properties, assets or employees of PDC or its
subsidiaries, to any person in connection with or in response to a PDC competing proposal;
-
-
enter into any letter of intent or agreement in principle, or other agreement or commitment in respect of any proposal or offer that
constitutes, or could reasonably be expected to lead to, a PDC competing proposal (other than a confidentiality agreement in accordance with the applicable terms of the merger agreement); or
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-
-
resolve, agree or publicly propose to, or permit PDC or any of its subsidiaries or any of its or their representatives to agree or publicly
propose to take any of the actions referred to in the bullets directly above.
Notwithstanding
the agreements described above, prior to, but not after, the time the PDC merger proposal and the PDC issuance proposal have been approved by PDC stockholders, PDC may
engage in the second and third bullets directly above with any person if PDC receives a bona fide written PDC competing proposal that did not arise from
a breach of the obligations described directly above and in the section entitled "The Merger AgreementNo Solicitation; Changes of
RecommendationDefinitions of Competing Proposals" beginning on page 143; provided, however, that:
-
-
no non-public information that is prohibited from being furnished pursuant to the foregoing obligations may be furnished until PDC receives an
executed confidentiality agreement from the person making such PDC competing proposal; and
-
-
prior to taking any such actions, the PDC board of directors determines in good faith, after consultation with PDC's financial advisor and
outside legal counsel, that such PDC competing proposal is, or would reasonably be expected to lead to, a PDC superior proposal (as defined in the section entitled "The Merger
AgreementNo Solicitation; Changes of RecommendationPDC: No Solicitation Exceptions" beginning on page 140).
No Solicitation by SRC
SRC has agreed that, from and after the date of the merger agreement, SRC will, and will cause its affiliates and subsidiaries, and its and
their respective directors, officers and representatives to, immediately cease, and cause to be terminated, any solicitation, encouragement, discussion or negotiations that commenced prior to and were
ongoing as of the date of the agreement with respect to an SRC competing proposal (as defined in the section entitled "The Merger AgreementNo Solicitation; Changes
of RecommendationDefinitions of Competing Proposals" beginning on page 143).
SRC
has also agreed that, from and after the date of the merger agreement until the effective time of the merger or the termination of the merger agreement, SRC will not, and will cause
its affiliates and subsidiaries, and its and their respective directors, officers and representatives not to, and will not announce any intention to, directly or
indirectly:
-
-
initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of an SRC
competing proposal;
-
-
engage in any discussions or negotiations with any person with respect to an SRC competing proposal;
-
-
furnish any non-public information regarding SRC or its subsidiaries, or access to the properties, assets or employees of SRC or its
subsidiaries, to any person in connection with or in response to an SRC competing proposal;
-
-
enter into any letter of intent or agreement in principle, or other agreement or commitment in respect of any proposal or offer that
constitutes, or could reasonably be expected to lead to, an SRC competing proposal (other than a confidentiality agreement in accordance with the applicable terms of the merger agreement); or
-
-
resolve, agree or publicly propose to, or permit SRC or any of its subsidiaries or any of its or their representatives to agree or publicly
propose to take any of the actions referred to in the bullets directly above.
Notwithstanding
the agreements described above, prior to, but not after, the time the SRC merger proposal has been approved by SRC shareholders, SRC may engage in the second and third
bullets
26
Table of Contents
directly
above with any person if SRC receives a bona fide written SRC competing proposal that did not arise from a breach of the obligations described
directly above and in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationDefinitions of Competing
Proposals" beginning on page 143; provided, however, that:
-
-
no non-public information that is prohibited from being furnished pursuant to the foregoing obligations may be furnished until SRC receives an
executed confidentiality agreement from the person making such SRC competing proposal; and
-
-
prior to taking any such actions, the SRC board of directors determines in good faith, after consultation with its financial advisors and
outside legal counsel, that such SRC competing proposal is, or would reasonably be expected to lead to, an SRC superior proposal (as defined in the section entitled "The Merger
AgreementNo Solicitation; Changes of RecommendationSRC: No Solicitation Exceptions" beginning on page 137).
Changes of Recommendation (page 138)
PDC Restrictions on Changes of Recommendation
Subject to certain exceptions described below, the PDC board of directors may not effect a PDC recommendation change (as defined in the section
entitled "The Merger AgreementNo Solicitation; Changes of RecommendationPDC: Restrictions on Changes of Recommendation"
beginning on page 141).
SRC Restrictions on Changes of Recommendation
Subject to certain exceptions described below, the SRC board of directors may not effect an SRC recommendation change (as defined in the section
entitled "The Merger AgreementNo Solicitation; Changes of RecommendationSRC: Restrictions on Changes of Recommendation"
beginning on page 138).
PDC: Permitted Changes of Recommendation and Permitted Termination to Enter into a PDC Superior
Proposal
Prior to, but not after, the time that the PDC merger proposal and the PDC issuance proposal have been approved by PDC stockholders, in response
to a bona fide written PDC competing proposal from a third party that did not arise from a breach of the "no solicitation" obligations described above
and in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationNo Solicitation by PDC," the PDC
board of directors may effect a PDC recommendation change or terminate the merger agreement if:
-
-
the PDC board of directors determines in good faith, after consultation with PDC's financial advisor and outside legal counsel, that such PDC
competing proposal is a PDC superior proposal (taking into account any adjustment in terms and conditions of the merger proposed by SRC in response to such PDC competing proposal) and that failure to
take such action would be reasonably likely to be inconsistent with the fiduciary obligations owed by the PDC board of directors to the PDC stockholders under applicable law; and
-
-
PDC provides SRC written notice of such proposed action and the basis of such proposed action five business days in advance and complies with
certain obligations, each as described in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationPDC: Permitted Changes
of Recommendation and Permitted Termination to Enter into a PDC Superior Proposal" beginning on page 142.
27
Table of Contents
PDC: Permitted Changes of Recommendation in Connection with Intervening Events
Prior to, but not after, the time that the PDC merger proposal and the PDC issuance proposal have been approved by PDC stockholders, if a PDC
intervening event (as defined in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationPDC: Permitted Changes of
Recommendation in Connection with Intervening Events" beginning on page 142) occurs or arises after the date of the merger agreement, PDC may effect a PDC recommendation
change if:
-
-
the PDC board of directors determines in good faith, after consultation with PDC's financial advisor and outside legal counsel, that the
failure to take such action would be reasonably likely to be inconsistent with the fiduciary obligations owed by the PDC board of directors to the PDC stockholders under applicable law; and
-
-
PDC provides SRC written notice of such proposed action and the basis of such proposed action five business days in advance and complies with
certain obligations, each as described in the section entitled "The Merger AgreementNo Solicitation; Changes of Recommendation" beginning
on page 137.
SRC: Permitted Changes of Recommendation and Permitted Termination to Enter into an SRC Superior
Proposal
Prior to, but not after, the SRC merger proposal has been approved by SRC shareholders, in response to a bona
fide written SRC competing proposal from a third party that did not arise from a breach of the "no solicitation" obligations described above and in the section entitled
"The Merger AgreementNo Solicitation; Changes of RecommendationNo Solicitation by SRC," the SRC board of directors may effect
an SRC recommendation change or terminate the merger agreement if:
-
-
the SRC board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that such SRC
competing proposal is an SRC superior proposal (taking into account adjustment in terms and conditions of the merger proposed by PDC in response to such SRC competing proposal) and that the failure to
take such action would be reasonably likely to be inconsistent with the fiduciary obligations owed by the SRC board of directors to the SRC shareholders under applicable law; and
-
-
SRC provides PDC written notice of such proposed action and the basis of such proposed action five business days in advance and complies with
certain obligations, each as described in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationSRC: Permitted Changes
of Recommendation and Permitted Termination to Enter into an SRC Superior Proposal" beginning on page 138.
SRC: Permitted Changes of Recommendation in Connection with Intervening Events
Prior to, but not after, the time the SRC merger proposal has been approved by SRC shareholders, in response to an SRC intervening event (as
defined in the section entitled "The Merger AgreementNo Solicitation; Changes of RecommendationSRC: Permitted Changes of Recommendation in Connection
with Intervening Events" beginning on page 139) that occurs or arises after the date of the merger agreement, SRC may effect an SRC recommendation change
if:
-
-
the SRC board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that failure to
take such action would be reasonably likely to be inconsistent with the fiduciary obligations owed by the SRC board of directors to the SRC shareholders under applicable law; and
-
-
SRC provides PDC written notice of such proposed action and the basis of such proposed action five business days in advance and complies with
certain obligations, each as described in the
28
Table of Contents
Termination (page 159)
PDC and SRC may terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger by mutual written
consent of PDC and SRC.
The
merger agreement may also be terminated by either PDC or SRC at any time prior to the effective time of the merger in any of the following
situations:
-
-
if any governmental entity of the United States or any state thereof having jurisdiction over any party has issued any order, decree, ruling or
injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the merger and such order, decree, ruling or injunction or other action has become
final and nonappealable, or if any law has been adopted that permanently makes the consummation of the merger illegal or otherwise permanently prohibited;
-
-
upon an end date termination event (as defined in the section entitled "The Merger
AgreementTerminationTermination Rights" beginning on page 159);
-
-
upon a PDC terminable breach event or SRC terminable breach event (as each term is defined in the section entitled "The
Merger AgreementTerminationTermination Rights" beginning on page 159); or
-
-
upon an SRC shareholder approval termination event or a PDC stockholder approval termination event (as each term is defined in the section
entitled "The Merger AgreementTerminationTermination Rights" beginning on page 159).
In
addition, the merger agreement may be terminated by PDC:
-
-
if prior to the time the SRC merger proposal has been approved by SRC shareholders, the SRC board of directors has effected an SRC
recommendation change; or
-
-
upon a PDC superior proposal termination event (as defined in the section entitled "The Merger
AgreementTerminationTermination Rights" beginning on page 159), subject to PDC's payment of the reverse termination fee (as defined in the
section entitled "SummaryExpenses and Termination Fees" beginning on page 30).
Further,
the merger agreement may be terminated by SRC:
-
-
if prior to the time the PDC merger proposal and the PDC issuance proposal have been approved by PDC stockholders, if the PDC board of
directors has effected a PDC recommendation change; or
-
-
upon an SRC superior proposal termination event (as defined in the section entitled "The Merger
AgreementTerminationTermination Rights" beginning on page 159), subject to SRC's payment of the termination fee (as defined in the section
entitled "SummaryExpenses and Termination Fees" beginning on page 30).
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Table of Contents
Expenses and Termination Fees (page 160)
Termination Fees Payable by PDC
The merger agreement requires PDC to pay SRC a termination fee of $55.0 million (which we refer to as the "reverse termination fee")
if:
-
-
SRC terminates the merger agreement due to a PDC recommendation change;
-
-
PDC terminates the merger agreement due to a PDC superior proposal termination event;
-
-
(i) PDC or SRC terminates the merger agreement due to a PDC stockholder approval termination event or an end date termination event or SRC
terminates the merger agreement due to a PDC terminable breach event, (ii) on or before the date of any such termination a PDC competing proposal shall have been publicly announced or disclosed
or otherwise communicated to the PDC board prior to the PDC stockholders meeting and (iii) within 12 months after the date of such termination, PDC enters into a definitive agreement
with respect to a PDC competing proposal or consummates any transaction meeting the parameters of a PDC competing proposal. For purposes of this paragraph, any reference in the definition of PDC
competing proposal to "20%" will be deemed to be a reference to "more than 60%."
In
no event will PDC be required to pay the reverse termination fee on more than one occasion.
Termination Fees Payable by SRC
The merger agreement requires SRC to pay PDC a termination fee of $35.0 million (which we refer to as the "termination fee")
if:
-
-
PDC terminates the merger agreement due to an SRC recommendation change;
-
-
SRC terminates the merger agreement due to an SRC superior proposal event;
-
-
(i) (A) PDC or SRC terminates the merger agreement due to an SRC shareholder approval termination event or an end date termination event
or (B) PDC terminates the merger agreement due to an SRC terminable breach event, (ii) on or before the date of any such termination an SRC competing proposal shall have been publicly
announced or disclosed or otherwise communicated to the SRC board prior to the SRC shareholders meeting and (iii) within 12 months after the date of such termination, SRC enters into a
definitive agreement with respect to an SRC competing proposal or consummates any transaction meeting the parameters of an SRC competing proposal. For purposes of this paragraph, any reference in the
definition of SRC competing proposal to "20%" will be deemed to be a reference to "more than 60%."
In
no event will SRC be required to pay the termination fee on more than one occasion.
Expenses
If the merger agreement is terminated because of a failure of SRC's shareholders or PDC's stockholders to adopt and approve the proposals
required to complete the merger, SRC and PDC, as applicable, may be required to reimburse the other party for its actual transaction expenses in an amount not to exceed $10.0 million.
Appraisal Rights/Dissenters' Rights in the Merger (page 121)
Appraisal rights, which are also sometimes known as dissenters' rights, are statutory rights that, if applicable under law, enable shareholders
to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined
30
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immediately
prior to the effective time of the merger in cash, instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction.
Under
Delaware law, PDC stockholders are not entitled to appraisal rights in connection with the merger or the issuance of shares of PDC common stock as contemplated by the merger
agreement.
Under
Colorado law, SRC shareholders are not entitled to dissenters' rights in connection with the merger.
Material U.S. Federal Income Tax Consequences of the Merger (page 163)
SRC and PDC intend for the merger to qualify as a "reorganization" within the meaning of Section 368(a) of the Code. It is a condition to
each party's obligation to complete the merger that each of PDC and SRC receive an opinion of its respective outside counsel to the effect that the merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code. Provided the merger qualifies as a "reorganization" U.S. holders (as defined in the section entitled "Material U.S. Federal Income
Tax Consequences of the Merger") of shares of SRC common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of PDC common
stock in exchange for SRC common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional share of PDC common stock). The material U.S. federal
income tax consequences of the merger are discussed in more detail in the section entitled "Material U.S. Federal Income Tax Consequences of the Merger"
beginning on page 163. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to provide only a general discussion
and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it
does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.
TAX
MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT
YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES AS A RESULT OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.
Litigation Relating to the Merger (page 122)
On October 4, 2019 and October 11, 2019, purported shareholders of SRC filed putative class action lawsuits against the members of
the SRC board, SRC, and PDC in Colorado District Court in Arapahoe County and Denver County, captioned Robert Garfield v. Lynn
A. Peterson, et al., Case No. 2019CV32360 (which we refer to as the "Garfield complaint") and George Korol v. SRC Energy Inc., et al., Case No. 2019CV33933 (which we refer to as the
"Korol complaint" and together with the Garfield complaint, the "state law complaints"). The plaintiffs
in the state law complaints generally claim that (i) SRC and the members of the SRC board breached their fiduciary duties to SRC shareholders by authorizing the merger with PDC for what the
plaintiffs assert is inadequate consideration and pursuant to an unfair process and with inadequate disclosures and (ii) PDC aided and abetted the other defendants' alleged breach of duties.
The plaintiffs seek, among other things, to rescind the transaction or obtain rescissory damages if the merger is consummated, to recover other unspecified damages, including recover attorneys' fees
and costs, and to obtain injunctive relief.
On
October 8, 2019 and October 11, 2019, purported shareholders of SRC filed putative class action lawsuits against SRC, the members of the SRC board, and PDC in the United
States District Court, District of Delaware, captioned Patrick Plumley v. SRC Energy Inc., et
al., Case No. 1:19-mc-01912 (which we refer to as the "Plumley complaint") and Juan
Aguirre v. SRC Energy Inc., et al., Case No. 1:19-mc-01934 (which we refer to as the
"Aguirre complaint"). On November 8, 2019, purported shareholders of SRC filed putative class action lawsuits against SRC and the members of the
31
Table of Contents
SRC
board in the United States District Court, District of Colorado, captioned Waynick v. SRC Energy Inc. et al., Case No. 1:19-cv-03173
(which we refer to as the "Waynick complaint") and Ben-Yosef v. SRC Energy Inc. et al., Case
No. 1:19-cv-03182 (which we refer to as the "Ben-Yosef complaint" and
together with the Plumley complaint, the Aguirre complaint, and the Waynick complaint, the "federal law
complaints"). The plaintiffs in the federal law complaints generally claim that the defendants disseminated a false
or misleading registration statement regarding the proposed merger in violation of Section 14(a) and Section 20(a) of the Exchange Act and/or Rule 14a-9 promulgated under the
Exchange Act. The plaintiffs seek, among other things, injunctive relief to prevent consummation of the merger until the alleged disclosure violations are cured, damages in the event the merger is
consummated, and an award of attorney's fees.
Additional
lawsuits arising out of the merger may be filed in the future. The defendants believe that these actions are without merit and intend to defend vigorously against the pending
lawsuits and any other lawsuits challenging the merger. However, there can be no assurance that defendants will be successful in the outcome of the pending or any potential future lawsuit. For more
information regarding the state law complaints, the federal law complaints and the risks associated with these complaints and any other similar litigation, see the sections entitled
"The MergerLitigation Relating to the Merger" beginning on page 122 and
"Risk FactorsRisk Factors Relating to the MergerLawsuits have been filed against SRC, the directors of SRC and PDC regarding the merger, which could
result in substantial costs and may delay or prevent the merger from being completed" beginning on page 47.
Comparison of Rights of Stockholders of PDC and Shareholders of SRC (page 180)
The rights of SRC shareholders who receive shares of PDC common stock in the merger will be governed by the certificate of incorporation of PDC
(which we refer to as the "PDC certificate of incorporation" or the "PDC charter"), and the bylaws of PDC (which we refer to as the "PDC bylaws"), which are governed by Delaware law, rather than by
the articles of incorporation of SRC (which we refer to as the "SRC articles of incorporation" or the "SRC charter"), and the bylaws of SRC (which we refer to as the "SRC bylaws"), which are governed
by Colorado law. As a result, SRC shareholders will have different rights once they become PDC stockholders due to the differences in the organizational documents of SRC and PDC and the differences
between Colorado and Delaware law. The key differences are described in the section entitled "Comparison of Rights of Stockholders of PDC and Shareholders of
SRC" beginning on page 180.
Listing of PDC Shares; Delisting and Deregistration of SRC Shares (page 120)
If the merger is completed, the shares of PDC common stock to be issued in the merger will be listed for trading on Nasdaq, shares of SRC common
stock will be delisted from the NYSE American and deregistered under the Exchange Act, and SRC will no longer be required to file periodic reports with the SEC pursuant to the Exchange Act.
32
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF PDC
The
following table sets forth PDC's selected consolidated historical financial and operating data that has been derived from its consolidated financial statements (1) as of and
for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 and (2) as of and for the nine months ended September 30, 2019 and September 30, 2018. The information set
forth below is only a summary and is not necessarily indicative of the results of future operations of PDC nor does it include the effects of the merger. You should read this financial information
together with PDC's consolidated financial statements, the related notes and the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in its Annual Report on Form 10-K for the year ended
December 31, 2018 filed on February 28, 2019, and Quarterly Reports on Form 10-Q for the quarterly period ended March 31, 2019 filed on
May 2, 2019, for the quarterly period ended June 30,
2019 filed on August 8, 2019 and for the quarterly period
ended September 30, 2019 filed on November 7, 2019,
each of which is incorporated into this joint proxy statement/prospectus by reference.
The
selected statement of operations data for the years ended December 31, 2018, 2017 and 2016 and selected balance sheet data as of December 31, 2018 and 2017 have been
derived from PDC's audited consolidated financial statements for such years, which have been incorporated by reference into this joint proxy statement/prospectus. The selected statement of operations
data for the years ended December 31, 2015 and 2014 and selected balance sheet data as of December 31, 2016, 2015 and 2014 have been derived from PDC's audited consolidated financial
statements for such years, which have not been included or incorporated by reference into this joint proxy statement/prospectus. The selected statement of operations data for the nine months ended
September 30, 2019 and 2018 and selected balance sheet data as of September 30, 2019 has been derived from PDC's unaudited consolidated financial statements as of September 30,
2019, which have been incorporated by reference into this joint proxy statement/prospectus. The selected balance sheet data as of September 30, 2018 has been derived from PDC's unaudited
consolidated financial statements as of September 30, 2018, which have not been incorporated by reference into this joint proxy statement/prospectus. For
33
Table of Contents
additional
information, see the sections entitled "Where You Can Find More Information" and "Information Incorporated by
Reference," beginning on pages 191 and 192, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended/
As of September,
|
|
Year Ended/As of December 31,
|
|
|
|
2019
|
|
2018
|
|
2018
|
|
2017
|
|
2016(1)
|
|
2015
|
|
2014(2)
|
|
|
|
(in millions, except per share data and as noted)
|
|
Statement of Operations (From Continuing Operations):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil, natural gas and NGLs sales
|
|
$
|
967.5
|
|
$
|
1,003.6
|
|
$
|
1,390.0
|
|
$
|
913.1
|
|
$
|
497.4
|
|
$
|
378.7
|
|
$
|
471.4
|
|
Commodity price risk management gain (loss), net
|
|
|
(87.9
|
)
|
|
(257.8
|
)
|
|
145.2
|
|
|
(3.9
|
)
|
|
(125.7
|
)
|
|
203.2
|
|
|
310.3
|
|
Total revenues
|
|
|
891.1
|
|
|
753.8
|
|
|
1,548.7
|
|
|
921.6
|
|
|
382.9
|
|
|
595.3
|
|
|
856.2
|
|
Income (loss) from continuing operations
|
|
|
(35.7
|
)
|
|
(176.8
|
)
|
|
2.0
|
|
|
(127.5
|
)
|
|
(245.9
|
)
|
|
(68.3
|
)
|
|
107.3
|
|
Earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.55
|
)
|
$
|
(2.68
|
)
|
$
|
0.03
|
|
$
|
(1.94
|
)
|
$
|
(5.01
|
)
|
$
|
(1.74
|
)
|
$
|
3.00
|
|
Diluted
|
|
|
(0.55
|
)
|
|
(2.68
|
)
|
|
0.03
|
|
|
(1.94
|
)
|
|
(5.01
|
)
|
|
(1.74
|
)
|
|
2.93
|
|
Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
675.7
|
|
$
|
577.8
|
|
$
|
889.3
|
|
$
|
597.8
|
|
$
|
486.3
|
|
$
|
411.1
|
|
$
|
236.7
|
|
Investing activities
|
|
|
(597.0
|
)
|
|
(823.7
|
)
|
|
(1,087.9
|
)
|
|
(717.0
|
)
|
|
(1,509.1
|
)
|
|
(604.3
|
)
|
|
(474.1
|
)
|
Financing activities
|
|
|
(83.6
|
)
|
|
65.3
|
|
|
18.1
|
|
|
65.0
|
|
|
1,266.1
|
|
|
178.0
|
|
|
60.3
|
|
Capital expenditures from development of crude oil and natural gas properties(3)
|
|
|
(780.6
|
)
|
|
(685.5
|
)
|
|
(946.4
|
)
|
|
(737.2
|
)
|
|
(436.9
|
)
|
|
(599.5
|
)
|
|
(623.8
|
)
|
Acquisition of crude oil and natural gas properties
|
|
|
(12.4
|
)
|
|
(181.6
|
)
|
|
(180.0
|
)
|
|
(15.6
|
)
|
|
(1,073.7
|
)
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,583.6
|
|
$
|
4,601.2
|
|
$
|
4,544.1
|
|
$
|
4,420.4
|
|
$
|
4,485.8
|
|
$
|
2,370.5
|
|
$
|
2,331.1
|
|
Working capital (deficit)
|
|
|
(66.4
|
)
|
|
(417.8
|
)
|
|
(166.6
|
)
|
|
(16.4
|
)
|
|
129.2
|
|
|
30.7
|
|
|
89.5
|
|
Total debt, net of unamortized discount and debt issuance costs
|
|
|
1,267.5
|
|
|
1,234.7
|
|
|
1,194.9
|
|
|
1,151.9
|
|
|
1,044.0
|
|
|
642.4
|
|
|
655.5
|
|
Total equity
|
|
|
2,359.8
|
|
|
2,342.2
|
|
|
2,526.7
|
|
|
2,507.6
|
|
|
2,622.8
|
|
|
1,287.2
|
|
|
1,137.4
|
|
Average Pricing and Production Expenses From Continuing Operations (per Boe and as a percent of sales for production taxes)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price (excluding net settlements on derivatives)
|
|
$
|
26.61
|
|
$
|
35.35
|
|
$
|
34.61
|
|
$
|
28.69
|
|
$
|
22.43
|
|
$
|
24.64
|
|
$
|
50.72
|
|
Lease operating expenses
|
|
|
2.92
|
|
|
3.34
|
|
|
3.26
|
|
|
2.82
|
|
|
2.70
|
|
|
3.71
|
|
|
4.56
|
|
Transportation, gathering and processing
|
|
|
0.95
|
|
|
0.90
|
|
|
0.93
|
|
|
1.04
|
|
|
0.83
|
|
|
0.66
|
|
|
0.49
|
|
Production taxes
|
|
|
1.59
|
|
|
2.35
|
|
|
2.25
|
|
|
1.91
|
|
|
1.42
|
|
|
1.20
|
|
|
2.76
|
|
Production taxes (as a percent of sales)
|
|
|
6.0
|
%
|
|
6.7
|
%
|
|
6.5
|
%
|
|
6.6
|
%
|
|
6.3
|
%
|
|
4.9
|
%
|
|
5.4
|
%
|
Production (MBoe):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production from continuing operations
|
|
|
36,354
|
|
|
28,390
|
|
|
40,160
|
|
|
31,830
|
|
|
22,176
|
|
|
15,369
|
|
|
9,294
|
|
Production from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production
|
|
|
36,354
|
|
|
28,390
|
|
|
40,160
|
|
|
31,830
|
|
|
22,176
|
|
|
15,369
|
|
|
10,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves (MMBoe)
|
|
|
N/A
|
|
|
N/A
|
|
|
544.9
|
|
|
452.9
|
|
|
341.4
|
|
|
272.8
|
|
|
250.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
In
2016, PDC closed an acquisition in the Delaware Basin for aggregate consideration of approximately $1.76 billion.
-
(2)
-
In
2014, PDC completed the sale of its ownership interest in PDC Mountaineer, LLC ("PDCM"). PDC's proportionate share of PDCM's Marcellus Shale results of
operations have been separately reported as discontinued operations.
-
(3)
-
Includes
impact of change in accounts payable related to capital expenditures.
34
Table of Contents
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF SRC
The following table sets forth SRC's selected consolidated historical financial and operating data that has been derived from SRC's consolidated
financial statements (1) as of and for the years ended December 31, 2018, 2017, and 2016; (2) as of and for the four months ended December 31, 2015; (3) as of and
for the years ended August 31, 2015 and 2014; and (4) as of and for the nine months ended September 30, 2019 and September 30, 2018. The information set forth below is only
a summary and is not necessarily indicative of the results of future operations of SRC nor does it include the effects of the merger. You should read this financial information together with SRC's
consolidated financial statements, the related notes and the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in its Annual Report on Form 10-K for the year
ended December 31, 2018 filed on February 20, 2019, and
Quarterly Reports on Form 10-Q for the quarterly period ended March 31,
2019 filed on May 1, 2019, for the quarterly period ended
June 30, 2019 filed on July 31, 2019 and for the
quarterly period ended September 30, 2019 filed on November 6,
2019, each of which is incorporated into this joint proxy statement/prospectus by reference. The selected statement of operations data for the four months ended December 31, 2015
and the years ended August 31, 2015 and 2014, and selected balance sheet data as of December 31, 2016 and 2015 and August 31, 2015 and 2014 have been derived from SRC's audited
consolidated financial statements for such years, which have not been incorporated into this joint proxy statement/prospectus by reference. The selected historical consolidated financial data for the
nine months ended September 30, 2019 and 2018 and as of September 30, 2019 have been derived from SRC's unaudited consolidated financial data included in its Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2019, which is incorporated into this joint proxy statement/prospectus by reference. The selected balance sheet data as of
September 30, 2018 has been derived from SRC's unaudited consolidated financial statements as of September 30, 2018, which have not been incorporated by reference herein. For additional
information, see the sections entitled "Where You Can
35
Table of Contents
Find More Information" and "Information Incorporated by Reference," beginning on pages 191 and 192, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Nine Months Ended
September 30,
|
|
As of and for the Years Ended
December 31,
|
|
As of and for
4-mo ended
December 31,
|
|
As of and for
12-mo ended
August 31,
|
|
|
|
2019
|
|
2018
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
2015
|
|
2014
|
|
RESULTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
486,151
|
|
$
|
455,298
|
|
$
|
645,641
|
|
$
|
362,516
|
|
$
|
107,149
|
|
$
|
34,138
|
|
$
|
124,843
|
|
$
|
104,219
|
|
Net income (loss)
|
|
$
|
134,014
|
|
$
|
178,048
|
|
$
|
260,022
|
|
$
|
142,482
|
|
$
|
(219,189
|
)
|
$
|
(122,932
|
)
|
$
|
18,042
|
|
$
|
28,853
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.55
|
|
$
|
0.74
|
|
$
|
1.07
|
|
$
|
0.69
|
|
$
|
(1.26
|
)
|
$
|
(1.14
|
)
|
$
|
0.19
|
|
$
|
0.38
|
|
Diluted
|
|
$
|
0.55
|
|
$
|
0.73
|
|
$
|
1.07
|
|
$
|
0.69
|
|
$
|
(1.26
|
)
|
$
|
(1.14
|
)
|
$
|
0.19
|
|
$
|
0.37
|
|
CERTAIN BALANCE SHEET INFORMATION (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,867,572
|
|
$
|
2,578,932
|
|
$
|
2,754,714
|
|
$
|
2,079,564
|
|
$
|
1,024,113
|
|
$
|
672,616
|
|
$
|
746,449
|
|
$
|
448,542
|
|
Working (Deficit) Capital
|
|
$
|
(116,967
|
)
|
$
|
(181,374
|
)
|
$
|
(121,393
|
)
|
$
|
(42,272
|
)
|
$
|
(38,056
|
)
|
$
|
24,922
|
|
$
|
93,129
|
|
$
|
(35,338
|
)
|
Long-term Obligations
|
|
$
|
713,286
|
|
$
|
654,593
|
|
$
|
734,941
|
|
$
|
538,359
|
|
$
|
75,614
|
|
$
|
78,000
|
|
$
|
78,000
|
|
$
|
37,000
|
|
Total Liabilities
|
|
$
|
1,136,395
|
|
$
|
1,078,133
|
|
$
|
1,168,422
|
|
$
|
771,130
|
|
$
|
183,374
|
|
$
|
166,106
|
|
$
|
174,052
|
|
$
|
167,052
|
|
Equity
|
|
$
|
1,731,177
|
|
$
|
1,500,799
|
|
$
|
1,586,292
|
|
$
|
1,308,434
|
|
$
|
840,739
|
|
$
|
506,510
|
|
$
|
572,397
|
|
$
|
281,490
|
|
Certain Operating Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
7,632
|
|
|
5,802
|
|
|
8,392
|
|
|
5,824
|
|
|
2,257
|
|
|
742
|
|
|
1,970
|
|
|
941
|
|
Natural Gas (MMcf)
|
|
|
35,852
|
|
|
26,177
|
|
|
37,123
|
|
|
24,834
|
|
|
12,086
|
|
|
3,468
|
|
|
7,344
|
|
|
3,747
|
|
NGLs (MBbls)
|
|
|
3,253
|
|
|
2,780
|
|
|
3,869
|
|
|
2,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBOE
|
|
|
16,860
|
|
|
12,945
|
|
|
18,448
|
|
|
12,481
|
|
|
4,271
|
|
|
1,320
|
|
|
3,194
|
|
|
1,566
|
|
BOED
|
|
|
61,757
|
|
|
47,416
|
|
|
50,543
|
|
|
34,194
|
|
|
11,670
|
|
|
10,822
|
|
|
8,750
|
|
|
4,290
|
|
Average sales price per BOE(1)
|
|
$
|
28.08
|
|
$
|
34.73
|
|
$
|
34.50
|
|
$
|
28.79
|
|
$
|
25.09
|
|
$
|
25.86
|
|
$
|
39.09
|
|
$
|
66.56
|
|
LOE per BOE
|
|
$
|
2.61
|
|
$
|
2.31
|
|
$
|
2.35
|
|
$
|
1.56
|
|
$
|
4.67
|
|
$
|
4.41
|
|
$
|
4.70
|
|
$
|
5.10
|
|
DD&A(2) per BOE
|
|
$
|
10.46
|
|
$
|
9.59
|
|
$
|
9.74
|
|
$
|
9.00
|
|
$
|
10.93
|
|
$
|
14.22
|
|
$
|
20.62
|
|
$
|
21.05
|
|
-
(1)
-
Adjusted
to include the effect of transportation and gathering expenses.
-
(2)
-
Depletion,
Depreciation, & Accretion.
36
Table of Contents
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following summary unaudited pro forma condensed combined balance sheet data give effect to the proposed merger as if it had occurred on
September 30, 2019, while the unaudited pro forma condensed combined statements of operations data for the year ended December 31, 2018 and the nine months ended September 30,
2019 are presented as if the merger had occurred on January 1, 2018. The following summary unaudited pro forma condensed combined financial information has been prepared for illustrative
purposes only, reflect merger-related pro forma adjustments, based on available information and certain assumptions that PDC believes are reasonable, and is not necessarily indicative of what the
combined company's financial position or results of operations actually would have been had the merger occurred as of the dates indicated. In addition, the unaudited pro forma condensed combined
financial information does not purport to project the future financial position or operating results of the combined company. Future results may vary significantly from the results reflected because
of various factors, including those discussed in the section entitled "Risk Factors" beginning on page 41. The following summary unaudited pro
forma condensed combined financial information should be read in conjunction with the section titled "Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements" beginning on page 167 and the related notes.
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Nine Months Ended
September 30, 2019
|
|
Year Ended
December 31, 2018
|
|
Pro Forma Statement of Combined Operations Data:
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,453,615
|
|
$
|
2,035,602
|
|
Net income
|
|
$
|
124,202
|
|
$
|
263,402
|
|
Earnings per share, basic
|
|
$
|
1.19
|
|
$
|
2.50
|
|
Earnings per share, diluted
|
|
$
|
1.19
|
|
$
|
2.50
|
|
|
|
|
|
|
(in thousands)
|
|
As of
September 30, 2019
|
|
Pro Forma Combined Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,063
|
|
Total assets
|
|
$
|
6,418,758
|
|
Long-term debt, net of unamortized discount and debt issuance costs
|
|
$
|
1,945,346
|
|
Stockholder's equity
|
|
$
|
3,322,347
|
|
37
Table of Contents
SUMMARY PRO FORMA OIL, NATURAL GAS AND NGL RESERVE INFORMATION AND PRODUCTION DATA
The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves as of
December 31, 2018, giving effect to the merger as if it had been completed on December 31, 2018. The pro forma production information set forth below gives effect to the merger as if it
had been completed on January 1, 2018. The following summary pro forma oil, natural gas, and NGL reserve information and production data has been
prepared for illustrative purposes only and is not intended to be a projection of future results of the combined company. Future results may vary significantly from the results reflected because of
various factors, including those discussed in the section entitled "Risk Factors" beginning on page 41. The summary pro forma oil, natural gas,
and NGL reserve information and production data should be read in conjunction with the section titled "Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements" beginning on page 167 and the related notes included in this joint proxy statement/prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
PDC
Historical
|
|
SRC
Historical
|
|
PDC
Pro Forma
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
|
Crude oil, condensate (MBbl)
|
|
|
61,821
|
|
|
37,102
|
|
|
98,923
|
|
Natural gas (MMcf)
|
|
|
443,151
|
|
|
324,169
|
|
|
767,320
|
|
NGLs (MBbl)
|
|
|
43,856
|
|
|
36,427
|
|
|
80,283
|
|
Total proved developed reserves (MBoe)
|
|
|
179,535
|
|
|
127,557
|
|
|
307,092
|
|
Proved undeveloped reserves:
|
|
|
|
|
|
|
|
|
|
|
Crude oil, condensate (MBbl)
|
|
|
128,528
|
|
|
50,910
|
|
|
179,438
|
|
Natural gas (MMcf)
|
|
|
892,538
|
|
|
447,698
|
|
|
1,340,236
|
|
NGLs (MBbl)
|
|
|
88,131
|
|
|
52,666
|
|
|
140,797
|
|
Total proved undeveloped reserves (MBoe)
|
|
|
365,418
|
|
|
178,192
|
|
|
543,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
PDC
Historical
|
|
SRC
Historical
|
|
PDC
Pro Forma
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbl)
|
|
|
16,964
|
|
|
8,392
|
|
|
25,356
|
|
Natural gas (MMcf)
|
|
|
88,017
|
|
|
37,123
|
|
|
125,140
|
|
NGLs (MBbl)
|
|
|
8,527
|
|
|
3,869
|
|
|
12,396
|
|
Crude oil equivalent (MBoe)
|
|
|
40,160
|
|
|
18,448
|
|
|
58,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
PDC
Historical
|
|
SRC
Historical
|
|
PDC
Pro Forma
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbl)
|
|
|
14,277
|
|
|
7,632
|
|
|
21,909
|
|
Natural gas (MMcf)
|
|
|
83,916
|
|
|
35,852
|
|
|
119,768
|
|
NGLs (MBbl)
|
|
|
8,091
|
|
|
3,253
|
|
|
11,344
|
|
Crude oil equivalent (MBoe)
|
|
|
36,354
|
|
|
16,860
|
|
|
53,214
|
|
38
Table of Contents
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table presents PDC's and SRC's historical and pro forma per share data for the year ended December 31, 2018 and as of and
for the nine months ended September 30, 2019. The pro forma per share data for the year ended December 31, 2018 and as of and for the nine months ended September 30, 2019 are
presented as if the merger had been completed on January 1, 2018. The information provided in the table below is unaudited.
Historical
per share data of PDC for the year ended December 31, 2018 and the nine months ended September 30, 2019 was derived from PDC's historical financial statements
for the respective periods. Historical per share data of SRC for the year ended December 31, 2018 and the nine months ended September 30, 2019 was derived from SRC's historical financial
statements for the respective periods. This information should be read together with the historical consolidated financial statements and related notes of PDC and SRC filed by each with the SEC, and
that are incorporated into this joint proxy statement/prospectus by reference. For additional information, see the section entitled "Where You Can Find More
Information" beginning on page 191.
Unaudited
pro forma combined per share data for the year ended December 31, 2018 and the nine months ended September 30, 2019 was derived and should be read in conjunction
with the unaudited pro forma condensed combined financial statements included in the section entitled "Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements" beginning on page 167. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been completed as of the beginning of the period.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended/
As of September 30,
2019
|
|
Year Ended/As of
December 31, 2018
|
|
PDC
|
|
|
|
|
|
|
|
Net income (loss) per common share (basic)
|
|
$
|
(0.55
|
)
|
$
|
0.03
|
|
Net income (loss) per common share (diluted)
|
|
$
|
(0.55
|
)
|
$
|
0.03
|
|
Cash dividends declared per share
|
|
$
|
|
|
$
|
|
|
Net book value per share
|
|
$
|
38.01
|
|
$
|
38.20
|
|
SRC
|
|
|
|
|
|
|
|
Net income per common share (basic)
|
|
$
|
0.55
|
|
$
|
1.07
|
|
Net income per common share (diluted)
|
|
$
|
0.55
|
|
$
|
1.07
|
|
Cash dividends declared per share
|
|
$
|
|
|
$
|
|
|
Net book value per share
|
|
$
|
7.11
|
|
$
|
6.54
|
|
Pro Forma Combined (Unaudited)
|
|
|
|
|
|
|
|
Net income per common share (basic)
|
|
$
|
1.19
|
|
$
|
2.50
|
|
Net income per common share (diluted)
|
|
$
|
1.19
|
|
$
|
2.50
|
|
Cash dividends declared per share
|
|
$
|
|
|
$
|
|
|
Net book value per share
|
|
$
|
33.26
|
|
|
|
|
Pro Forma Combined Equivalent Data (Unaudited)(1)
|
|
|
|
|
|
|
|
Net income per common share (basic)
|
|
$
|
0.19
|
|
$
|
0.40
|
|
Net income per common share (diluted)
|
|
$
|
0.19
|
|
$
|
0.39
|
|
Cash dividends declared per common share
|
|
$
|
|
|
$
|
|
|
Net book value per common share
|
|
$
|
5.26
|
|
|
|
|
-
(1)
-
Determined
using the pro forma combined per share data multiplied by 0.158 (the exchange ratio).
39
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DIVIDEND AND SHARE PRICE INFORMATION
Dividends
Neither PDC nor SRC has historically paid cash dividends on shares of their common stock. Cash dividends are restricted under the terms of each
of PDC's and SRC's debt agreements and applicable requirements of state law.
Comparison of PDC and SRC Market Prices and Implied Share Value of the Stock Consideration
The following table sets forth the closing sale price per share of PDC common stock and SRC common stock as reported on Nasdaq and the NYSE
American, respectively, on August 23, 2019, the last trading day prior to the public announcement of the merger, and on December 6, 2019, the last practicable trading day prior to the
mailing of this joint proxy statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each share of SRC common stock as of the same two dates.
This implied value was calculated by multiplying the closing price of a share of PDC common stock on the relevant date by the exchange ratio of 0.158 of a share of PDC common stock for each share of
SRC common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
PDC
Common Stock
|
|
SRC
Common Stock
|
|
Implied Per Share
Value of Merger
Consideration
|
|
August 23, 2019
|
|
$
|
25.25
|
|
$
|
4.15
|
|
$
|
3.99
|
|
December 6, 2019
|
|
$
|
23.21
|
|
$
|
3.64
|
|
$
|
3.67
|
|
Holders
of PDC common stock and SRC common stock are encouraged to obtain current market quotations for PDC common stock and SRC common stock and to review carefully the other
information contained in this joint proxy statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of PDC common stock before or after the
effective date of the merger. For additional information, see the sections entitled "Where You Can Find More Information" and
"Information Incorporated by Reference," beginning on pages 191 and 192, respectively.
40
Table of Contents
RISK FACTORS
In addition to the other information contained in or incorporated by reference into this joint proxy
statement/prospectus, including the matters addressed in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" beginning on page 55, SRC shareholders should carefully
consider the following risks before deciding how to vote with respect to the SRC merger proposal, the non-binding compensation proposal and the adjournment proposal to be considered and voted on at
the SRC special meeting, and PDC stockholders should carefully consider the following risks before deciding how to vote with respect to the PDC merger proposal and the PDC issuance proposal to be
considered and voted on at the PDC special meeting. In addition, SRC shareholders and PDC stockholders should also read and consider the risks associated with each of the businesses of SRC and PDC
because these risks will also affect the combined company. These risks can be found in
PDC's and
SRC's Annual Reports on Form 10-K for the year ended
December 31, 2018, their subsequent reports on Form 10-Q and other documents they file with the SEC, in each case incorporated by reference into this joint proxy
statement/prospectus. SRC shareholders and PDC stockholders should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by
reference into this joint proxy statement/prospectus. For additional information, see the sections entitled "Where You Can Find More Information" and "Information Incorporated by Reference," beginning
on pages 191 and 192, respectively.
Risk Factors Relating to the Merger
Because the exchange ratio is fixed and because the market price of PDC common stock will fluctuate, SRC
shareholders cannot be certain of the precise value of the merger consideration they will receive in the merger.
If the merger is completed, at the effective time of the merger, each issued and outstanding eligible share of SRC common stock will be
converted into the right to receive the merger consideration. The exchange ratio for the merger consideration is fixed at 0.158 of a share of PDC common stock for each share of SRC common stock (with
certain exceptions described in this joint proxy statement/prospectus), and there will be no adjustment to the merger consideration for changes in the market price of PDC common stock or SRC common
stock prior to the completion of the merger.
If
the merger is completed, there will be lapses in time between the date of this joint proxy statement/ prospectus, the dates on which SRC shareholders vote to adopt and approve the SRC
merger proposal and PDC stockholders vote to adopt and approve the PDC merger proposal and the PDC issuance proposal, and the date on which SRC shareholders entitled to receive the merger
consideration actually receive the merger consideration. The market value of shares of PDC common stock will fluctuate, possibly materially, during and after these periods as a result of a variety of
factors, including general market and economic conditions, changes in PDC's businesses, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases
are be beyond the control of PDC and SRC. The actual value of any merger consideration received by SRC shareholders at the completion of the merger will depend on the market value of the shares of PDC
common stock at that time. Consequently, at the time SRC shareholders must decide whether to approve the SRC merger proposal, they will not know the actual market value of any merger consideration
they will receive when the merger is completed. For additional information about the merger consideration, see the sections entitled "The MergerConsideration to
SRC Shareholders" and "The Merger AgreementEffect of the Merger on Capital Stock; Merger Consideration" beginning
on pages 69 and 124, respectively.
41
Table of Contents
The merger may not be completed and the merger agreement may be terminated in accordance with its terms.
Failure to complete the merger could negatively impact the price of shares of PDC common stock and the price of shares of SRC common stock, as well as PDC's and SRC's respective future businesses and
financial results.
The merger is subject to a number of conditions, including the approval by PDC stockholders of the PDC merger proposal and the PDC issuance
proposal and approval by SRC shareholders of the SRC merger proposal, that must be satisfied or waived prior to the completion of the merger. These conditions are described in the section entitled
"The Merger AgreementConditions to the Completion of the Merger" beginning on page 156. These conditions to the completion of the
merger, some of which are beyond the control of PDC and SRC, may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.
The
merger agreement may be terminated by either PDC or SRC if the merger is not completed by February 25, 2020 or, at either party's discretionif the only conditions
to closing that have not been satisfied or waived by that date are those related to the termination or expiration of any waiting period under the HSR Act or the adoption of an antitrust law
prohibiting the mergerto May 25, 2020, except that this right to terminate the merger agreement will not be available to any party whose violation or breach of any material
covenant or agreement under the merger agreement is the primary cause of or resulted in the failure of the transactions to be consummated on or before that date. PDC and SRC can also mutually decide
to terminate the merger agreement at any time, before or after SRC shareholders approve the SRC merger proposal and PDC stockholders approve the PDC merger proposal and the PDC issuance proposal. In
addition, PDC and SRC may elect to terminate the merger agreement in certain other circumstances as further detailed in the section entitled "The Merger
AgreementTermination" beginning on page 159.
If
the transactions contemplated by the merger agreement are not completed for any reason, PDC's and SRC's respective ongoing businesses and financial results may be adversely affected
and, without realizing any of the benefits of having completed the transactions, PDC and SRC will be subject to a number of risks, including the following:
-
-
PDC and SRC will be required to pay their respective costs relating to the transactions, which are substantial, such as legal, accounting,
financial advisory and printing fees, whether or not the transactions are completed;
-
-
time and resources committed by PDC's and SRC's management to matters relating to the transactions could otherwise have been devoted to
pursuing other beneficial opportunities;
-
-
PDC and SRC may experience negative reactions from financial markets, including negative impacts on the prices of their common stock, including
to the extent that the current market price reflects a market assumption that the transactions will be completed;
-
-
PDC and SRC may experience negative reactions from employees, customers or vendors; and
-
-
Since the merger agreement restricts the conduct of SRC's and PDC's business prior to completion of the merger, SRC and PDC may not have been
able to take certain actions during the pendency of the merger that would have benefitted it as an independent company and the opportunity to take such actions may no longer be available. For a
description of the restrictive covenants to which PDC and SRC are subject, see the section entitled "The Merger AgreementInterim Operations of SRC and PDC Pending
the Merger" beginning on page 133.
If
the merger agreement is terminated and the SRC board seeks another merger or business combination, SRC may not be able to find a party willing to offer equivalent or more attractive
consideration than the consideration PDC has agreed to provide in the merger, or that such other merger or business combination is completed. If the merger agreement is terminated under specified
42
Table of Contents
circumstances,
PDC may be required to pay SRC a termination fee of $55.0 million, and SRC may be required to pay PDC a termination fee of $35.0 million. If the merger agreement is
terminated because of a failure of SRC's shareholders or PDC's stockholders to adopt and approve the proposals required to complete the merger, SRC and PDC, as applicable, may be required to reimburse
the other party for its actual transaction expenses in an amount not to exceed $10.0 million. For a description of these circumstances, see the section entitled "The
Merger AgreementTermination" beginning on page 159. In addition, any delay in completing the merger may significantly reduce the synergies and other
benefits that PDC and SRC expect to achieve if they successfully complete the merger within the expected timeframe and integrate their respective businesses.
Current SRC shareholders and PDC stockholders will have a reduced ownership and voting interest in PDC after
the merger compared to their current ownership in each of PDC and SRC and will exercise less influence over management.
Currently, SRC shareholders have the right to vote in the election of the SRC board of directors and on other matters requiring shareholder
approval under Colorado law and the SRC articles of incorporation and bylaws. PDC stockholders have the right to vote in the election of the PDC board of directors and on other matters requiring
stockholder approval under Delaware law and the PDC certificate of incorporation and bylaws. Based on the number of issued and outstanding shares of PDC common stock and SRC common stock as of
November 6, 2019, and the exchange ratio, immediately after the merger is completed, it is expected that, on a fully-diluted basis, current PDC stockholders will collectively own approximately
61%, and current SRC shareholders will collectively own approximately 39%, of the outstanding shares of PDC common stock (without giving effect to any shares of PDC common stock held by SRC
shareholders prior to the merger). As a result of the merger, current SRC shareholders and current PDC stockholders will own a smaller percentage of the combined company than they currently own of SRC
and PDC, respectively, and as a result will have less influence on the management and policies of PDC post-merger than they now have on the management and policies of SRC and PDC, respectively.
The merger is subject to the receipt of approvals, consents or clearances from regulatory authorities that
may impose conditions that could have an adverse effect on PDC or SRC or, if not obtained, could prevent completion of the transactions.
Completion of the merger is conditioned upon the receipt of certain governmental approvals. Although each party has agreed to use its respective
reasonable best efforts to obtain the requisite governmental approvals, there can be no assurance that these approvals will be obtained and that the other conditions to completing the merger will be
satisfied. In addition, the governmental
authorities from which the regulatory approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger or other agreements to be entered into
in connection with the merger agreement. Under the terms of the merger agreement, PDC has agreed to take any and all action necessary to obtain these governmental approvals; however, PDC does not have
to agree to any action that would reasonably be expected to have a material adverse effect on the post-closing business, financial condition or operations of PDC and its subsidiaries (including SRC
and its subsidiaries), taken as a whole. The actions that PDC may be required to take include, among others, disposing of assets, categories of assets or businesses, or holding assets, categories of
assets or businesses separately, terminating existing relationships, contractual rights or obligations, terminating any venture or other arrangement, creating new relationships, contractual rights or
obligations and making other changes or restructurings. These actions may adversely affect the business of PDC and the combined company. PDC and SRC cannot provide any assurance that these approvals
will be obtained or that there will not be any adverse consequences to PDC's or SRC's business resulting from the failure to obtain these governmental approvals or from conditions that could be
imposed in
43
Table of Contents
connection
with obtaining these governmental approvals, including divestitures or other operating restrictions upon PDC or its subsidiaries.
Completion
of the merger is also conditioned upon the authorization for listing of PDC common stock to be issued in connection with the merger on Nasdaq. Although PDC has agreed take all
action necessary to obtain the requisite stock exchange approval, there can be no assurance that such approval will be obtained and that the other conditions to completing the merger will be
satisfied.
Such
conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the transaction or of imposing additional costs
or limitations on the combined company following completion of the merger, any of which might have an adverse effect on the combined company and may diminish the anticipated benefits of the merger.
For additional information about the regulatory approvals process, see "The MergerRegulatory Approvals."
PDC and SRC will be subject to business uncertainties while the merger is pending, which could adversely
affect their respective businesses.
In connection with the pendency of the merger, it is possible that certain persons with whom PDC and SRC have a business relationship may delay
or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with PDC or SRC, as the
case may be, as a result of the merger, which could negatively affect PDC's or SRC's revenues, earnings and cash flows, as well as the market price of PDC's or SRC's respective common stock,
regardless of whether the merger is completed.
Under
the terms of the merger agreement, each of PDC and SRC is subject to certain restrictions on the conduct of its business prior to the effective time, which may adversely affect its
ability to execute certain of its business strategies. Such limitations could negatively affect PDC's or SRC's businesses and operations prior to the completion of the transactions. For a description
of the restrictive covenants to which PDC and SRC are subject, see the section entitled "The Merger AgreementInterim Operations of SRC and PDC Pending the
Merger" beginning on page 133.
The merger agreement contains provisions that limit SRC's and PDC's ability to pursue alternatives to the
merger, could discourage a potential competing acquiror of SRC or PDC from making a favorable alternative transaction proposal and, in specified circumstances, could require SRC or PDC to pay the
other party a termination fee.
The merger agreement contains certain provisions that restrict SRC's and PDC's ability to initiate, solicit or knowingly encourage or knowingly
facilitate any inquiries, proposals, or offers regarding, or the making of a competing proposal, engage in any discussions or negotiations with respect to a competing proposal or furnish any
non-public information or access to its assets to any person in connection with a competing proposal, or enter into any letter of intent or agreement in principle concerning a competing proposal.
Further, even if the SRC board or the PDC board changes, withdraws, modifies, or qualifies its recommendation with respect to the relevant merger proposal or, in the case of PDC, the PDC issuance
proposal, unless the merger agreement has been terminated in accordance with its terms, both parties will still be required to submit the merger proposal and the PDC issuance proposal, as applicable,
to a vote at its special meeting. In addition, the other party generally has an opportunity to offer to modify the terms of the transactions contemplated by the merger agreement in response to any
third-party alternative transaction proposal before a party's board of directors may change, withdraw, modify, or qualify its recommendation with respect to its merger proposal or the PDC issuance
proposal, as applicable. In some circumstances, upon termination of the merger agreement, SRC or PDC will be required to pay a termination fee of $35.0 million or $55.0 million,
respectively, to the other party.
44
Table of Contents
These
provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of SRC or PDC or pursuing an
alternative transaction with either entity from considering or proposing such a transaction. In SRC's case, the provisions could discourage a potential third-party acquiror or merger partner that was
prepared to pay
consideration with a higher per share price than the per share price proposed to be received in the merger, or might result in a potential third-party acquiror or merger partner proposing to pay a
lower per share price than it might otherwise have proposed to pay because of the added expense of the termination fee that is payable in certain circumstances.
For
additional information, see the sections entitled "The Merger AgreementNo Solicitation; Changes of Recommendation" and
"The Merger AgreementTermination."
Uncertainties associated with the merger may cause a loss of management personnel and other key employees,
which could adversely affect the future business and operations of the combined company.
Whether or not the merger is completed, the announcement and pendency of the merger could disrupt the businesses of PDC or SRC. PDC and SRC are
dependent on the experience and industry knowledge of their senior management and other key employees to execute their business plans. PDC's success after the merger will depend in part upon the
ability of PDC and SRC to retain key management personnel and other key employees in advance of the merger, and of the combined company's ability to do so following the merger. Current and prospective
employees of PDC and SRC may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the current ability of each of PDC and SRC
to attract or retain key management and other key personnel or the ability of the combined company to do so following the merger.
No
assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of PDC and SRC to the same extent that they have
previously been able to attract or retain employees. In addition, following the merger, PDC might not be able to locate suitable replacements for any such key employees who leave PDC or SRC or offer
employment to potential replacements on satisfactory terms.
Directors and executive officers of SRC may have interests in the merger that are different from, or in
addition to, the interests of SRC's shareholders.
SRC's directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of SRC
shareholders generally. The SRC board was aware of and considered these interests, among other matters, during its deliberations on the merits of the merger and in deciding to approve the terms of the
merger and to recommend that SRC shareholders vote for the approval of the merger agreement. These interests include, among others, the treatment of outstanding equity and equity-based awards pursuant
to the merger agreement, the grant of certain performance-based equity awards prior to the merger, the potential payment of transaction
bonuses, payment of annual cash bonuses upon closing of the merger, potential enhanced severance payments and other benefits upon a qualifying termination in connection with the merger, two SRC board
directors to be added to the PDC board, and rights to ongoing indemnification and insurance coverage. These interests are described in more detail in the section entitled "The
MergerInterests of SRC Directors and Executive Officers in the Merger" beginning on page 115.
PDC and SRC will incur significant transaction and merger-related costs in connection with the merger, which
may be in excess of those anticipated by PDC or SRC.
Each of PDC and SRC has incurred and expects to continue to incur a number of non-recurring costs associated with the merger, many of which are
payable regardless of whether or not the merger is
45
Table of Contents
completed.
These fees and costs have been, and will continue to be, substantial. These costs include, among others, employee retention costs, fees paid to legal, accounting and financial advisors,
severance and benefit costs, fees related to regulatory filings and notices, filing fees and printing and mailing fees. PDC and SRC will also incur transaction fees and costs related to the
integration of SRC into PDC, which may be substantial. Moreover, each of PDC and SRC may incur additional unanticipated expenses in connection with the merger and the integration, including costs
associated with any pending or future stockholder litigation related to the merger.
The
costs described above, as well as other unanticipated costs and expenses, could have an adverse effect on the financial condition and operating results of PDC, SRC or, following the
completion of the merger, the combined company.
Completion of the merger may trigger change in control or other provisions in certain agreements to which SRC
is a party.
The completion of the transactions may trigger change in control or other provisions in certain agreements to which SRC is a party. For a
description of the treatment of SRC's indebtedness in the merger, see "PDC expects to assume substantial indebtedness in
connection with the merger, which combined with PDC's current debt may limit its financial flexibility and adversely affect its financial results" below and "The MergerTreatment of
Indebtedness" beginning on page 120. If PDC and SRC are unable to negotiate waivers of the change in control and
other provisions in certain other agreements, the counterparties to those agreements may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking
monetary damages. Even if PDC and SRC are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the combined
company.
PDC expects to assume substantial indebtedness in connection with the merger, which combined with PDC's
current debt may limit its financial flexibility and adversely affect its financial results.
Under the merger agreement, PDC has agreed to assume SRC's outstanding debt, which as of September 30, 2019 was approximately
$715 million and consisted of amounts outstanding under SRC's senior unsecured notes and its revolving credit facility. As of September 30, 2019, PDC had total long-term debt of
approximately $1.3 billion, consisting of amounts outstanding under its senior unsecured notes and its revolving credit facility.
PDC
continues to review the treatment of SRC's existing indebtedness, and PDC may seek, or may be obligated, to repay, refinance, repurchase, redeem, exchange or otherwise terminate
SRC's existing indebtedness prior to, in connection with or following the completion of the merger. In particular, PDC may be required to make a change of control offer to repurchase the SRC Notes (as
defined in the section entitled "The MergerTreatment of Indebtedness") from the holders of the SRC Notes at 101% of the principal
amount of the SRC Notes, together with any accrued and unpaid interest to the date of purchase. If PDC does seek or is required to refinance SRC's existing indebtedness, there can be no guarantee that
PDC would be able to execute the refinancing on favorable terms or at all, and any repayment of SRC's existing indebtedness would adversely affect PDC's liquidity. Assuming PDC does not repay,
repurchase, redeem, exchange or otherwise terminate any of SRC's existing indebtedness, immediately following the completion of the merger, PDC is expected to have outstanding indebtedness of
approximately $2.0 billion, based on PDC's outstanding indebtedness as of September 30, 2019 and the outstanding indebtedness of SRC as of September 30, 2019. Additionally, PDC is
not restricted under the merger agreement from incurring additional debt, which PDC may do to fund its current operations, capital expenditures, planned or new acquisitions, or for any other purpose.
46
Table of Contents
Any
increase in PDC's indebtedness could have adverse effects on its financial condition and results of operations, including:
-
-
increasing the difficulty of satisfying PDC's obligations with respect to its debt obligations, including any repurchase obligations that may
arise thereunder;
-
-
diverting a significant portion PDC's cash flows to service its indebtedness, which could reduce the funds available to it for operations and
other purposes;
-
-
increasing PDC's vulnerability to general adverse economic and industry conditions;
-
-
placing PDC at a competitive disadvantage compared to its competitors that are less leveraged, making it less able to take advantage of certain
opportunities;
-
-
limiting PDC's ability to access the capital markets to raise capital on favorable terms;
-
-
impairing PDC's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate
or other purposes; and
-
-
increasing PDC's vulnerability to interest rate increases, as its borrowings under its revolving credit facility are at variable interest
rates.
A
high level of indebtedness increases the risk that PDC may default on its debt obligations, including those it is assuming from SRC. PDC's ability to meet its debt obligations and to
reduce its level of indebtedness depends on its future performance. PDC's future performance depends on many factors independent of the merger, some of which are beyond its control, such as general
economic conditions and oil and natural gas prices. PDC may not be able to generate sufficient cash flows to pay the interest on its debt, and future working capital, borrowings or equity financing
may not be available to pay or refinance such debt.
Investigations regarding the merger resulted in lawsuits against the SRC board, SRC, and PDC and other
lawsuits may be filed against SRC, PDC and/or their respective boards challenging the merger. An adverse ruling in any such lawsuit may prevent the merger from being completed.
Following the public announcement of the merger, investigations were launched by several law firms generally regarding whether (i) the SRC board
failed to satisfy its duties to its shareholders, including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for SRC shares
of common stock, (ii) PDC aided and abetted the alleged breach of fiduciary duties, and (iii) the disclosure by SRC, the SRC board, and PDC in the joint proxy statement/prospectus
concerning the merger were adequate. In addition to the pending state law complaints and federal law complaints discussed below, there is a possibility that one or more of these investigations could
result in further lawsuits against the SRC board, SRC, and PDC seeking, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement
already implemented, in addition to other fees and costs.
Lawsuits have been filed against SRC, the directors of SRC and PDC regarding the merger, which could result
in substantial costs and may delay or prevent the merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements.
On
October 4, 2019 and October 11, 2019, purported shareholders of SRC filed putative class action lawsuits against the members of the SRC board, SRC, and PDC in Colorado District
Court in Arapahoe County and Denver County, captioned Robert Garfield v. Lynn A. Peterson, et al., Case
No. 2019CV32360 and George Korol v. SRC Energy Inc., et al., Case No. 2019CV33933.
The plaintiffs in the state law complaints generally claim that (i) SRC and the members of the SRC board breached
47
Table of Contents
their
fiduciary duties to SRC shareholders by authorizing the merger with PDC for what the plaintiffs assert is inadequate consideration and pursuant to an unfair process and with inadequate
disclosures and (ii) PDC aided and abetted the other defendants' alleged breach of duties.
On
October 8, 2019 and October 11, 2019, purported shareholders of SRC filed putative class action lawsuits against SRC, the members of the SRC board, and PDC in the United States
District Court, District of Delaware, captioned Patrick Plumley v. SRC Energy Inc., et al., Case No. 1:19-mc-01912 and Juan Aguirre v.
SRC Energy Inc., et al., Case No. 1:19-mc-01934. On November 8,
2019, purported shareholders of SRC filed putative class action lawsuits against SRC and the members of the SRC board in the United States District Court, District of Colorado, captioned Waynick v. SRC Energy Inc. et al.,
Case No. 1:19-cv-03173 and Ben-Yosef v. SRC Energy Inc. et
al., Case No. 1:19-cv-03182. The plaintiffs in the federal law complaints generally claim that the defendants disseminated a false or misleading registration statement
regarding the proposed merger in violation of Section 14(a) and Section 20(a) of the Exchange Act and/or Rule 14a-9 promulgated under the Exchange Act.
Even
if the lawsuits are without merit, as the defendants believe these lawsuits to be, defending against these claims can result in substantial costs and divert management time and
resources. An adverse judgment could result in monetary damages, which could have a negative impact on PDC's and SRC's respective liquidity and financial condition. The plaintiffs in the state law
complaints seek, among other things, to rescind the transaction or obtain rescissory damages if the merger is consummated, to recover other unspecified damages, including recover attorneys' fees and
costs, and to obtain injunctive relief. The plaintiffs in the federal law complaints seek, among other things, injunctive relief to prevent consummation of the merger until the alleged disclosure
violations are cured, damages in the event the merger is consummated, and an award of attorney's fees. Any other lawsuit that may be filed in the future could also seek, among other things, injunctive
relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the merger. If a plaintiff is
successful in obtaining an injunction prohibiting completion of the merger in the state law complaints, federal law complaints, or any other similar lawsuits, then that injunction may delay or prevent
the merger from being completed, which may adversely affect PDC's and SRC's respective business, financial position and results of operation.
One
of the conditions to the closing of the merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no
law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the merger. Consequently, if a lawsuit is filed and a plaintiff is successful in obtaining an
injunction prohibiting completion of the merger, then that injunction may delay or prevent the merger from being completed within the expected timeframe or at all, which may adversely affect PDC's and
SRC's respective business, financial position and results of operations.
After the merger is completed, SRC shareholders will become stockholders of a Delaware corporation and have
their rights as stockholders governed by PDC's organizational documents and Delaware law.
The rights of SRC shareholders are currently governed by SRC's organizational documents and Colorado law. Upon consummation of the merger, SRC
shareholders will receive PDC common stock that will be governed by PDC's organizational documents and Delaware law. As a result, there will be differences between the rights currently enjoyed by SRC
shareholders and the rights of SRC shareholders post-merger. For a detailed discussion of the differences between rights as shareholders of SRC and rights as a stockholder of PDC, see the section
entitled "Comparison of Rights of Stockholders of PDC and Shareholders of SRC" beginning on page 180.
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PDC's charter will govern the combined company following the merger and provides that a state court located
within the State of Delaware (or, if no state court within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the exclusive forum for
substantially all disputes between the combined company and its stockholders, which could limit its stockholders' ability to obtain a favorable judicial forum for disputes with the combined company or
its directors, officers or other employees.
PDC's charter provides that, unless PDC consents in writing to the selection of an alternative forum, a state court located within the State of
Delaware (or, if no state court within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for (1) any derivative action or
proceeding brought on behalf of PDC, (2) any action asserting a claim of breach of fiduciary duty owed by a director, officer or other employee of PDC to PDC or its stockholders, (3) any
action asserting a claim against PDC or any director, officer or other employee of PDC arising pursuant to any provision of the DGCL or PDC's charter or bylaws or (4) any action asserting a
claim against PDC or any director, officer or other employee of PDC governed by the internal affairs doctrine.
Under
PDC's charter, to the fullest extent permitted by law, this exclusive forum provision will apply to state and federal law claims, including claims under the federal securities laws
(e.g., the Securities Act and the Exchange Act), although PDC stockholders will not be deemed to have waived PDC's compliance with the federal securities laws and the rules and regulations
thereunder. The enforceability of similar choice of forum provisions in other companies' charters and bylaws has been challenged in legal proceedings, and it is possible that, in connection with
claims arising under federal securities laws, a court could find the choice of forum provisions contained in PDC's charter to be inapplicable or unenforceable.
This
exclusive forum provision may limit the ability of a stockholder, including a former SRC shareholder who becomes a PDC stockholder after the merger is completed, to bring a claim in
a judicial forum of its choosing for disputes with the combined company or its directors, officers or other employees, which may discourage lawsuits against the combined company and its directors,
officers and other employees. In addition, stockholders who do bring a claim in a state court located within the State of Delaware (or, if no state court within the State of Delaware has jurisdiction,
the federal district court for the District of Delaware) could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. In addition, the
court located in the State of Delaware may reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such
judgments or results may be more favorable to the combined company than to its stockholders. However, the enforceability of similar exclusive forum provisions in other companies' charters has been
challenged in legal proceedings, and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions
or proceedings. If a court were to find the exclusive forum provision contained in PDC's charter to be inapplicable or unenforceable in an action, the combined company might incur additional costs
associated with resolving such action in other jurisdictions, which could have an adverse impact on the combined company's business and financial condition.
The opinions of PDC's and SRC's respective financial advisors will not reflect changes in circumstances
between the signing of the merger agreement and the completion of the merger.
PDC and SRC have received opinions from their respective financial advisors in connection with the signing of the merger agreement, but have not
obtained updated opinions from those advisors as of the date of this joint proxy statement/prospectus. Changes in the operations and prospects of PDC or SRC, general market and economic conditions and
other factors that may be beyond the control of PDC or SRC, and on which PDC's and SRC's financial advisors' opinions were based, may significantly alter the value of PDC or SRC or the prices of the
shares of PDC common stock or of the shares of
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SRC
common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because PDC and SRC
do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration from a financial point of view
at the time the merger is completed. The PDC board's recommendation that PDC stockholders vote "FOR" approval of the PDC merger proposal and the PDC issuance proposal, and the SRC board's
recommendation that SRC shareholders vote "FOR" approval of the SRC merger proposal, the
non-binding compensation advisory proposal and the adjournment proposal, however, are made as of the date of this joint proxy statement/prospectus.
For
a description of the opinions that PDC and SRC received from their respective financial advisors, see the sections entitled "The MergerOpinion of
J.P. Morgan, PDC's Financial Advisor" beginning on page 80 and "The MergerOpinions of Citi and Goldman Sachs, SRC's Financial
Advisors" beginning on page 92. A copy of the opinion of J.P. Morgan, PDC's financial advisor, is attached as Annex B to this joint proxy statement/prospectus,
and copies of the opinions of Citi and Goldman Sachs, SRC's financial advisors, are attached as Annex C and Annex D, respectively, to this joint proxy statement/prospectus, and each is
incorporated by reference herein in its entirety.
Risk Factors Relating to PDC Following the Merger
The integration of SRC into PDC may not be as successful as anticipated, and PDC may not achieve the intended
benefits of the merger or do so within the intended timeframe.
The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities
associated with the acquired business. Difficulties in integrating SRC into PDC, and PDC's ability to manage the combined company, may result in the combined company performing differently than
expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations
or cash flows of PDC. Potential difficulties that may be encountered in the integration process include, among other factors:
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the inability to successfully integrate SRC into PDC operationally and culturally;
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complexities associated with managing the larger, more complex, integrated business;
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complexities resulting from the different accounting methods of PDC and SRC;
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not realizing anticipated operating synergies;
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integrating personnel from SRC into PDC and the loss of key employees;
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potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger;
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integrating relationships with customers, vendors and business partners;
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performance shortfalls at one or both of PDC and/or SRC as a result of the diversion of management's attention caused by completing the merger
and integrating SRC's operations into PDC; and
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the disruption of, or the loss of momentum in, each company's ongoing business or inconsistencies in standards, controls, procedures and
policies.
Additionally,
the success of the merger will depend, in part, on PDC's ability to realize the anticipated benefits and cost savings from combining PDC's and SRC's businesses, including
operational and other
synergies that PDC believes the combined company will achieve, discussed in more detail under the heading "The MergerRecommendation of the PDC Board of Directors
and PDC's
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Reasons for the Merger." The anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected or could have
other adverse effects that PDC does not currently foresee.
PDC's results may suffer if it does not effectively manage its expanded operations following the merger.
Following completion of the merger, the size of PDC's business will increase significantly. PDC's future success will depend, in part, on its
ability to manage this expanded business, which poses numerous risks and uncertainties, including the need to integrate the operations and business of SRC into its existing business in an efficient
and timely manner, to combine systems and management controls and to integrate relationships with various business partners. Failure to successfully manage the combined company may have an adverse
effect on PDC's financial condition, results of operations or cash flows.
The unaudited pro forma financial statements are presented for illustrative purposes only and may not be an
indication of the combined company's financial condition or results of operations following the merger.
The unaudited pro forma financial statements contained in this joint proxy statement/prospectus are presented for illustrative purposes only and
may not be an indication of the combined company's financial condition or results of operations following the merger. The actual financial positions and results of operations of the combined company
following the merger may be different, possibly materially, from the unaudited pro forma financial statements included in this joint proxy statement/prospectus for several reasons. The unaudited pro
forma financial statements have been derived from the historical financial statements of PDC and SRC and certain adjustments and assumptions have been made regarding the combined company after giving
effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with complete
accuracy. Moreover, the unaudited pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the
impact of any incremental costs incurred in integrating SRC into PDC is not reflected in the unaudited pro forma financial statements. Additionally, the unaudited pro forma financial statements do not
reflect the effect of any
potential divestitures that may occur prior to or subsequent to the completion of the merger. Other factors may affect the combined company's financial conditions or results of operations following
the merger as well. As a result, the actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these unaudited pro
forma financial statements. Any potential decline in the combined company's financial condition or results of operations may cause significant variations in the stock price of PDC's common stock
following the merger. For additional information, see the section entitled "Unaudited Pro Forma Condensed Combined Consolidated Financial Statements"
beginning on page 167.
Sales of substantial amounts of PDC common stock in the open market, by former SRC shareholders or otherwise,
could depress PDC's stock price.
Former SRC shareholders and current PDC stockholders may not wish to continue to invest in the additional operations of the combined company, or
for other reasons may wish to dispose of some or all of their interests in the combined company, and as a result may seek to sell their shares of PDC common stock. Shares of PDC common stock that are
issued to current holders of SRC common stock in the merger will be freely tradable by such stockholders without restrictions or further registration under the Securities Act of 1933 (which we refer
to as the "Securities Act"), provided, however, that any stockholders who are affiliates of PDC will be subject to the resale restrictions of Rule 144 under the Securities Act. These sales (or
the perception that these sales may occur), coupled with the increase in the outstanding number of shares of PDC common stock, may affect the market for, and the market
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price
of, PDC common stock in an adverse manner. Based on the number of shares of SRC common stock outstanding as of November 6, 2019, and the number of outstanding SRC equity awards currently
estimated to be payable in PDC common stock following the merger, PDC expects to issue up to approximately 39,919,684 shares of PDC common stock to SRC shareholders in the merger. As of the PDC
record date, PDC had approximately 61,616,700 shares of common stock outstanding and approximately 1,572,206 shares of common stock subject to outstanding options and other rights to
purchase or acquire its shares.
If
the merger is completed and stockholders of PDC, including former SRC shareholders, sell substantial amounts of PDC common stock in the public market following the closing of the
merger, the market price of PDC common stock may decrease. These sales might also make it more difficult for PDC to raise capital by selling equity or equity-related securities at a time and price
that it otherwise would deem appropriate.
The market price of PDC common stock will continue to fluctuate after the merger, and may decline if the
benefits of the merger do not meet the expectations of financial analysts.
Upon completion of the merger, holders of SRC common stock will become holders of shares of PDC common stock. The market price of PDC common
stock may fluctuate significantly following completion of the merger, including if PDC does not achieve the perceived benefits of the merger as rapidly, or to the extent anticipated by, financial
analysts or the effect of the merger on PDC's financial results is not consistent with the expectations of financial analysts. If the price of PDC's common stock decreases after the merger, holders of
SRC common stock will lose some or all of the value of their investment in PDC common stock. In addition, the stock market has experienced significant price and volume fluctuations in recent times
which, if they continue to occur, could have a material adverse effect on the market for, or liquidity of, the PDC common stock, regardless of PDC's actual operating performance.
The market price of PDC common stock may be affected by factors different from those that historically have
affected SRC common stock.
Upon completion of the merger, holders of SRC common stock who receive merger consideration will become holders of PDC common stock. The
businesses of PDC and SRC differ in certain respects, and, accordingly, the financial position or results of operations and/or cash flows of PDC after the merger, as well as the market price of PDC
common stock, may be affected by factors different from those currently affecting the financial position or results of operations and/or cash flows of SRC. Following the completion of the merger, SRC
will be part of a larger company, so decisions affecting SRC may be made in respect of the combined company as a whole rather than the SRC business individually. For a discussion of the businesses of
PDC and SRC and of some important factors to consider in connection with those businesses, see the section entitled "Information About the Companies"
and the documents incorporated by reference in the section entitled "Where You Can Find More Information" and "Information
Incorporated by Reference" beginning on pages 56, 191 and 192, respectively, including, in particular, in the sections entitled "Risk Factors" in each of
PDC's and
SRC's Annual Report on Form 10-K for the year ended
December 31, 2018 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
The merger may not be accretive, and may be dilutive, to PDC's earnings per share, which may negatively
affect the market price of PDC common stock.
Because shares of PDC common stock will be issued in the merger, it is possible that the merger may be dilutive to PDC's earnings per share,
which could negatively affect the market price of PDC common stock.
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In
connection with the completion of the merger, based on the number of issued and outstanding shares of SRC common stock as of November 6, 2019 and the number of outstanding SRC
equity awards currently estimated to be payable in PDC common stock following the merger, PDC will issue up to approximately 39,919,684 shares of PDC common stock. The issuance of these new
shares of PDC common stock could have the effect of depressing the market price of PDC common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to,
PDC's earnings per share could cause the price of shares of PDC common stock to decline or increase at a reduced rate.
Following the completion of the merger, PDC may incorporate SRC's hedging activities into PDC's business, and
PDC may be exposed to additional commodity price risks arising from such hedges.
To mitigate its exposure to changes in commodity prices, SRC hedges oil and natural gas prices from time to time, primarily through the use of
certain derivative commodity instruments. If PDC assumes existing SRC hedges, PDC will bear the economic impact of all of SRC's current hedges following the completion of the merger. Actual crude oil
and natural gas prices may differ from the combined company's expectations and, as a result, such hedges could have a negative impact on PDC's business.
The combined company may record goodwill and other intangible assets that could become impaired and result in
material non-cash charges to the results of operations of the combined company in the future.
The merger will be accounted for as an acquisition of a business by PDC in accordance with accounting principles generally accepted in the
United States (which we refer to as "GAAP"). Under the acquisition method of accounting, the assets and liabilities of SRC and its subsidiaries will be recorded, as of completion, at their
respective fair values and added to those of PDC. The reported financial condition and results of operations of PDC for periods after completion of the merger will reflect SRC balances and results
after completion of the merger but will not be restated retroactively to reflect the historical financial position or results of operations of SRC and its subsidiaries for periods prior to the merger.
For additional information, see the section entitled "Unaudited Pro Forma Condensed Combined Consolidated Financial Statements" beginning on
page 167.
Under
the acquisition method of accounting, the total purchase price will be allocated to SRC's tangible assets and liabilities and identifiable intangible assets based on their fair
values as of the date of completion of the merger. The excess of the purchase price over those fair values, if any, will be recorded as goodwill. To the extent the value of goodwill or intangibles, if
any, becomes impaired, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company's operating results may be significantly impacted from
both the impairment and the underlying trends in the business that triggered the impairment.
After the merger is completed, PDC will be proportionally more exposed to regulatory risks associated with
oil and gas operations in Colorado and other risks associated with a more geographically-concentrated asset base.
PDC's principal assets in terms of production and reserves are located in the DJ Basin in Colorado, but it also has a significant acreage
position in the Permian Basin in Texas. During the nine months ended September 30, 2019, 77.2% of PDC's production came from its assets in Colorado and 22.8% came from its assets in Texas.
Substantially all of SRC's properties, and all of its current production and reserves, are located in Colorado. As discussed in "The MergerBackground of the
Merger" beginning on page 70, various new regulatory requirements applicable to oil and natural gas operations in Colorado have been proposed or adopted in recent years.
In particular, Proposition 112, a voter initiative that qualified for the ballot for the general election in November 2018, would have effectively prohibited the vast majority of both PDC's and SRC's
planned drilling activity in Colorado by imposing mandatory 2,500 foot setbacks between new oil and gas wells and any occupied structure
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or
designated "vulnerable area". Although Proposition 112 was defeated at the polls, subsequent legislation significantly amended existing state law to, among other things, require the Colorado
Oil and Gas Conservation Commission (which we refer to as the "Commission") to prioritize public health and environmental concerns in its decisions, instruct the Commission to adopt rules to minimize
emissions of methane and other air contaminants, and authorize local governmental authorities to impose limitations on oil and gas development activities more stringent than those imposed at the state
level. If the merger is completed, the percentage of PDC's combined properties, production and reserves located in Colorado will increase and its exposure to the risk of unfavorable regulatory
developments in the state will therefore increase as well. Similarly, the operations of both PDC and SRC have been adversely affected in recent years by limitations in the availability of adequate
midstream infrastructure in the DJ Basin. The increased percentage of PDC's combined production located in the DJ Basin following the merger will proportionately increase PDC's exposure to this risk,
as well as other risks associated with operating in a more concentrated geographic area.
Risks Relating to PDC's Business
You should read and consider risk factors specific to PDC's businesses that will also affect the combined company after the completion of the
merger. These risks are described in Part I, Item 1A of PDC's Annual Report on
Form 10-K for the fiscal year ended December 31, 2018 and in Part II, Item 1A of PDC's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2019, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy
statement/prospectus, see the sections entitled "Where You Can Find More Information" and "Information Incorporated by
Reference," beginning on pages 191 and 192, respectively.
Risks Relating to SRC's Business
You should read and consider risk factors specific to SRC's businesses that will also affect the combined company after the completion of the
merger. These risks are described in Part I, Item 1A of SRC's Annual Report on
Form 10-K for the fiscal year ended December 31, 2018 and in Part II, Item 1A of SRC's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2019, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy
statement/prospectus, see the sections entitled "Where You Can Find More Information" and "Information Incorporated by
Reference," beginning on pages 191 and 192, respectively.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus, and the documents to which SRC and PDC refer you in this joint proxy statement/prospectus, as well as
oral statements made or to be made by SRC and PDC, include certain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (which we refer to as the "Exchange Act"). All statements, other than statements of historical fact, included in this joint proxy statement/prospectus that address
activities, events or developments that PDC or SRC expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as "estimate," "project," "predict,"
"believe," "expect," "anticipate," "potential," "create," "intend," "could," "may," "foresee," "plan," "will," "guidance," "look," "outlook," "goal," "future," "assume," "forecast," "build," "focus,"
"work," "continue" or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events
identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to,
statements regarding the merger, pro forma descriptions of the combined company
and its operations, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements included in this joint proxy statement/prospectus. These include:
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the risk that the merger agreement may be terminated in accordance with its terms and that the merger may not be completed;
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the possibility that PDC stockholders may not approve the PDC merger proposal and/or the PDC issuance proposal;
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the possibility that SRC shareholders may not approve the SRC merger proposal;
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the risk that PDC or SRC may be unable to obtain governmental and regulatory approvals required for the merger, or required governmental and
regulatory approvals may delay the merger or result in the imposition of conditions that could cause the parties to abandon the merger;
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the risk that the parties may not be able to satisfy the conditions to the completion of the merger in a timely manner or at all;
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the possibility that PDC and SRC will incur significant transaction and other costs in connection with the merger, which may be in excess of
those anticipated by PDC or SRC;
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the risk that the combined company may be unable to achieve operational or corporate synergies or that it may take longer than expected to
achieve those synergies;
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the risk that PDC may fail to realize other benefits expected from the merger;
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the outcome of any litigation relating to the merger;
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the risk that any announcements relating to, or the completion of, the merger could have adverse effects on the market price of PDC common
stock;
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the risk related to disruption of management time from ongoing business operations due to the merger;
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the risk that the merger and its announcement and/or completion could have an adverse effect on the ability of PDC, SRC and/or the combined
company to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers;
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the risk that the businesses will not be integrated successfully; and
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the risks to their operating results and businesses generally.
Such
factors are difficult to predict and in many cases may be beyond the control of PDC and SRC. PDC's and SRC's forward-looking statements are based on assumptions that PDC and SRC,
respectively, believe to be reasonable but that may not prove to be accurate. Consequently, all of the forward-looking statements PDC and SRC make in this joint proxy statement/prospectus are
qualified by the information contained or incorporated by reference herein, including the information contained under this heading and the information detailed in PDC's
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2019,
June 30, 2019 and
September 30, 2019, Current Reports on Form 8-K and
other filings PDC makes with the SEC, which are incorporated herein by reference, and in SRC's
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2019,
June 30, 2019 and
September 30, 2019, Current Reports on Form 8-K and
other filings SRC makes with the SEC, which are incorporated herein by reference. For additional information, see the sections entitled "Risk Factors,"
"Where You Can Find More Information" and "Information Incorporated by Reference" beginning on pages 41,
191 and 192, respectively.
PDC
and SRC undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur,
or which they become aware of, except as required by applicable law or regulation. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the
date hereof.
INFORMATION ABOUT THE COMPANIES
PDC Energy, Inc.
1775
Sherman Street
Suite 3000
Denver, CO 80203
Phone: (303) 860-5800
PDC
Energy, Inc. is a domestic independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas and
NGLs, with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. PDC's operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and its
Delaware Basin operations are primarily focused in the Wolfcamp zones.
SRC Energy Inc.
1675
Broadway
Suite 2600
Denver, CO 80202
Phone: (720) 616-4300
SRC
is an independent oil and gas company engaged in the acquisition, development, and production of oil, natural gas, and natural gas liquids in the DJ Basin in Colorado. The DJ Basin
contains hydrocarbon-bearing deposits in several formations, including the Niobrara, Codell, Greenhorn, Shannon, Sussex, J-Sand, and D-Sand. The area has produced oil and natural gas for over fifty
years and benefits from established infrastructure, long reserve life, and multiple service providers. SRC's oil and natural gas activities are focused in the Wattenberg Field, in Weld County,
Colorado, an area that covers the western flank of the DJ Basin. Currently, SRC is focused on the horizontal development of the Codell formation as well as the three benches of the Niobrara formation,
which are all characterized by relatively high liquids content.
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SPECIAL MEETING OF PDC STOCKHOLDERS
Date, Time and Place
The PDC special meeting will be held on January 13, 2020, at 8:00 a.m., Mountain Time, at the Denver Financial Center at
1775 Sherman Street, Denver, CO 80203.
Purpose of the PDC Special Meeting
The purpose of the PDC special meeting is to consider and vote on the PDC merger proposal and the PDC issuance proposal.
PDC
will transact no other business at the PDC special meeting.
Recommendation of the PDC Board of Directors
The PDC board unanimously recommends that PDC stockholders vote "FOR" the approval of the PDC merger proposal and the PDC issuance proposal.
For
additional information on the recommendation of the PDC board, see the section entitled "The MergerRecommendation of the PDC Board of Directors
and PDC's Reasons for the Merger" beginning on page 76.
Record Date and Outstanding Shares of PDC Common Stock
Only stockholders of record of issued and outstanding shares of PDC common stock as of the close of business on November 29, 2019, the
record date for the PDC special meeting (which we refer to as the "PDC record date"), are entitled to notice of, and to vote at, the PDC special meeting or any subsequent reconvening of the PDC
special meeting following or any subsequent reconvening of the PDC special meeting following any adjournments and postponements of the PDC special meeting.
As
of the close of business on the PDC record date, there were 61,616,700 shares of PDC common stock issued and outstanding. You may cast one vote for each share of PDC common stock that
you held as of the close of business on the PDC record date.
A
complete list of PDC stockholders entitled to vote at the PDC special meeting will be available for inspection at PDC's principal office at 1775 Sherman Street, Suite 3000,
Denver, CO 80203 during regular business hours for a period of no less than 10 days before the PDC special meeting and during the PDC special meeting at the Denver Financial Center at
1775 Sherman Street, Denver, CO 80203.
Quorum; Abstentions and Broker Non-Votes
A quorum of PDC stockholders is necessary to hold a valid meeting. The presence at the PDC special meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of PDC common stock entitled to vote at the PDC special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not
vote for the proposal or vote to "abstain" in respect of proposal, your shares of PDC common stock will be counted for purposes of determining whether a quorum is present for the transaction of
business at the PDC special meeting. Broker non-votes will not be treated as present for purposes of determining the presence of a quorum at the PDC special meeting.
Executed
but unvoted proxies will be voted in accordance with the recommendations of the PDC board on each proposal.
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Required Vote
Approval of the PDC merger proposal requires the affirmative vote of the holders of a majority of the outstanding PDC common stock, and approval
of the PDC issuance proposal requires the affirmative vote of a majority of votes cast by PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on such
proposal. Approval of both the PDC merger proposal and the PDC issuance proposal is a condition to the completion of the merger. Abstentions will be counted as votes "AGAINST" the PDC merger proposal
and the PDC issuance proposal. Broker non-votes and failures to vote will be counted as votes "AGAINST" the PDC merger proposal but will have no effect on the PDC issuance proposal.
The
PDC merger proposal and the PDC issuance proposal are described in the section entitled "PDC Proposals" beginning on page 62.
Methods of Voting
PDC stockholders of record may vote on the Internet by going to the web address provided on the enclosed proxy card and following the
instructions for Internet voting, by phone using the toll-free phone number listed on the enclosed proxy card, or by completing, signing, dating and returning the enclosed proxy card in the
postage-paid envelope provided.
PDC
stockholders of record may vote their shares in person by ballot at the PDC special meeting or by submitting their proxies:
-
-
by phone until 11:59 p.m. Mountain Time on January 12, 2020;
-
-
by the Internet until 11:59 p.m. Mountain Time on January 12, 2020; or
-
-
by completing, signing and returning your proxy via mail. If you vote by mail, your proxy card must be received by 11:59 p.m. Mountain
Time on January 12, 2020.
PDC
stockholders who hold their shares in "street name" by a broker, bank or other nominee should refer to the proxy card, voting instruction form or other information forwarded by their
broker, bank or other nominee for instructions on how to vote their shares.
Voting in Person
Shares held directly in your name as stockholder of record may be voted in person at the PDC special meeting. If you choose to vote your shares
in person at the PDC special meeting, bring your enclosed proxy card and proof of identification. Even if you plan to attend the PDC special meeting, the PDC board recommends that you vote your shares
in advance as described below so that your vote will be counted if you later decide not to attend the PDC special meeting.
If
you are a beneficial holder holding in street name, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please
note that if your shares are held in street name by a broker, bank or other nominee and you wish to vote at the PDC special meeting, you will not be permitted to vote in person unless you first obtain
a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.
Voting by Proxy
Whether you hold your shares of PDC common stock directly as the stockholder of record or beneficially in street name, you may direct your vote
by proxy without attending the PDC special meeting. You can vote by proxy by phone, the Internet or mail by following the instructions provided in
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the
enclosed proxy card or the voting instruction card you receive from your broker, bank or other nominee, as applicable.
Voting 401(k) and Profit Sharing Plan Shares
If you are a participant in PDC's 401(k) and Profit Sharing Plan and have shares of PDC common stock credited to your plan account as of the
record date, you have the right to direct the plan trustee how to vote those shares. The trustee will vote the shares in your plan account in accordance with your instructions. Your vote may not be
counted if your proxy card is not received by the trustee by January 8, 2020. You cannot vote such shares at the PDC special meeting.
Questions About Voting
If you have any questions about how to vote or direct a vote in respect of your shares of PDC common stock, you may contact MacKenzie
Partners, Inc., PDC's proxy solicitor, toll-free at (800) 322-2885 or, for brokers and banks, collect at (212) 929-5500.
Adjournment
In accordance with the PDC bylaws, whether or not a quorum is present, the chairman of the PDC special meeting will have the power to adjourn
the PDC special meeting from time to time for the purpose of, among other things, soliciting additional proxies. If the PDC special meeting is adjourned with respect to the PDC merger proposal or the
PDC issuance proposal, PDC stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. At any subsequent reconvening of the PDC special meeting,
all proxies will be voted in the same manner as they would have been voted at the original convening of the PDC special meeting, except for any proxies that have been validly revoked or withdrawn
prior to the subsequent meeting.
In
addition, the merger agreement provides that PDC (i) will be required to adjourn or postpone the PDC special meeting to the extent necessary to ensure that any legally required
supplement or amendment to this joint proxy statement/prospectus is provided to the PDC stockholders or if, as of the time the PDC special meeting is scheduled, there are insufficient shares of PDC
common stock represented to constitute a quorum necessary to conduct business at the PDC special meeting, and (ii) may adjourn or postpone the PDC special meeting if, as of the time for which
the PDC special meeting is scheduled, PDC reasonably determines in good faith that there are insufficient shares of PDC common stock represented to obtain the adoption and approval of the PDC merger
proposal or the PDC issuance proposal. However, unless PDC and SRC otherwise agree, the PDC special meeting
will not be adjourned or postponed to a date that is more than 30 days after the date for which the PDC special meeting was previously scheduled (though the PDC special meeting will be
adjourned or postponed every time the circumstances described in (i) exist, and may be adjourned or postponed every time the circumstances described in (ii) exist) or to a date on or
after two business days prior to the end date (as defined under "The Merger AgreementTerminationTermination Rights").
Revocability of Proxies
If you are a stockholder of record of PDC, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is
voted at the meeting in one of the following ways:
-
-
submit a new proxy card bearing a later date;
-
-
vote again by phone or the Internet at a later time;
-
-
give written notice before the meeting to the PDC corporate secretary at the above address stating that you are revoking your proxy; or
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-
-
attend the PDC special meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke
your proxy.
If
you hold your shares of PDC common stock through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the PDC
special meeting.
Proxy Solicitation Costs
The enclosed proxy card is being solicited by PDC and the PDC board. In addition to solicitation by mail, PDC's directors, officers and
employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.
PDC
has retained MacKenzie Partners, Inc. to assist in the solicitation process. PDC will pay MacKenzie Partners a fee of $25,000, as well as reasonable and documented
out-of-pocket expenses. PDC also has agreed to indemnify MacKenzie Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain
exceptions).
PDC
will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of PDC common stock held of record by such nominee holders.
PDC will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.
No Appraisal Rights
Under Delaware law, PDC stockholders are not entitled to appraisal rights in connection with the merger or the issuance of shares of PDC common
stock as contemplated by the merger agreement.
Other Information
The matter to be considered at the PDC special meeting is of great importance to the PDC stockholders. Accordingly, you are urged to read and
carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy by phone or the Internet or complete, date, sign and
promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy by phone or the Internet, you do not need to return the enclosed proxy
card.
Assistance
If you need assistance in completing your proxy card or have questions regarding the PDC special meeting,
contact:
1407
Broadway, 27th Floor
New York, New York 10018
PDC@mackenziepartners.com
Call Collect: (212) 929-5500
Toll-Free: (800) 322-2885
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Vote of PDC's Directors and Executive Officers
As of the PDC record date, PDC directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 354,199
shares of PDC common stock, or approximately 0.57% of the total outstanding shares of PDC common stock as of the PDC record date.
PDC
currently expects that all of its directors and executive officers will vote their shares "FOR" the PDC merger proposal and the PDC issuance proposal.
Attending the PDC Special Meeting
You are entitled to attend the PDC special meeting only if you were a stockholder of record of PDC at the close of business on the PDC record
date or you held your shares of PDC beneficially in the name of a broker, bank or other nominee as of the PDC record date, or you hold a valid proxy for the PDC special meeting.
If
you were a stockholder of record of PDC at the close of business on the PDC record date and wish to attend the PDC special meeting, so indicate on the appropriate proxy card or as
prompted by the phone or Internet voting system. Your name will be verified against the list of stockholders of record prior to your being admitted to the PDC special meeting.
If
you hold your shares of PDC common stock through a broker, bank or other nominee, you will need to have proof that you are the beneficial owner as of the PDC record date to be
admitted to the PDC special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the PDC record date, or presentation of a valid proxy from
your broker, bank or other nominee, would be acceptable proof of your beneficial ownership.
You
should be prepared to present government-issued photo identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above
upon request, you might not be admitted to the PDC special meeting.
Results of the PDC Special Meeting
Within four business days following the PDC special meeting, PDC intends to file the final voting results with the SEC on a Current Report on
Form 8-K. If the final voting results have not been certified within that four business day period, PDC will report the preliminary voting results on a Current Report on Form 8-K at that
time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.
PDC
STOCKHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE PDC MERGER PROPOSAL AND THE PDC ISSUANCE
PROPOSAL.
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PDC PROPOSALS
It is a condition to the completion of the merger that PDC stockholders approve both the merger and the issuance of shares of PDC common stock
in the merger. In the merger, each SRC shareholder will receive, for each share of SRC common stock that is issued and outstanding as of immediately prior to the effective time of the merger, 0.158 of
a share of PDC common stock, with certain exceptions further described in the section entitled "The Merger AgreementEffect of the Merger on Capital Stock; Merger
Consideration" and "The MergerAppraisal Rights/Dissenters' Rights in the Merger" beginning on pages 124 and 129,
respectively.
PDC
stockholders must approve the merger proposal for the merger to be completed because such approval is required under applicable Delaware law. PDC stockholders must also approve the
issuance of shares of PDC common stock in the merger because such approval is required under applicable Nasdaq rules. Specifically, Nasdaq Rule 5635(a) requires a Nasdaq-listed company to
obtain stockholder approval prior to the issuance of common stock in connection with the acquisition of the stock or
assets of another company if the potential issuance is equal to 20% or more of the number of shares of common stock or voting power outstanding before the issuance. PDC expects to issue up to
approximately 39,919,684 shares of PDC common stock in connection with the merger based on the number of shares of SRC common stock outstanding as of November 6, 2019.
In
the event the PDC merger proposal and the PDC issuance proposal are approved by PDC stockholders but the merger agreement is terminated (without the merger being completed) prior to
the effectiveness of the merger, PDC will not issue any shares of PDC common stock as a result of the approval of the PDC merger proposal or the PDC issuance proposal.
Approval
of the PDC merger proposal requires the affirmative vote of the holders of a majority of the outstanding PDC common stock, and approval of the PDC issuance proposal requires the
affirmative vote of a majority of votes cast by PDC stockholders present in person or by proxy at the PDC special meeting and entitled to vote on such proposal. Approval of both the PDC merger
proposal and the PDC issuance proposal is a condition to the completion of the merger. Abstentions will be counted as votes "AGAINST" the PDC merger proposal and the PDC issuance proposal. Broker
non-votes and failures to vote will be counted as votes "AGAINST" the PDC merger proposal but will have no effect on the PDC issuance proposal.
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SPECIAL MEETING OF SRC SHAREHOLDERS
Date, Time and Place
The SRC special meeting will be held on January 13, 2020, at 8:00 a.m., Mountain Time, at the Denver Energy Center,
Tower 2, 1625 Broadway, Denver, CO 80202.
Purpose of the SRC Special Meeting
The purpose of the SRC special meeting is to consider and vote on:
-
-
the SRC merger proposal;
-
-
the non-binding compensation proposal; and
-
-
the adjournment proposal.
SRC
will transact no other business at the SRC special meeting.
Recommendation of the SRC Board of Directors
The SRC board unanimously recommends that SRC shareholders vote:
-
-
"FOR" the SRC merger proposal;
-
-
"FOR" the non-binding compensation proposal; and
-
-
"FOR" the adjournment proposal.
For
additional information on the recommendation of the SRC board, see the section entitled "SRC Proposals" and
"The MergerRecommendation of the SRC Board of Directors and SRC's Reasons for the Merger" beginning on pages 68 and 88.
Record Date and Outstanding Shares of SRC Common Stock
Only shareholders of record of issued and outstanding shares of SRC common stock as of the close of business on November 29, 2019, the
record date for the SRC special meeting (which we refer to as the "SRC record date"), are entitled to notice of, and to vote at, the SRC special meeting or any subsequent reconvening of the SRC
special meeting following any adjournments and postponements of the SRC special meeting.
As
of the close of business on the SRC record date, there were 243,567,718 shares of SRC common stock issued and outstanding. You may cast one vote for each share of SRC common stock
that you held as of the close of business on the SRC record date.
A
complete list of SRC shareholders entitled to vote at the SRC special meeting will be available for inspection at SRC's principal office at 1675 Broadway, Suite 2600, Denver, CO
80202 during regular business hours for a period of no less than 10 days before the SRC special meeting and during the SRC special meeting.
Quorum; Abstentions and Broker Non-Votes
A quorum of SRC shareholders is necessary to hold a valid meeting. The presence at the SRC special meeting, in person or by proxy, of the
holders of one-third of the outstanding shares of SRC common stock entitled to vote at the SRC special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not
vote for one or more proposals or vote to "abstain" in respect of one or more proposals, your shares of SRC common stock will be counted for purposes of determining whether a quorum is present for the
transaction of business at the SRC special meeting.
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Broker
non-votes will not be treated as present for purposes of determining the presence of a quorum at the SRC special meeting.
Executed
but unvoted proxies will be voted in accordance with the recommendations of the SRC board.
Required Votes
Approval of the SRC merger proposal requires the affirmative vote of a majority of the outstanding shares of SRC common stock entitled to vote
on the proposal. Abstentions, broker non-votes and failures to vote will have the same effect as votes "AGAINST" the proposal.
Approval
of the non-binding compensation proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions, broker non-votes
nor failures to vote will have any effect on the outcome of the vote. As an advisory vote, this proposal is not binding upon SRC or the SRC board or PDC or the PDC board, and approval of this proposal
is not a condition to completion of the merger.
Approval
of the adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions, broker non-votes nor failures
to vote will have any effect on the outcome of the vote. Approval of this proposal is not a condition to completion of the merger.
The
SRC merger proposal, non-binding compensation proposal and the adjournment proposal are described in the section entitled "SRC
Proposals" beginning on page 68.
Methods of Voting
SRC shareholders of record may vote on the Internet by going to the web address provided on the enclosed proxy card and following the
instructions for Internet voting, by phone using the toll-free phone number listed on the enclosed proxy card, or by completing, signing, dating and returning the enclosed proxy card in the
postage-paid envelope provided.
SRC
shareholders of record may vote their shares in person by ballot at the SRC special meeting or by submitting their proxies:
-
-
by phone until 11:59 p.m., Mountain Time, on January 12, 2020;
-
-
by the Internet until 11:59 p.m., Mountain Time, on January 12, 2020; or
-
-
by completing, signing and returning their proxy via mail. If you vote by mail, your proxy card must be received by 11:59 p.m., Mountain
Time, on January 12, 2020.
SRC
shareholders who hold their shares in street name through a broker, bank or other nominee should refer to the proxy card, voting instruction form or other information forwarded by
their broker, bank or other nominee for instructions on how to vote their shares.
Voting in Person
Shares held directly in your name as shareholder of record may be voted in person at the SRC special meeting. If you choose to vote your shares
in person at the SRC special meeting, bring your enclosed proxy card and proof of identification. Even if you plan to attend the SRC special meeting, the SRC board recommends that you vote your shares
in advance as described below so that your vote will be counted if you later decide not to attend the SRC special meeting.
If
you are a beneficial holder holding shares in street name, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares.
Please note
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that
if your shares are held in street name through a broker, bank or other nominee and you wish to vote at the SRC special meeting, you will not be permitted to vote in person unless you first obtain
a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.
Voting by Proxy
Whether you hold your shares of SRC common stock directly as the shareholder of record or beneficially in street name, you may direct your vote
by proxy without attending the SRC special meeting. You can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card if you are a shareholder of
record or by following the instructions provided to you by your broker, bank or other nominee if you are a holder in street name.
Questions About Voting
If you have any questions about how to vote or direct a vote in respect of your shares of SRC common stock, you may contact MacKenzie
Partners, Inc., SRC's proxy solicitor, toll-free at (800) 322-2885 or, for brokers and banks, collect at (212) 929-5500.
Revocability of Proxies
If you are a shareholder of record of SRC, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is
voted at the meeting in one of the following ways:
-
-
submit a new proxy card bearing a later date;
-
-
vote again by phone or the Internet at a later time;
-
-
give written notice before the meeting to SRC's corporate secretary at 1675 Broadway, Suite 2600, Denver, CO 80202 stating that you are
revoking your proxy; or
-
-
attend the SRC special meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke
your proxy.
If
you hold your shares of SRC common stock through a broker, bank or other nominee, you must follow their instructions to revoke your initial proxy vote or to otherwise vote at the SRC
special meeting.
Proxy Solicitation Costs
The enclosed proxy card is being solicited on behalf of the SRC board. In addition to solicitation by mail, SRC's directors, officers and
employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.
SRC
has retained MacKenzie Partners, Inc. to assist in the solicitation process. SRC will pay MacKenzie Partners, Inc. a fee of $25,000, as well as reasonable and
documented out-of-pocket expenses. SRC also has agreed to indemnify MacKenzie Partners, Inc. against various liabilities and expenses that relate to or arise out of its solicitation of proxies
(subject to certain exceptions).
SRC
will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of SRC common stock held by such nominee holders. SRC will
reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.
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Adjournment
If a quorum is not present or if there are not sufficient votes for the approval of the SRC merger proposal and the SRC shareholders approve the
adjournment proposal, SRC expects that the SRC special meeting will be adjourned by the chairman of the meeting to solicit additional proxies in accordance with the merger agreement. At any subsequent
reconvening of the SRC special meeting, all proxies will be voted in the same manner as they would have been voted at the original
convening of the SRC special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent reconvening of the SRC special meeting.
In
addition, the merger agreement provides that SRC (i) will be required to adjourn or postpone the SRC special meeting to the extent necessary to ensure that any legally required
supplement or amendment to this joint proxy statement/prospectus is provided to the SRC shareholders or if, as of the time the SRC special meeting is scheduled, there are insufficient shares of SRC
common stock represented to constitute a quorum necessary to conduct business at the SRC special meeting, and (ii) may adjourn or postpone the SRC special meeting if, as of the time for which
the SRC special meeting is scheduled, SRC reasonably determines that there are insufficient shares of SRC common stock represented to obtain the approval of the SRC merger proposal. However, unless
PDC and SRC otherwise agree, the SRC special meeting will not be adjourned or postponed to a date that is more than 30 days after the date for which the SRC special meeting was previously
scheduled (though the SRC special meeting must be adjourned or postponed every time the circumstances described in (i) exist, and may be adjourned or postponed every time the circumstances
described in (ii) exist) or to a date on or after two business days prior to the end date (as defined under "The Merger
AgreementTerminationTermination Rights").
No Dissenters' Rights in the Merger
Under Colorado law, SRC shareholders are not entitled to dissenters' rights in connection with the merger.
Other Information
The matters to be considered at the SRC special meeting are of great importance to the SRC shareholders. Accordingly, you are urged to read and
carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy by phone or the Internet or complete, date, sign and
promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy by phone or the Internet, you do not need to return the enclosed proxy
card.
Assistance
If you need assistance in completing your proxy card or have questions regarding the SRC special meeting, contact:
1407
Broadway, 27th Floor
New York, New York 10018
PDC@mackenziepartners.com
Call Collect: (212) 929-5500
Toll-Free: (800) 322-2885
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Vote of SRC's Directors and Executive Officers
As of the SRC record date, SRC directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 1,943,818
shares of SRC common stock, or approximately 0.80% of the total outstanding shares of SRC common stock as of the SRC record date.
SRC
currently expects that all of its directors and executive officers will vote their shares "FOR" the SRC merger proposal, "FOR" the non-binding compensation proposal and "FOR" the
adjournment proposal.
Attending the SRC Special Meeting
You are entitled to attend the SRC special meeting only if you were a shareholder of record of SRC on the SRC record date or you held your
shares of SRC beneficially through a broker, bank or other nominee on the SRC record date, or you hold a valid proxy for the SRC special meeting.
If
you were a shareholder of record of SRC at the close of business on the SRC record date and wish to attend the SRC special meeting, you should be prepared to present government-issued
photo identification for admittance. If your name does not appear on the list of shareholders of record as of the SRC record date or you do not provide photo identification upon request, you might not
be admitted to the SRC special meeting.
If
you own your shares of SRC common stock through a broker, bank or other nominee, you will need to have proof that you are the beneficial owner of the shares as of the SRC record date
to be admitted to the SRC special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the SRC record date, or presentation of a valid proxy
from the broker, bank or other nominee through which you own your shares, would be acceptable proof of your beneficial ownership. You should also be prepared to present government-issued photo
identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the SRC special meeting.
Results of the SRC Special Meeting
Within four business days following the SRC special meeting, SRC intends to file the final voting results with the SEC on a Current Report on
Form 8-K. If the final voting results have not been certified within that four business day period, SRC will report the preliminary voting results on a Current Report on Form 8-K at that
time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.
SRC
SHAREHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION
CONCERNING THE SRC MERGER PROPOSAL, THE NON-BINDING COMPENSATION PROPOSAL AND THE ADJOURNMENT PROPOSAL.
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SRC PROPOSALS
Merger Proposal
It is a condition to completion of the merger that SRC shareholders approve the SRC merger proposal. In the merger, each SRC shareholder will
receive, for each share of SRC common stock that is issued and outstanding as of immediately prior to the effective time of the merger, the merger consideration of 0.158 of a share of PDC common
stock, with certain exceptions further described in the sections entitled "The MergerConsideration to SRC
Shareholders," and "The Merger AgreementEffect of the Merger on Capital Stock; Merger Consideration" beginning on
pages 69 and 124, respectively.
The
approval by such shareholders of this proposal is required by Section 7-111-103(5) of the CBCA and is a condition to the completion of the merger.
Approval
of the SRC merger proposal requires the affirmative vote of a majority of the outstanding shares of SRC common stock entitled to vote on the proposal. Abstentions, broker
non-votes and failures to vote will have the same effect as votes "AGAINST" the merger proposal.
The
SRC board unanimously recommends a vote "FOR" the SRC merger proposal.
Non-binding Compensation Proposal
As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, which were enacted pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act, SRC is required to provide its shareholders the opportunity to vote to approve, on a non-binding, advisory basis, certain compensation that
may be paid or become payable to SRC's named executive officers that is based on or otherwise relates to the merger, as described in the section entitled "The
MergerInterests of SRC Directors and Executive Officers in the MergerQuantification of Potential Payments to SRC's Named Executive Officers in Connection with the
Merger" beginning on page 118. Accordingly, SRC shareholders are being provided the opportunity to cast an advisory vote on such payments.
As
an advisory vote, this proposal is not binding upon SRC or the SRC board or PDC or the PDC board, and approval of this proposal is not a condition to completion of the merger and is a
vote separate and apart from the SRC merger proposal. Accordingly, you may vote to approve the SRC merger proposal and vote not to approve the non-binding compensation proposal and vice versa. Because
the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements with SRC's named executive officers, such
compensation will be payable, regardless of the outcome of this advisory vote, if the SRC merger proposal is approved and the merger is consummated (subject only to the contractual conditions
applicable thereto). However, SRC seeks the support of its shareholders and believes that shareholder support is appropriate given the nature of the transaction and the structure of SRC's executive
compensation program. Accordingly, holders of shares of SRC common stock are being asked to vote on the following resolution:
RESOLVED,
that the shareholders of SRC Energy Inc. approve, on an advisory, non-binding basis, certain compensation that may be paid or become payable to the named executive
officers of SRC Energy Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading
"The MergerInterests of SRC Directors and Executive Officers in the
MergerQuantification of Potential Payments to SRC's Named Executive Officers in Connection with the Merger," in the
joint proxy statement/prospectus with respect to the special meeting of SRC shareholders to be held on January 13, 2020.
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Approval
of the non-binding compensation proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions, broker non-votes
nor failures to vote will have any effect on the outcome of the vote.
The
SRC board unanimously recommends a vote "FOR" the non-binding compensation proposal.
Adjournment Proposal
The SRC special meeting may be adjourned to another time or place, if necessary to solicit additional proxies if there are insufficient votes at
the time of the SRC special meeting to approve the merger proposal.
If,
at the SRC special meeting, the number of SRC common shares present or represented by proxy and voting in favor of the merger is insufficient to approve the merger proposal, SRC
intends to move to adjourn the SRC special meeting in order to enable the SRC board to solicit additional proxies for approval of the merger proposal. In that event, SRC will ask its shareholders to
vote only upon the adjournment proposal, and not upon any other proposal.
In
this proposal, SRC is asking its shareholders to authorize the proxy holders, and each of them individually, to adjourn the SRC special meeting to another time and place for the
purpose of soliciting additional proxies. If the SRC shareholders approve the adjournment proposal, SRC could adjourn the SRC special meeting and use the additional time to solicit additional proxies,
including the solicitation of proxies from SRC shareholders who have previously voted.
Approval
of the adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions, broker non-votes nor failures
to vote will have any effect on the outcome of the vote.
The
SRC board unanimously recommends a vote "FOR" the adjournment proposal.
THE MERGER
This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this joint proxy
statement/prospectus as Annex A and incorporated by reference herein in its entirety. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
Transaction Structure
At the effective time of the merger, SRC will merge with and into PDC. As a result of the merger, the separate corporate existence of SRC will
cease, and PDC will continue as the surviving corporation in the merger.
Consideration to SRC Shareholders
As a result of the merger, each eligible share of SRC common stock (other than any cancelled shares) issued and outstanding immediately prior to
the effective time of the merger will be converted into the right to receive the merger consideration.
SRC
shareholders will not be entitled to receive any fractional shares of PDC common stock in the merger, and no SRC shareholders will be entitled to dividends, voting rights or any
other rights in respect of any fractional shares of PDC common stock. SRC shareholders that would have otherwise been entitled to receive a fractional share of PDC common stock will instead be
entitled to receive, in
lieu of fractional shares, an amount in cash, without interest, equal to the product of the volume weighted average price of PDC common stock for the five consecutive trading days ending on the date
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that
is two business days prior to the closing date, as reported by Bloomberg L.P., multiplied by the fraction of a share of PDC common stock to which the holder would otherwise be entitled.
Background of the Merger
The management and board of directors of both PDC and SRC regularly review their respective company's performance, prospects and strategy in
light of the current business and economic environment, as well as developments in the oil and gas exploration and production sector. In conducting their reviews, each of the PDC and SRC boards
independently focus particularly on the DJ Basin, the location of both PDC's largest asset in terms of production and reserves and substantially all of SRC's assets. From time to time, the employees
of PDC and SRC are in contact with each other regarding a variety of operational matters due to the close proximity of their respective properties in the DJ Basin. For example, PDC, SRC and certain
other DJ Basin operators have jointly entered into agreements with a key midstream operator in the basin to facilitate the construction of additional midstream infrastructure, and have worked together
on regulatory matters. In addition, PDC and SRC completed an acreage swap in November 2017 that allowed each company to increase a portion of its interests in its operated acreage in the basin. From
time to time, including in 2018, representatives of each of the companies have also had informal conversations about the possibility of pursuing a business combination transaction involving the
companies.
In
recent years, the strategy and prospects of PDC and SRC, like those of other oil and gas producers with properties in Colorado, have been significantly impacted by new and proposed
regulatory requirements. In 2018, opponents of oil and gas development supported Proposition 112 to increase the distance between all new oil and gas development not on federal land and any occupied
structure or broadly defined "vulnerable area" and which, if enacted, would have effectively prohibited the vast majority of both PDC's and SRC's planned future drilling activities in Colorado.
Although Proposition 112 was defeated in the November 2018 election, a new law, referred to as Senate Bill 19-181, was enacted in April 2019. Senate Bill 19-181 made a number of changes to oil
and gas regulation in Colorado, in particular through "local control" provisions that give county and municipal governmental authorities the ability to regulate facility siting and surface impacts of
oil and natural gas development and to impose requirements that are stricter than state requirements.
During
this period, PDC and SRC continued to analyze the evolving business environment for upstream energy companies, including as a result of the volatility in oil and gas prices. The
boards of directors of both companies believe that in the current environment the creation of shareholder value requires, among other things, the optimization of financial returns from drilling
activities to the greatest extent practicable, generation of free cash flow, the careful management of G&A and other costs and return of capital to investors, and both believe that consolidation in
the industry may be an important means of advancing these goals. Both companies also continued their ongoing engagement with investors in the sector, many of whom expressed similar views about the
importance of financial returns, free cash flow, costs, return of capital and consolidation.
Both
companies discussed potential merger and acquisition opportunities in light of these and other relevant considerations. SRC's primary objective is to enhance shareholder value by
increasing its asset value, net reserves and cash flow through development, exploitation and acquisition of oil and gas properties, concentrating on its existing core area in the DJ Basin. Beginning
in 2016, SRC completed several acquisitions that greatly expanded its acreage in this area, continuing its focus and emphasis on the Weld County area. SRC's board and management regularly review SRC's
strategy in light of changes in the oil and gas sector in Colorado, which is impacted by fluctuating oil and gas prices, business and economic conditions and the evolving regulatory environment, all
of which affect sources for capital and cost-efficiencies. While the regulatory environment could have a variety of effects on SRC's operations, SRC believes that the Colorado statute's emphasis on
local control of oil and gas regulatory matters could help mitigate, to some extent, the impact since all of SRC's planned future
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development
activities are in Weld County, a jurisdiction in which there is strong support for the oil and gas industry, even though opponents of oil and gas development will likely continue to pursue
more restrictive drilling regulations.
On
December 11, 2018, the SRC board held an in-person meeting in connection with its ongoing review of SRC's strategy. At this meeting, the SRC board also considered the benefits
of a business combination with several potential candidates, including PDC, to facilitate future growth and help generate additional returns for SRC's shareholders based on such larger scale and
leverage as compared to continuing as an independent company on a standalone basis. The SRC board discussed the risk that there would be few viable candidates for a successful business combination.
SRC's familiarity with PDC and its DJ Basin assets, safety record, health standards, reputation with midstream and service providers, relationships with local governing entities and community
involvement also led SRC to believe a combination with PDC could be attractive for SRC's shareholders.
During
2018 and early 2019, PDC analyzed a number of potential merger and acquisition opportunities, including acquisitions in the Permian Basin in Texas and a combination with SRC. As
it continued its dialogue with SRC, it determined that the possibility of a merger of the two companies was potentially attractive. First, PDC believed that the high quality of SRC's assets and their
close proximity to PDC's
DJ Basin properties would enable the combined company to generate significant financial and ongoing operational synergies and, therefore, to further the goals of improving returns and reducing costs.
In addition, although PDC, like SRC, recognizes the continuing challenges posed by the changing regulatory environment in Colorado, it also believes that economically viable drilling will continue to
be permitted in Weld County. Because each company's principal assets are located in Weld County, PDC believes this strengthens the rationale for a combination with SRC relative to some other potential
growth opportunities. Similarly, PDC recognized that the effect of Colorado regulatory concerns would present challenges to completing a significant transaction with a non-Colorado operator that may
not be familiar with the regulatory environment in the state and may have reservations about the level of regulatory risk.
On
February 8, 2019, Mr. Lance Lauck, PDC's Executive Vice PresidentCorporate Development and Strategy, and SRC's Chief Financial Officer, Mr. James
Henderson, met in person to discuss in general the possibility of pursuing a business combination between the two companies. Mr. Lauck informed Mr. Henderson that any such transaction
would likely be feasible from PDC's perspective only if the price paid represented a low, or no, premium to the trading price of SRC's stock. Later that month, Mr. Barton Brookman, Jr., PDC's
President and Chief Executive Officer, and Mr. Lynn A. Peterson, SRC's President and Chief Executive Officer, met in person to discuss the possibility of a combination and related
matters such as a confidentiality agreement and due diligence. PDC then circulated a draft confidentiality agreement and due diligence request list for SRC's review.
In
March 2019, Messrs. Brookman and Peterson met again in person at an industry conference and discussed various issues relating to a potential transaction, including certain
post-closing governance issues relating to the combined company. However, Mr. Peterson also indicated that SRC wanted to defer further discussion until PDC's then on-going proxy contest with
Kimmeridge Energy Management, LLC ("Kimmeridge") was resolved so that SRC would have a better understanding of any impact the proxy contest would have on PDC's leadership and strategic
direction. Messrs. Brookman and Peterson met periodically while the proxy contest was ongoing, but Mr. Peterson continued to indicate that SRC would not be interested in a transaction
until the proxy contest was resolved without significant changes to PDC's leadership or business.
On
May 14, 2019, the SRC board held an in-person meeting. At this meeting, the SRC board received presentations from potential financial advisors, including Citi and Goldman
Sachs, and had detailed discussions with such advisors and management regarding SRC's strategic plans in light of the
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current
market dynamics, business environment and challenging Colorado political environment affecting the oil and gas exploration and production sector.
On
May 29, 2019, PDC held its annual stockholder meeting, and all of the PDC board's nominees, and none of the Kimmeridge nominees, were elected to the PDC board. After such
meeting, Kimmeridge reduced its ownership in PDC to 4.95% as of June 18, 2019 based on a public SEC filing. According to a public article, PDC believes that Kimmeridge subsequently sold its
remaining PDC shares.
On
May 30, 2019, the PDC board held an in-person meeting at which members of PDC's management and representatives of J.P. Morgan made presentations, based on public data,
regarding a potential combination with SRC as well as a potential acquisition in the Permian Basin. After deliberation, and taking into account the analysis and conclusions presented by PDC
management, the PDC board instructed management to continue exploring a transaction with SRC but to cease work on the Permian Basin transaction.
In
June 2019, at the direction of the PDC and SRC boards of directors, respectively, Mr. Brookman and Mr. Peterson met to resume discussion of a potential transaction,
including general governance matters and potential market reaction to a transaction between the two companies. Following such meeting, Mr. Peterson informed the SRC board of such discussions.
The SRC board expressed its view that protections for the SRC shareholders following a transaction, such as contractual provisions relating to the composition of the board of directors of a new
combined entity, were important factors in its consideration of any proposed transaction.
On
June 18, 2019, at an industry conference, a representative of PDC's financial advisor, J.P. Morgan, visited with Mr. Peterson to discuss PDC's interest in a
transaction. Subsequently, Mr. Peterson requested a potential transaction timeline from J.P. Morgan and Mr. Brookman, which was later provided. Mr. Peterson apprised the
SRC board of such discussion and the materials provided by J.P. Morgan, including the timeline, as well as current industry conditions in the oil and gas exploration and production sector.
On
July 1, 2019, PDC and SRC entered into a reciprocal customary non-disclosure and standstill agreement and began conducting due diligence on non-public material of the other
party. Beginning in early July, members of the SRC management team, with the assistance of representatives of Citi and Goldman Sachs, considered aspects of a strategic transaction and performed due
diligence on PDC based on public information. Such diligence was later updated using the non-public information provided by the management of each of PDC and SRC.
On
July 2, 2019, PDC provided to SRC a non-binding indication of interest contemplating an all or predominantly all stock transaction in which the consideration would represent a
low, or no, premium relative to the trading price of SRC's common stock. Shortly afterwards, Messrs. Brookman and Peterson met in person and had an extensive discussion regarding numerous
aspects of a potential transaction, including price and governance matters, as well as the Colorado regulatory environment. Following such meeting, the SRC board was provided a copy of the indication
of interest letter and a summary of the potential transaction discussions. At the time, the SRC common stock price implied a 0.138 exchange ratio to the PDC common stock price. The SRC board
considered with the SRC management and Citi and Goldman Sachs the possibility of conducting a marketing process to solicit interest from other companies in a potential transaction; however, the SRC
board recognized that in
light of the challenging Colorado political environment and the resulting lack of interest for new entrants in the DJ Basin, it was highly unlikely that another viable transaction candidate would
participate meaningfully and successfully in such a process. In light of these factors and the potential benefits of a combination with PDC, the SRC board expressed a willingness to have SRC
management pursue a potential business combination with PDC.
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On
July 14, 2019, Mr. Peterson met with Messrs. Brookman and Jeff Swoveland, the non-executive chairman of PDC's board, to discuss the potential transaction.
On
July 15, 2019, PDC and SRC opened their respective virtual data rooms to commence due diligence. Later that month, the PDC and SRC management teams met in person to present
information to each other regarding their respective operations, financial matters and other topics. Members of the senior management of each company met separately at that time to discuss various
terms of the potential transaction, including the amount and type of consideration to be paid. At this meeting, SRC expressed its preference for an all-stock transaction.
On
July 28, 2019, Messrs. Brookman and Peterson met to discuss the general terms and structure of a possible transaction, but no general agreement was reached.
On
August 1, 2019, PDC's counsel Wachtell, Lipton, Rosen & Katz ("Wachtell Lipton") circulated a draft of the merger agreement to SRC and its counsel, Akin Gump Strauss
Hauer & Feld LLP ("Akin Gump").
On
August 4, 2019, following updates provided to their respective boards, Messrs. Brookman and Peterson met in person to discuss certain governance issues, including the
issue of SRC board representation. Messrs. Brookman and Peterson tentatively agreed to discuss with their respective boards the possibility that SRC would be entitled to designate candidates
for two seats on the combined company's board, and they further discussed the issue by phone on August 6, 2019.
On
August 6, 2019, a Bloomberg L.P. article reported that the companies were discussing a potential business combination. Neither company initiated such article or
responded to inquiries regarding such article.
During
the period of August 5, 2019 through August 7, 2019, the SRC board held in-person meetings. On August 5, 2019, members of SRC management met with
representatives of Akin Gump, Citi and Goldman Sachs. Each of Citi and Goldman Sachs had entered into an engagement letter with SRC to serve as a financial advisor. The SRC board had previously met
representatives of each bank several times and had discussed its respective expertise. The representative of Akin Gump presented to the SRC board a summary of certain key terms and issues noted in
Akin Gump's initial review of the merger agreement, and discussion followed. The representative of Akin Gump reviewed the directors' fiduciary duties in evaluating and considering a potential
transaction. The next day, the SRC board visited SRC's operations in Weld County. The following day, representatives of Citi and Goldman Sachs discussed their preliminary financial analyses with the
SRC board. At that meeting, the SRC board and SRC management engaged in discussion regarding (i) the Bloomberg article, (ii) an overall investor perspective of the energy sector,
(iii) the trading price of the SRC common stock, which had historically tracked the PDC common stock trading price over time, (iv) certain transaction considerations, including the
profile of PDC, terms and potential timeline, and (v) potential strategic alternatives.
On
August 9, 2019, the independent directors of the SRC board held a telephonic meeting to discuss potential strategic alternatives available to SRC. The independent directors
discussed the expected advantages of a potential merger with PDC to achieve key strategic objectives, including (i) the need for consolidation of upstream exploration and production companies
within the DJ Basin; (ii) the need for SRC to achieve and maintain free cash flow to provide a return on capital to shareholders; (iii) the advantages that bigger companies have in
achieving and maintaining free cash flow; (iv) the weak prospects for, and inadvisability of, raising equity for large acreage acquisitions given the current market environment; (v) the
opportunities that a combined entity of SRC and PDC could potentially have to achieve such free cash flow goals and to potentially provide cost savings and streamlined efficiencies, especially
compared against SRC's opportunities as a standalone company; and (vi) the reasons a share-for-share transaction could be the optimal approach moving forward to
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enhance
SRC's current operations, including the potential for the SRC shareholders to benefit from any future increases in the value of the combined company.
On
August 9, 2019, Akin Gump circulated a revised draft of the merger agreement to PDC and its advisors that included proposed changes relating to, among other things, PDC's
ability to solicit alternative proposals, the termination fee and fee triggers, corporate governance, the merger consideration consisting solely of stock, the treatment of equity awards and other
executive compensation matters, the interim operating covenants applicable to each company, the definition of "material adverse effect" and the scope of PDC's representations and warranties. Over the
course of the subsequent weeks, the parties and their respective advisors negotiated the open issues and exchanged numerous drafts of the merger agreement and related disclosure schedules.
On
August 11, 2019, PDC's independent directors met in executive session to discuss the potential transaction with SRC. After this discussion, the directors were joined by
Messrs. Brookman and Lauck. The PDC board had tentatively indicated that Mr. Lynn A. Peterson and Mr. Paul J. Korus could be the current SRC board members
that would become the SRC designees to the pro forma combined company's board of directors following the consummation of the potential transaction.
On
August 12, 2019, the PDC board met again in person to discuss the transaction, and authorized PDC management to offer SRC two board seats on the pro forma combined company's
board of directors and an exchange ratio of 0.150 of a share of PDC common stock for each share of SRC common stock in an all-stock transaction. It also authorized PDC management to increase the
exchange ratio up to 0.156 if necessary. Mr. Brookman communicated this offer in person to Mr. Peterson, with the 0.150 exchange ratio, later that day.
On
August 13, 2019, the SRC board discussed PDC's latest proposal. The SRC board authorized Mr. Peterson to respond to the PDC offer by proposing an exchange ratio of
0.160. The PDC board met telephonically twice that day, with Mr. Brookman providing updates on the status of negotiations. He indicated that he planned to increase the proposed exchange ratio
to 0.155 per the prior authorization of the PDC board. Mr. Brookman then communicated the offer of the 0.155 exchange ratio to Mr. Peterson who subsequently informed the SRC board of the
offer.
On
August 14, 2019, the SRC board held an in-person meeting with management and representatives of Citi and Goldman Sachs. Messrs. Brookman and Lauck and a representative
of J.P. Morgan, met in person with the SRC board to discuss the potential transaction. After the PDC attendees left the meeting, representatives of Citi and Goldman Sachs discussed their
preliminary financial analyses with the SRC board. The SRC board was advised by Mr. Peterson that no indications of interest about a transaction with SRC following the
August 6th Bloomberg article had been received by SRC, Citi or Goldman Sachs. Discussion followed regarding the possibility of SRC engaging in a marketing process.
Following such deliberation, the SRC board concluded that the terms of the potential transaction would not preclude or impede a willing and financially capable third party, were one to exist, from
making a superior proposal following the announcement of a transaction with PDC. Following the discussion with the SRC board, the independent directors of SRC met in an executive session to discuss
the potential transaction with PDC, including the advantages and disadvantages and the benefits the transaction could have for SRC's shareholders, as well as possible alternatives to such combination,
including SRC continuing as a standalone company. Later that day, representatives of management of PDC and SRC met to discuss certain terms of the potential transaction.
On
August 16, 2019, at the direction of SRC board, Mr. Peterson responded to PDC's most recent offer regarding the exchange ratio by reiterating SRC's request for a 0.160
exchange ratio and proposing certain changes with respect to open issues in the merger agreement. Messrs. Brookman and Peterson spoke later that day and discussed the exchange ratio, but did
not resolve any of the open issues. Following this conversation, Mr. Brookman instructed PDC's internal team to cease work on the transaction unless and until the parties were able to make
progress on the open issues.
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On
August 19, 2019, the PDC board met telephonically to discuss the status of negotiations. Later that day, PDC instructed its external advisors to cease work on the potential
transaction until the exchange ratio and other open issues were resolved. Mr. Brookman informed Mr. Peterson of this instruction. Mr. Peterson also instructed his internal team
and external advisors to cease work on the transaction.
On
August 20, 2019, Messrs. Brookman and Peterson met to discuss various aspects of the potential transaction, including the exchange ratio and other remaining issues.
Mr. Brookman indicated that PDC would be willing to agree to an exchange ratio of 0.156, but no agreement was reached with SRC. Following his discussion with Mr. Brookman,
Mr. Peterson apprised the SRC board of such meeting.
On
August 21, 2019, Messrs. Lauck and Henderson spoke to discuss generally the status of the potential transaction and certain open issues in the merger agreement.
On
August 22, 2019, Mr. Peterson updated the SRC board about discussions with PDC regarding a potential transaction, including open issues in the merger agreement and the
exchange ratio.
On
August 22, 2019, representatives of PDC and SRC met by phone to discuss the exchange ratio and other open issues. Following that meeting each of PDC and SRC instructed their
respective management and advisors to re-enter into negotiations. Later that day, Mr. Peterson contacted Mr. Brookman to propose that the companies agree to fix the exchange ratio within
a range of 0.155 and 0.160. Mr. Brookman indicated that he would take Mr. Peterson's proposal back to the PDC board, which later that day approved by unanimous written consent an
exchange ratio range of 0.152 to 0.158.
On
August 23, 2019, the SRC board held a telephonic meeting after market close to discuss the transaction. At such meeting with management and representatives of Citi, Goldman
Sachs and Akin Gump, a lengthy review and discussion of the transaction occurred. Each of Citi and Goldman Sachs discussed with the SRC board their respective preliminary financial analysis of the
potential business combination transaction. The SRC management responded to questions from the SRC board of their view on the transaction, including timing and the increase in SRC's common stock
trading price and the implied exchange ratio since the Bloomberg report. The SRC management indicated that they expected a favorable shareholder and market reaction in light of the potential benefits
of the combination. Also, the limited number of options with viable companies and the challenges of SRC continuing as a standalone company were discussed. Following the discussion, the SRC board
instructed SRC management to work to see if open issues could be resolved. Following that meeting, Mr. Peterson, at the direction of the SRC board, called Mr. Brookman to propose a final
exchange ratio of 0.158, and
that the parties finalize the merger agreement over the weekend of August 24-25. Mr. Brookman agreed, subject to the approval of the PDC board of the fully-negotiated merger agreement.
On
August 25, 2019, the parties resolved the remaining open merger agreement issues subject to final approval by each company's board and copies of the merger agreement were
provided to the directors of each company prior to their respective meetings. That afternoon, the PDC board held a telephonic meeting together with members of PDC management and representatives of
J.P. Morgan and Wachtell Lipton. Representatives of Wachtell Lipton and PDC's internal counsel presented to the PDC board a detailed summary of the terms of the draft merger agreement and
reviewed the outcome of negotiations with SRC's counsel. In addition, representatives of Wachtell Lipton reviewed the PDC board's fiduciary duties. Mr. Brookman updated the PDC board on events
and developments that had occurred since the prior meeting of the PDC board. J.P. Morgan then reviewed with the PDC board its financial analysis of the exchange ratio provided for in the merger
agreement and delivered to the PDC board its August 25, 2019 oral opinion, which was confirmed by delivery of a written opinion, dated August 25, 2019, to the effect that, as of such
date and based upon and subject to the various factors,
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assumptions
and limitations set forth in the opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to PDC, as more fully described in the section
"The MergerOpinion of J.P. Morgan, PDC's Financial Advisor" beginning on page 80 of this joint proxy statement/prospectus. Following
a discussion of these matters, the PDC board unanimously (i) determined that, subject to the finalization of the merger agreement and related matters, the merger agreement and the transactions
contemplated thereby, including the merger and the issuance of PDC common stock in the merger, were fair to, and in the best interests of, PDC and PDC's stockholders, (ii) adopted and approved
the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares in the merger, and (iii) resolved to recommend that PDC's stockholders adopt and
approve the merger and the issuance of PDC common stock in the merger.
On
August 25, 2019, beginning in the afternoon, the lead independent director of SRC received a telephonic update on the status of the potential transaction, as well as a detailed
written summary of the terms of the merger agreement from management of SRC and a representative of Akin Gump. Following such telephone conversation, the lead independent director and the other
independent directors discussed the detailed summary of the terms of the merger agreement with a representative of Akin Gump. The SRC board then convened in a telephonic meeting together with members
of SRC management and representatives of Akin Gump, Citi and Goldman Sachs. Representatives of Akin Gump reviewed the SRC board's fiduciary duties and process and also presented to the SRC board a
detailed summary of the terms of the draft merger agreement and the discussions with PDC's counsel. Representatives of Citi and Goldman Sachs provided the SRC board with their separate financial
analyses, noting changes since the meeting held on August 23, 2019. Messrs. Peterson and Henderson updated the SRC board on events and developments that had occurred since the prior
meeting of the SRC board. Representatives of Citi and Goldman Sachs then discussed with the SRC board their respective financial analyses of the exchange ratio and delivered to the SRC board their
respective oral opinions, which were subsequently confirmed by deliveries of their respective written opinions, dated
August 25, 2019, to the effect that, as of such date and based upon and subject to the various factors, assumptions and limitations set forth in their opinions, the exchange ratio in the
proposed merger was fair, from a financial point of view, to SRC's shareholders, other than PDC and its affiliates, as more fully described in the section "The
MergerOpinions of Citi and Goldman Sachs, SRC's Financial Advisors" beginning on page 92 of this joint proxy statement/prospectus. The SRC board reviewed
the benefits and risks of the potential transaction, the information provided by SRC management and other factors deemed relevant in connection with the merger. Following a discussion of these
matters, the SRC board unanimously (i) determined that, subject to the finalization of the merger agreement and related matters, the merger agreement and the transactions contemplated thereby,
including the merger, were fair to, and in the best interests of, SRC and SRC's shareholders, (ii) adopted and approved the merger agreement and the transactions contemplated thereby, including
the merger, and (iii) resolved to recommend that SRC's shareholders adopt and approve the merger agreement, including the merger.
Following
the SRC board's approval of the merger and the merger agreement, on August 25, 2019, SRC and PDC finalized and executed the merger agreement. On August 26, 2019,
the companies issued a joint press release and presentation materials announcing execution of the merger agreement and held a joint investor conference call regarding the merger.
Recommendation of the PDC Board of Directors and PDC's Reasons for the Merger
By unanimous vote, the PDC board, at a meeting held on August 25, 2019, (i) determined the merger agreement and the transactions
contemplated thereby, including the merger and the issuance of shares of PDC common stock in connection with the merger, are fair to, and in the best interests of, PDC and the PDC stockholders,
(ii) adopted and approved the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of PDC common stock in
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connection
with the merger, (iii) directed that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of PDC common stock in connection
with the merger, be submitted to the PDC stockholders for adoption and approval and (iv) recommended that the PDC stockholders adopt and approve the merger agreement and the transactions
contemplated thereby, including the merger and the issuance of shares of PDC common stock in connection with the merger.
In
evaluating the merger, the PDC board consulted with PDC management, as well as PDC's legal and financial advisors, and considered a number of factors, weighing both perceived benefits
of the merger as well as potential risks of the merger.
In
the course of its deliberations, the PDC board considered a variety of factors and information that it believes support its determinations and recommendations, including the following
(which are not necessarily presented in order of relative importance):
-
-
The synergies PDC expects the combined company to be able to obtain as a result of the merger due to what it believes to be the high quality of
SRC's assets and the close proximity of those assets to PDC's DJ Basin properties, including (i) general and administrative cost savings, (ii) benefits of a larger scale of operations on
ongoing relationships with midstream and service providers, (iii) a consolidated operating area that is expected to create operational cost efficiency through leveraging fixed costs, and
(iv) an enhanced ability to work cooperatively with relevant governmental authorities.
-
-
That PDC expects the transaction to be accretive to its cash return on capital invested and net asset value and free cash flow per share.
-
-
The PDC board's knowledge of, and discussions with PDC's management and advisors regarding, PDC's and SRC's respective business operations,
financial condition, earnings and prospects, taking into account SRC's publicly-filed information and the results of PDC's due diligence review of SRC.
-
-
That the companies' familiarity with each other's assets, and their similar cultures, is expected to facilitate a successful integration of the
companies post-closing.
-
-
The recommendation of the merger by PDC's executive management team.
-
-
The fact that SRC's producing properties, like PDC's DJ Basin assets, are located in Weld County, Colorado, a jurisdiction that PDC expects to
remain favorable for oil and gas development from a regulatory perspective relative to some other areas in Colorado.
-
-
The delivery by J.P. Morgan of an opinion, dated August 25, 2019, to the PDC board of directors as to the fairness, from a financial
point of view and as of the date of the opinion, to PDC of the exchange ratio provided for pursuant to the merger agreement, which opinion was based on and subject to various assumptions made,
procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described below under the caption "Opinion of J.P. Morgan, PDC's Financial Advisor."
-
-
That the PDC board believes the restrictions imposed on PDC's business and operations during the pendency of the merger are reasonable and not
unduly burdensome.
-
-
That the exchange ratio is fixed and will not fluctuate in the event that the market price of SRC common stock increases relative to the market
price of PDC common stock between the date of the merger agreement and the completion of the merger.
-
-
The likelihood of consummation of the merger and the PDC board's evaluation of the likely time period necessary to close the merger.
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-
-
That the PDC stockholders will have the opportunity to vote on the PDC merger proposal and the PDC issuance proposal, which is a condition
precedent to the merger.
-
-
The representations, warranties, covenants and conditions contained in the merger agreement, including the following (which are not necessarily
presented in order of relative importance):
-
-
That PDC has the ability, in specified circumstances, to provide information to and to engage in discussions or negotiations with
a third party that makes an unsolicited acquisition proposal, as further described in the section entitled "The Merger AgreementNo Solicitation; Changes of
RecommendationPDC: No Solicitation Exceptions" beginning on page 140.
-
-
That the PDC board has the ability, in specified circumstances, to change its recommendation to PDC stockholders in favor of the
PDC merger proposal and the PDC issuance proposal, subject to the obligation to pay SRC a termination fee of $55.0 million, as further described in the section entitled
"The Merger AgreementNo Solicitation; Changes of RecommendationPDC: Permitted Changes of Recommendation and Permitted Termination to Enter into a PDC
Superior Proposal" beginning on page 142 and "The Merger AgreementTerminationTermination Fees Payable by
PDC" beginning on page 160.
-
-
That there are limited circumstances in which the SRC board may terminate the merger agreement or change its recommendation that
SRC shareholders approve the SRC merger proposal, and if the merger agreement is terminated by PDC as a result of a change in recommendation of the SRC board or by SRC in order to enter into a
definitive agreement with a third party providing for the consummation of an SRC superior proposal, then in each case SRC has agreed to pay PDC a termination fee of $35.0 million. For
additional information, see the section entitled "The Merger AgreementTermination" beginning on page 159.
-
-
That if the merger agreement is terminated by either party because SRC shareholders have not approved the SRC merger proposal,
then SRC has agreed to pay PDC an expense reimbursement fee not to exceed $10.0 million. For additional information, see the section entitled "The Merger
AgreementTermination" beginning on page 159.
In
the course of its deliberations, the PDC board also considered a variety of risks, uncertainties and other potentially negative factors, including the following (which are not
necessarily presented in order of relative importance):
-
-
That the merger may not be completed in a timely manner or at all and the potential consequences of non-completion or delays in completion.
-
-
The effect that the length of time from announcement of the merger until completion of the merger could have on the market price of PDC common
stock, PDC's operating results and the relationship with PDC's employees, stockholders, customers, suppliers, regulators and others who do business with PDC.
-
-
That the integration of SRC and PDC may not be as successful as expected and that the anticipated benefits of the merger may not be realized in
full or in part, including the risk that synergies and cost-savings may not be achieved or not achieved in the expected time frame.
-
-
That the merger will have the effect of increasing the percentage of PDC's properties that are located in Colorado and will therefore increase
the risk that adverse changes in the Colorado regulatory environment will negatively affect its business and the trading price of its securities.
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-
-
That the merger will have the effect of increasing the percentage of PDC's properties that are located in Colorado and will therefore increase
not only its geographical exposure to one basin, but also increase the risks related to midstream constraints in the DJ Basin.
-
-
That the attention of PDC's senior management may be diverted from other strategic priorities to implement the merger and make arrangements for
the integration of SRC's and PDC's operations, assets and employees following the merger.
-
-
That SRC shareholders may not approve the SRC merger proposal or that PDC stockholders may not approve the PDC merger proposal and/or the PDC
issuance proposal.
-
-
The impact of the merger on the existing debt financing arrangements of PDC and SRC and the risk that any refinancing that may be undertaken in
connection with the merger may not ultimately be available at all or on the terms anticipated by PDC.
-
-
The risk that antitrust regulatory authorities may not approve the merger or may impose terms and conditions on their approvals that adversely
affect the business and financial results of PDC following the merger.
-
-
That the exchange ratio is fixed and will not fluctuate in the event that the market price of PDC common stock increases relative to the market
price of SRC common stock between the date of the merger agreement and the completion of the merger.
-
-
That the merger agreement imposes restrictions on PDC's ability to solicit alternative transactions and make certain acquisitions, which are
described in the sections entitled "The Merger AgreementInterim Operations of SRC and PDC Pending the Merger" and
"The Merger AgreementNo Solicitation; Changes of Recommendation" beginning on pages 133 and 137, respectively.
-
-
That there are limited circumstances in which the PDC board may terminate the merger agreement or change its recommendation that PDC
stockholders approve the PDC merger proposal and the PDC issuance proposal, and if the merger agreement is terminated by SRC as a result of a change in recommendation of the PDC board, PDC has agreed
to pay SRC a reverse termination fee of $55.0 million. For additional information, see the section entitled "The Merger
AgreementTermination" beginning on page 159.
-
-
That if the merger agreement is terminated by either party because PDC stockholders have not approved the PDC merger proposal or the PDC
issuance proposal, PDC has agreed to pay SRC an expense reimbursement fee of up to $10 million. For additional information, see the section entitled "The Merger
AgreementTermination" beginning on page 159.
-
-
The requirement that PDC must hold a stockholder vote on the approval of the PDC merger proposal and the PDC issuance proposal, even if the PDC
board has withdrawn or changed its recommendation in favor of the PDC issuance proposal, and the inability of PDC to terminate the merger agreement in connection with an acquisition proposal (except
in the limited circumstance when it qualifies as a PDC superior proposal). For additional information, see the section entitled "The Merger AgreementNo
Solicitation; Changes of Recommendation" beginning on page 137.
-
-
The ability of the SRC board, in certain circumstances, to terminate the merger agreement or change its recommendation that SRC's shareholders
approve the SRC merger proposal.
-
-
The transaction costs to be incurred by PDC in connection with the merger and the dilution to be experienced by PDC stockholders as a result of
the issuance of PDC shares in the merger.
-
-
The likelihood of lawsuits being brought against PDC, SRC or their respective boards in connection with the merger.
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-
-
The risks associated with the occurrence of events that may materially and adversely affect the financial condition, properties, assets,
liabilities, business or results of operations of SRC and its subsidiaries but that will not entitle PDC to terminate the merger agreement.
-
-
The potential impact on the market price of PDC common stock as a result of the issuance of the merger consideration to SRC shareholders.
-
-
Various other risks described in the section entitled "Risk Factors" beginning on
page 41.
The
PDC board considered all of these factors as a whole and unanimously concluded that they supported a determination to approve the merger agreement and the transactions contemplated
thereby, including the issuance of shares of PDC common stock in connection with the merger. The foregoing discussion of the information and factors considered by the PDC board is not exhaustive. In
view of the wide variety of factors considered by the PDC board in connection with its evaluation of the merger and the complexity of these matters, the PDC board did not consider it practical to, nor
did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above and any other
factors, individual members of the PDC board may have viewed factors differently or given different weight or merit to different factors.
In
considering the recommendation of the PDC board that the PDC stockholders vote to adopt and approve the PDC merger proposal and the PDC issuance proposal, PDC stockholders should be
aware that the directors and executive officers of PDC may have certain interests in the merger that may be different from, or in addition to, the interests of PDC stockholders generally. The PDC
board was aware of these interests and considered them when approving the merger agreement and recommending that PDC stockholders vote to adopt and approve the PDC merger proposal and the PDC issuance
proposal, which are described in the section entitled "The MergerInterests of PDC Directors and Executive Officers in the Merger" beginning
on page 114.
The
foregoing discussion of the information and factors considered by the PDC board is forward-looking in nature and should be read in light of the factors described in the section
entitled "Cautionary Statement Regarding Forward-Looking Statements" beginning on page 55.
Opinion of J.P. Morgan, PDC's Financial Advisor
PDC retained J.P. Morgan as its financial advisor in connection with the proposed merger.
At
the meeting of the PDC board of directors on August 25, 2019, J.P. Morgan rendered its oral opinion to the PDC board of directors that, as of such date and based upon and
subject to the various factors, assumptions and limitations set forth in the opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to PDC. J.P. Morgan confirmed
its August 25, 2019 oral opinion by delivering its written opinion to the PDC board of directors, dated August 25, 2019, that, as of such date, the exchange ratio in the proposed merger
was fair, from a financial point of view, to PDC.
The
full text of the written opinion of J.P. Morgan, dated August 25, 2019, which sets forth the assumptions made, procedures followed, matters considered and limitations on the
review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. This summary of the opinion
of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. PDC's stockholders are urged to read the opinion in its
entirety. J.P. Morgan's opinion was addressed to the PDC board of directors (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed merger, was directed
only to the exchange ratio in the proposed merger and did not address any other aspect of the proposed merger. J.P. Morgan expressed no opinion as to the fairness of the exchange ratio to the holders
of any class of securities, creditors or
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other
constituencies of PDC or as to the underlying decision by PDC to engage in the proposed merger. The issuance of J.P. Morgan's opinion was approved by a fairness committee of J.P. Morgan. The
opinion does not constitute a recommendation to any stockholder of PDC as to how such stockholder should vote with respect to the proposed merger or any other matter.
In
arriving at its opinion, J.P. Morgan:
-
-
reviewed the merger agreement;
-
-
reviewed certain publicly available business and financial information concerning PDC and SRC and the industries in which they operate;
-
-
compared the financial and operating performance of PDC and SRC with publicly available information concerning certain other companies J.P.
Morgan deemed relevant and reviewed the current and historical market prices of the PDC common stock, the SRC common stock and certain publicly traded securities of such other companies;
-
-
reviewed certain internal financial analyses and forecasts prepared by the managements of PDC and SRC relating to their respective businesses,
as well as the estimated amount and timing of the cost savings and related expenses, synergies and dis-synergies expected to result from the proposed merger (which we refer to for purposes of this
section as the "Synergies"); and
-
-
performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of
its opinion.
In
addition, J.P. Morgan held discussions with certain members of the management of PDC and SRC with respect to certain aspects of the proposed merger, and the past and current business
operations of PDC and SRC, the financial condition and future prospects and operations of PDC and SRC, the effects of the transactions contemplated by the merger agreement on the financial condition
and future prospects of PDC, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.
In
giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan
by PDC and SRC or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to its engagement letter with
PDC, J.P. Morgan did not assume any obligation to undertake any such independent verification. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or
liabilities, nor did J.P. Morgan evaluate the solvency of PDC or SRC under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and
forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future results of operations and financial condition of PDC and SRC to which such analyses or forecasts relate. J.P. Morgan expresses
no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the proposed merger and the other transactions
contemplated by the merger agreement will qualify as a tax-free reorganization for United States federal income tax purposes, and will be consummated as described in the merger agreement. J.P. Morgan
also assumed that the representations and warranties made by PDC and SRC in the merger agreement and the related agreements are and will be true and correct in all respects material to J.P. Morgan's
analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to PDC with respect to such issues. J.P. Morgan further assumed that all
material governmental, regulatory or other consents and approvals necessary for the consummation of the proposed merger will be obtained without any adverse effect on PDC or SRC or on the contemplated
benefits of the proposed merger that would be material to J.P. Morgan's analysis.
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The projections furnished to J.P. Morgan were prepared by the management of PDC and SRC as discussed more fully under "The
MergerCertain Unaudited Forecasted Financial Information" beginning on page 109. Neither PDC nor SRC publicly disclose internal management projections of
the type provided to J.P. Morgan in connection with J.P. Morgan's analysis of the proposed merger, and such projections were not prepared with a view toward public disclosure. These projections were
based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of PDC and SRC's management, including, without limitation, factors related to general economic
and competitive conditions and prevailing interest rates and commodity prices. Accordingly, actual results could vary significantly from those set forth in such projections. For more information
regarding the use of projections, please refer to the section entitled "The MergerCertain Unaudited Forecasted Financial Information"
beginning on page 109 of this joint proxy statement/prospectus.
J.P.
Morgan's opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion.
J.P. Morgan's opinion noted that subsequent developments may affect J.P. Morgan's opinion and that J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan's
opinion is limited to the fairness, from a financial point of view, to PDC of the exchange ratio in the proposed merger, and J.P. Morgan has expressed no opinion as to the fairness of the exchange
ratio to the
holders of any class of securities, creditors or other constituencies of PDC or as to the underlying decision by PDC to engage in the proposed merger. Furthermore, J.P. Morgan expressed no opinion
with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the proposed merger, or any class of such persons relative to the exchange ratio in
the proposed merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which the PDC common stock or the SRC common stock will trade at any
future time.
The
terms of the merger agreement were determined through arm's length negotiations between PDC and SRC, and the decision to enter into the merger agreement was solely that of the PDC
board of directors. J.P. Morgan's opinion and financial analyses were only one of the many factors considered by the PDC board of directors in its evaluation of the proposed merger and should not be
viewed as determinative of the views of the PDC board of directors or management with respect to the proposed merger or the exchange ratio.
In
accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodologies in rendering its opinion to the PDC board of directors on
August 25, 2019, and in the presentation delivered to the PDC board of directors on such date in connection with the rendering of such opinion. The following is a summary of the material
financial analyses utilized by J.P. Morgan in connection with rendering its opinion to the PDC board of directors and does not purport to be a complete description of the analyses or data presented by
J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand
the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description
of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan's analyses.
Public Trading Multiples.
Using
publicly available information, J.P. Morgan compared selected financial data of PDC and SRC with similar data for selected publicly traded companies engaged in
businesses which J.P. Morgan judged to be sufficiently analogous to PDC and SRC, respectively.
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For
PDC, the companies selected by J.P. Morgan were as follows:
-
-
Extraction Oil and Gas, Inc.
-
-
SRC
-
-
Matador Resources Co.
-
-
Parsley Energy, Inc.
-
-
Jagged Peak Energy Inc.
-
-
Callon Petroleum Co.
-
-
Centennial Resource Development, Inc.
-
-
WPX Energy, Inc.
-
-
QEP Resources, Inc.
-
-
Oasis Petroleum Inc.
-
-
Cimarex Energy Co.
-
-
SM Energy Co.
For
SRC, the companies selected by J.P. Morgan were as follows:
-
-
Extraction Oil and Gas, Inc.
-
-
HighPoint Resources Corp.
-
-
Bonanza Creek Energy, Inc.
-
-
PDC
None
of the selected companies reviewed for PDC is identical to PDC and none of the selected companies reviewed for SRC is identical to SRC. These companies were selected, among other
reasons,
because they are publicly traded companies with operations and businesses that, for the purposes of J.P. Morgan's analysis, may be considered similar to those of PDC and SRC, respectively.
However, certain of these companies may have characteristics that are materially different from those of PDC and SRC. The analyses necessarily involve complex considerations and judgments concerning
differences in financial and operational characteristics of the companies involved and other factors that could affect the selected companies differently than they would affect PDC or SRC.
Using
publicly available information, J.P. Morgan calculated, for each selected company, the ratio of the company's firm value calculated as the market value of that company's common
stock on a fully diluted basis, plus any debt, preferred equity, and non-controlling interest, less cash and cash equivalents and other adjustments ("FV") to the company's EBITDAX (calculated as
earnings before interest, taxes, depreciation, amortization and exploration expense) (which we refer to for purposes of this section as "EBITDAX") for the years ending December 31, 2019 (which
we refer to for purposes of this section as the "FV/2019E EBITDAX"), December 31, 2020 (which we refer to for purposes of this section as the "FV/2020E EBITDAX") and December 31, 2021
(which we refer to for purposes of this section as the "FV/2021E EBITDAX"), as well as the ratio of the company's equity value (which we refer to for purposes of this section as "EV") to the company's
operating cash flow for the years ending December 31, 2019 (which we refer to for purposes of this section as the "EV/2019E Operating Cash Flow"), December 31, 2020 (which we refer to
for purposes of this section as the "EV/2020E Operating Cash Flow") and December 31, 2021 (which we refer to for purposes of this section as the "EV/2021E Operating Cash Flow").
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Based
on the results of this analysis, J.P. Morgan selected multiple reference ranges of 3.00x - 4.00x, 2.50x - 3.50x and 2.25x - 3.25x
for PDC's FV/2019E EBITDAX, FV/2020E EBITDAX and FV/2021E EBITDAX, respectively, and multiple reference ranges of 1.50x - 2.50x, 1.25x - 2.25x
and 1.25x - 2.00x for PDC's EV/2019E Operating Cash Flow, EV/2020E Operating Cash Flow and EV/2021E Operating Cash Flow, respectively.
After
applying such ranges to the projected EBITDAX and Operating Cash Flow for PDC for the years ending December 31, 2019, December 31, 2020 and December 31, 2021,
respectively, based on the projections provided by PDC and SRC's management, the analysis indicated the following ranges of implied per share equity value for shares of PDC common stock, rounded to
the nearest $0.25:
|
|
|
|
|
|
|
|
|
|
Implied Per Share
Equity Value
|
|
|
|
Low
|
|
High
|
|
FV / 2019E EBITDAX
|
|
$
|
22.75
|
|
$
|
36.75
|
|
FV / 2020E EBITDAX
|
|
$
|
24.25
|
|
$
|
41.75
|
|
FV / 2021E EBITDAX
|
|
$
|
24.00
|
|
$
|
43.50
|
|
EV / 2019E Operating Cash Flow
|
|
$
|
19.75
|
|
$
|
33.00
|
|
EV / 2020E Operating Cash Flow
|
|
$
|
20.75
|
|
$
|
37.50
|
|
EV / 2021E Operating Cash Flow
|
|
$
|
23.25
|
|
$
|
37.00
|
|
The
ranges of implied per share equity values for the PDC common stock were compared to PDC's closing price per share of $26.16 on August 6, 2019, the NYSE trading day immediately
preceding the August 6, 2019 Bloomberg article reporting that PDC and SRC were exploring a merger (which we refer to for purposes of this section as the "Bloomberg Report") and PDC's closing
price per share of $25.25 on August 23, 2019, the NYSE trading day immediately preceding the date of the written opinion, dated August 25, 2019.
Based
on the results of this analysis, J.P. Morgan selected multiple reference ranges of 3.00x - 4.00x, 2.50x - 3.25x and 2.25x - 3.00x for
SRC's FV/2019E EBITDAX, FV/2020E EBITDAX and FV/2021E EBITDAX, respectively, and multiple reference ranges of 1.50x - 2.00x, 1.25x - 2.00x
and 1.25x - 2.00x for
SRC's EV/2019E Operating Cash Flow, EV/2020E Operating Cash Flow and EV/2021E Operating Cash Flow, respectively.
After
applying such ranges to the projected EBITDAX and Operating Cash Flow for SRC for the years ending December 31, 2019, December 31, 2020 and December 31, 2021,
respectively, based on the projections provided by PDC's management and SRC's management, the analysis indicated the following ranges of implied per share equity value for shares of the SRC common
stock, rounded to the nearest $0.25:
|
|
|
|
|
|
|
|
|
|
Implied Per Share
Equity Value
|
|
|
|
Low
|
|
High
|
|
FV / 2019E EBITDAX
|
|
$
|
2.75
|
|
$
|
4.75
|
|
FV / 2020E EBITDAX
|
|
$
|
3.00
|
|
$
|
4.75
|
|
FV / 2021E EBITDAX
|
|
$
|
2.75
|
|
$
|
4.75
|
|
EV / 2019E Operating Cash Flow
|
|
$
|
2.75
|
|
$
|
3.50
|
|
EV / 2020E Operating Cash Flow
|
|
$
|
2.75
|
|
$
|
4.50
|
|
EV / 2021E Operating Cash Flow
|
|
$
|
3.00
|
|
$
|
4.75
|
|
The
ranges of implied per share equity values for SRC were compared to SRC's closing price per share of $3.97 on August 6, 2019, the NYSE trading day immediately preceding
publication of the Bloomberg Report, SRC's closing price per share of $4.15 on August 23, 2019, the NYSE trading day
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immediately
preceding the date of the written opinion, dated August 25, 2019, and the implied per share offer price of $3.99 (based on PDC's closing price per share of $25.25 on
August 23, 2019).
J.P.
Morgan conducted an after-tax discounted cash flow, net asset valuation analysis for the purpose of determining an implied equity value per share for each of the
PDC common stock and the SRC common stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future cash flows generated by the asset and taking into
consideration the time value of money with respect to those future cash flows by calculating their "present value." "Present value" refers to the current value of an asset's cash flows, and is
obtained by discounting those cash flows back to the present using an appropriate discount rate and applying a discounting convention that assumes that all cash flows were generated at the midpoint of
each period. A "net asset valuation" is a multi-decade life-of-field model with no terminal value assumptions. "Terminal value" refers to the present value of all future cash flows generated by the
asset for periods beyond the projection period.
J.P.
Morgan calculated the present value, as of June 30, 2019, of the asset-level cash flows that PDC is expected to generate from June 30, 2019 onward using the PDC
forecasts and assuming (i) consensus pricing through 2023, with prices held flat thereafter (which we refer to for purposes of this section as "Consensus Pricing"), (ii) flat pricing at
$55.00/bbl for oil and $2.70/Mmbtu for natural gas (which is referred to in this section as "Flat Pricing") and (iii) NYMEX strip pricing through 2023, with prices held flat thereafter (which
is referred to in this section as "Strip Pricing"), which pricing assumptions PDC's management provided input on and approved. PDC's projected asset-level cash flows were discounted to present values
using a range of discount rates from 10.00% to 12.00%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of PDC, and then were adjusted for PDC's
projected general and administrative expenses, hedges, projected marketing, well operations and other expenses, projected cash taxes adjusted for utilization of PDC's net operating losses,
non-drilling and completion capital and net debt (including asset retirement obligations and proceeds from a planned divestiture) as of June 30, 2019 to indicate a range of implied net asset
values for PDC, which were divided by the number of fully diluted shares outstanding at PDC to arrive at the following range of implied net asset values per share of PDC common stock, based on
Consensus Pricing, Flat Pricing and Strip Pricing. Resulting per share values were in all cases rounded to the nearest $0.25 per share.
|
|
|
|
|
|
|
|
|
|
Low
|
|
High
|
|
PDC Implied Net Asset Value Per ShareConsensus Pricing
|
|
$
|
34.50
|
|
$
|
42.25
|
|
PDC Implied Net Asset Value Per ShareFlat Pricing
|
|
$
|
22.75
|
|
$
|
29.00
|
|
PDC Implied Net Asset Value Per ShareStrip Pricing
|
|
$
|
14.25
|
|
$
|
19.75
|
|
The
ranges of implied per share equity values for the PDC common stock were compared to PDC's closing price per share of $26.16 on August 6, 2019, the NYSE trading day immediately
preceding the Bloomberg Report and PDC's closing price per share of $25.25 on August 23, 2019, the NYSE trading day immediately preceding the date of the written opinion, dated
August 25, 2019.
J.P.
Morgan calculated the present value, as of June 30, 2019, of the asset-level cash flows that SRC is expected to generate from June 30, 2019 onward using PDC forecasts
and assuming (i) Consensus Pricing, (ii) Flat Pricing and (iii) Strip Pricing. J.P. Morgan calculated the foregoing values with and without adjusting for PDC's estimates of the
Synergies anticipated to be realized in the proposed merger. SRC's projected asset-level cash flows were discounted to present values using a range of discount rates from 10.00% to 12.00%, which were
chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of SRC, and then were adjusted for SRC's projected general and administrative expenses, hedges, projected cash
taxes adjusted for utilization of SRC's net operating losses, non-drilling and completion capital and net debt (including asset retirement
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obligations)
as of June 30, 2019 to indicate a range of implied net asset values for SRC, which were divided by the number of fully diluted shares outstanding at SRC to arrive at the following
range of
implied net asset values per share of SRC common stock based on Consensus Pricing, Flat Pricing and Strip Pricing, in each case both including and excluding Synergies. Resulting per share values were
in all cases rounded to the nearest $0.25 per share.
|
|
|
|
|
|
|
|
|
|
Low
|
|
High
|
|
|
|
|
Ex-Synergies
|
|
SRC Implied Net Asset Value Per ShareConsensus Pricing
|
|
$
|
4.75
|
|
$
|
5.50
|
|
SRC Implied Net Asset Value Per ShareFlat Pricing
|
|
$
|
3.00
|
|
$
|
3.75
|
|
SRC Implied Net Asset Value Per ShareStrip Pricing
|
|
$
|
1.75
|
|
$
|
2.50
|
|
|
|
|
With Synergies
|
|
SRC Implied Net Asset Value Per ShareConsensus Pricing
|
|
$
|
6.25
|
|
$
|
7.50
|
|
SRC Implied Net Asset Value Per ShareFlat Pricing
|
|
$
|
4.50
|
|
$
|
5.50
|
|
SRC Implied Net Asset Value Per ShareStrip Pricing
|
|
$
|
3.50
|
|
$
|
4.25
|
|
The
range of implied per share equity value for SRC was compared to SRC's closing price per share of $3.97 on August 6, 2019, the NYSE trading day immediately preceding
publication of the Bloomberg Article, SRC's closing price per share of $4.15 on August 23, 2019, the NYSE trading day immediately preceding date of the written opinion, dated August 25,
2019, and the implied per share offer price of $3.99 (based on PDC's closing price per share of $25.25 on August 23, 2019).
Relative Implied Exchange Ratio Analysis.
J.P. Morgan compared the results for PDC to the results for SRC with respect to the public trading multiples and net asset value analyses
described above.
J.P.
Morgan compared the highest equity value per share for PDC to the lowest equity value per share for SRC to derive the lowest exchange ratio implied by each pair of results. J.P.
Morgan also compared the lowest equity value per share for PDC to the highest equity value per share for SRC to derive the highest exchange ratio implied by each pair of results. The implied exchange
ratios resulting from this analysis (in each case rounded to the nearest 0.005x) were:
|
|
|
|
|
|
|
|
Public Trading Analysis
|
|
Low
|
|
High
|
|
FV / 2019E EBITDAX
|
|
|
0.0750x
|
|
|
0.2100x
|
|
FV / 2020E EBITDAX
|
|
|
0.0700x
|
|
|
0.1950x
|
|
FV / 2021E EBITDAX
|
|
|
0.0650x
|
|
|
0.2000x
|
|
EV / 2019E Operating Cash Flow
|
|
|
0.0850x
|
|
|
0.1750x
|
|
EV / 2020E Operating Cash Flow
|
|
|
0.0750x
|
|
|
0.2150x
|
|
EV / 2021E Operating Cash Flow
|
|
|
0.0800x
|
|
|
0.2050x
|
|
|
|
|
|
|
|
|
|
Net Asset Value Analysis
|
|
Low
|
|
High
|
|
|
|
|
Ex-Synergies
|
|
Consensus Pricing
|
|
|
0.1100x
|
|
|
0.1600x
|
|
Flat Pricing
|
|
|
0.1050x
|
|
|
0.1650x
|
|
Strip Pricing
|
|
|
0.0900x
|
|
|
0.1750x
|
|
|
|
|
With Synergies
|
|
Consensus Pricing
|
|
|
0.1500x
|
|
|
0.2150x
|
|
Flat Pricing
|
|
|
0.1550x
|
|
|
0.2400x
|
|
Strip Pricing
|
|
|
0.1750x
|
|
|
0.3000x
|
|
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The
implied exchange ratios were compared to the implied exchange ratio on August 6, 2019, the NYSE trading day immediately preceding publication of the Bloomberg Report, of
0.1518x, the exchange ratio under the merger agreement of 0.1580x and the implied exchange ratio on August 23, 2019, the NYSE trading day immediately preceding date of the written opinion,
dated August 25, 2019, of 0.1644x.
Value Creation Analysis. J.P. Morgan conducted an analysis of the theoretical value creation to the existing holders of
the PDC common stock that compared the estimated implied equity value of the PDC common stock on a standalone basis based on the midpoint discount rate value determined in J.P. Morgan's
after-tax Net Asset Value Analysis described above based on each of Flat Pricing, Consensus Pricing and Strip Pricing (such pricing assumptions referred to below which we refer to for purposes of this
section as the "Pricing Assumptions") to the estimated implied equity value of former PDC stockholders' ownership in the combined company, pro forma for the proposed merger.
J.P.
Morgan calculated the pro forma implied equity value of the PDC common stock under each Pricing Assumption by (1) adding the sum of (a) the implied after-tax equity
value of PDC (based on each Pricing Assumption, using the midpoint discount rate value determined in J.P. Morgan's after-tax Net Asset Value Analysis described above), (b) the implied after-tax
equity value of SRC (based on each Pricing Assumption, using the midpoint discount rate value determined in J.P. Morgan's after-tax Net Asset Value Analysis described above) and (c) the
estimated present value of the Synergies, discounted using PDC's midpoint discount rate, as applicable, used in J.P. Morgan's after tax Net Asset Value Analysis described above, (2) subtracting
the sum of the estimated transaction expenses relating to the proposed merger and (3) multiplying such result by the pro forma equity ownership of the combined company by the existing holders
of the PDC common stock of approximately 61.8%. This analysis indicated that the proposed merger implied value creation for PDC common stockholders of approximately 5.4% assuming Flat Pricing, 2.7%
assuming Consensus Pricing and 12.3% assuming Strip Pricing. There can be no assurance, however, that the Synergies, transaction-related expenses and other impacts referred to above will not be
substantially greater or less than those estimated by PDC's management and described above.
Miscellaneous. The foregoing summary of certain material financial analyses does not purport to be a complete
description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description.
J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its
analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or
combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual
value of PDC or SRC. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not
attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation,
supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.
Analyses
based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors.
Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those
analyses. Moreover, J.P. Morgan's analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the
selected companies reviewed as described in the above summary is identical to PDC or SRC. However, the companies selected were selected, among
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other
reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan's analysis, may be considered similar to those of PDC and SRC. The analyses
necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies
compared to PDC or SRC.
As
a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and
acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and
other purposes. J.P. Morgan was selected to advise PDC with respect to the proposed merger on the basis of, among other things, such experience and its qualifications and reputation in
connection with such matters and its familiarity with PDC, SRC and the industries in which they operate.
Pursuant
to the engagement letter, PDC has agreed to pay J.P. Morgan estimated fees of up to $14.5 million, $3.25 million of which became payable to J.P. Morgan at the time
J.P. Morgan delivered its opinion, and the remainder of which is contingent and, to the extent payable, is payable upon the consummation of the proposed merger. In addition, PDC has agreed, subject to
certain limitations, to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities arising out of J.P. Morgan's engagement.
During
the two years preceding the date of J.P. Morgan's opinion, J.P. Morgan and its affiliates have had commercial or investment banking relationships with PDC and SRC for which J.P.
Morgan and such affiliates have received customary compensation. Such services during such period have included acting as joint lead arranger and joint bookrunner on PDC's revolving credit facility
which closed in May 2018, joint bookrunner on PDC's offering of debt securities which closed in November 2017, financial advisor to PDC in connection with PDC's contested director election at its 2019
annual meeting of stockholders, joint lead arranger and joint bookrunner on SRC's revolving credit facility which closed in April 2018 and joint bookrunner on SRC's offerings of debt securities and
equity
securities which closed in November 2017. In addition, J.P. Morgan's commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of PDC, for which it receives
customary compensation or other financial benefits. J.P. Morgan anticipates that it and its affiliates will arrange and/or provide financing to PDC related to the proposed merger for compensation in
the amount of approximately $2.5 million to $4.5 million. During the two years preceding the date of J.P. Morgan's opinion, J.P. Morgan recognized aggregate fees from PDC of
approximately $3.9 million and aggregate fees from SRC of approximately $6.1 million. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the
outstanding common stock of each of PDC and SRC. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments
(including derivatives, bank loans or other obligations) of PDC or SRC for their own account or for the accounts of their customers and, accordingly, J.P. Morgan may at any time hold long or short
positions in such securities or other financial instruments.
Recommendation of the SRC Board of Directors and SRC's Reasons for the Merger
By unanimous vote, the SRC board, at a meeting held on August 25, 2019, (i) determined the merger agreement and the transactions
contemplated thereby, including the merger, are fair to, and in the best interests of, SRC and the SRC shareholders, (ii) adopted and approved the merger agreement and the transactions
contemplated thereby, including the merger, (iii) directed that the merger agreement be submitted to the SRC shareholders for adoption and approval and (iv) recommended that the SRC
shareholders adopt and approve the merger agreement and the transactions contemplated thereby, including the merger. The SRC board unanimously recommends that SRC shareholders
vote
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"FOR" the SRC merger proposal, "FOR" the non-binding compensation proposal and "FOR" the adjournment proposal.
In
reaching its determinations and recommendations, the SRC board consulted with SRC's management and financial and legal advisors and considered a number of factors, including the
following factors that weighed in favor of the merger:
-
-
Benefits of a Combined Company. The belief of the SRC board that the
company resulting from a merger of PDC and SRC would be well positioned to achieve future growth and generate additional returns for SRC's former shareholders, including due to the synergies SRC
expects the combined company to be able to obtain as a result of the merger due to what it believes to be the high quality of PDC's assets and the close proximity of those assets to SRC's DJ Basin
properties, including (i) a consolidated operating area that is expected to allow a long-term development plan with a focus on minimizing surface usage through capital efficient long lateral
wells and a continued emphasis on the elimination of trucking, (ii) general and administrative cost savings, (iii) increased scale, (iv) strengthened relationships with midstream
and service providers and (v) an enhanced ability to work cooperatively with relevant governmental authorities, all of which are anticipated to contribute to improved margins and an enhanced
ability to generate sustainable free cash flow.
-
-
Superior Alternative to Continuing SRC on an Independent, Standalone Basis and Limited Number of Other Potential
Acquirors. The SRC board determined that entering into the merger agreement with PDC provided the best alternative for maximizing shareholder
value reasonably available to SRC, including when compared to continuing to operate on a stand-alone basis in light of certain risks, such as:
-
-
the risk that it will become increasingly difficult for SRC to grow its production and reserves on a cost-efficient basis given
the relative dearth of additional acquisition targets in the DJ Basin that, in SRC's view, have both high-quality assets and an acceptable level of regulatory risk;
-
-
the risk that, as the performance of DJ Basin producers becomes more dependent on the most efficient development of existing
resources, SRC may become less competitive, on a relative basis, compared with larger producers, due the scale-related advantages available to larger companies; and
-
-
the risk that there would be few other companies that would be viable candidates for a business combination transaction with SRC
given the Colorado regulatory environment, the importance of establishing contiguous acreage positions, and the currently constrained environment for capital raising in the oil and gas industry.
-
-
Attractive Value and Attractive Acquisition Currency. The aggregate value
and nature of the consideration to be received in the merger by SRC shareholders, including the fact that:
-
-
based on the closing trading price of PDC common stock of $25.25 per share on August 23, 2019, the last trading day prior
to public announcement of the merger, the merger consideration represented an implied value of $3.99 per share of SRC common stock, a premium of 6.8% to the 30-day average exchange ratio of 0.148x;
and
-
-
following the merger, SRC shareholders will also have the opportunity as stockholders of PDC to participate in the value of the
combined company, including the expected future growth, which the SRC board viewed as an important opportunity for SRC shareholders from the perspective of maximizing long-term returns.
-
-
Opportunity to Receive Alternative Acquisition Proposals and to Terminate the Merger in Order to Accept a Superior
Proposal. The SRC board considered the terms of the merger agreement
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related
to SRC's ability to respond to unsolicited acquisition proposals and determined that third parties would be unlikely to be deterred from making a competing proposal by the provisions of the
merger agreement, including because the SRC board may, under certain circumstances, furnish information or enter into discussions in connection with a competing proposal. In this regard, the SRC board
considered that:
-
-
subject to its compliance with the merger agreement, the SRC board can change its recommendation to SRC shareholders with respect
to the approval of the merger agreement prior to SRC shareholders' approval of the merger agreement if the SRC board determines in good faith (after consultation with its financial advisors and
outside legal advisors) that a competing proposal is an SRC superior proposal and the failure to take such action would be reasonably likely to be inconsistent with the SRC board's fiduciary
obligations;
-
-
subject to its compliance with the merger agreement, the SRC board can change its recommendation to SRC shareholders prior to SRC
shareholders' approval of the merger agreement in response to an SRC intervening event if the SRC board determines in good faith (after consultation with its financial advisors and outside legal
advisors) that failure to take such action would be reasonably likely to be inconsistent with the SRC board's fiduciary obligations;
-
-
subject to its compliance with the merger agreement, the SRC board may terminate the merger agreement for a superior proposal; and
-
-
while the merger agreement contains a termination fee of $35.0 million that SRC would be required to pay to PDC in certain
circumstances, including if (i) PDC terminates the merger agreement in connection with a change in the SRC board's recommendation to its shareholders with respect to approval of the merger
agreement or (ii) if SRC terminates the merger agreement in order to enter into a definitive agreement with respect to a superior proposal, the SRC board believed that the termination fee is
reasonable in light of the circumstances and the overall terms of the merger agreement, consistent with fees in comparable transactions, and not preclusive of other offers.
-
-
Tax Considerations. The SRC board considered that the merger is intended to
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
-
-
Receipt of Fairness Opinions and Presentations from Citi and Goldman
Sachs. The SRC board considered the respective financial analyses reviewed and discussed with representatives of Citi and Goldman Sachs, as well
as the oral opinion of each of Citi and Goldman Sachs rendered to the SRC board on August 25, 2019, each of which was subsequently confirmed by delivery of a written opinion, dated
August 25, 2019, to the effect that, based upon and subject to the limitations, qualifications and assumptions set forth in the opinion, as of the date of the opinion, from a financial point of
view, the exchange ratio in the merger was fair to holders (other than PDC and its affiliates) of the SRC common stock, as more fully described below under the heading
"Opinions of Citi and Goldman Sachs, SRC's Financial Advisors" beginning on page 92.
-
-
Terms of the Merger Agreement. The SRC board reviewed and considered that
the terms of the merger agreement, taken as a whole, including the parties' representations, warranties and covenants, and the circumstances under which the merger agreement may be terminated, in its
belief, are reasonable. The SRC board also reviewed and considered the conditions to the completion of the merger, and concluded that while the completion of the merger is subject to various
regulatory approvals, such approvals were likely to be satisfied on a timely basis.
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In
the course of its deliberations, the SRC board also considered a variety of risks and other potentially negative factors, including the following:
-
-
Fixed Exchange Ratio. The SRC board considered that, because the merger
consideration is based on a fixed exchange ratio rather than a fixed value, SRC shareholders bear the risk of a decrease in the trading price of PDC common stock during the pendency of the merger and
the fact that the merger agreement does not provide SRC with a value-based termination right.
-
-
Risks Associated with the Pendency of the Merger. The risks and
contingencies relating to the announcement and pendency of the merger, including the potential for diversion of management and employee attention and the potential effect of the combination on the
businesses of both companies and the restrictions on the conduct of SRC's business during the period between the execution of the merger agreement and the completion of the transactions contemplated
thereby as set forth in the merger agreement.
-
-
Possible Failure to Achieve Synergies. The potential challenges and
difficulties in integrating the operations of SRC into those of PDC and the risk that anticipated cost savings and operational efficiencies between the two companies, or other anticipated benefits of
the merger, might not be realized or might take longer to realize than expected.
-
-
Right of PDC to Terminate the Merger Agreement for a Superior
Proposal. The SRC board considered PDC's right to terminate the merger agreement in order to enter into a definitive agreement with respect to a
superior proposal, subject to payment of a termination fee of $55.0 million.
-
-
PDC Stockholder Vote. The SRC board also considered that, even if the
merger agreement is approved by SRC shareholders, PDC's stockholders may not approve the PDC merger proposal and the PDC issuance proposal, which is a condition of the merger.
-
-
Termination Fees. The SRC board considered that SRC would be required to
pay to PDC a termination fee of $35.0 million in the event the SRC board were to terminate the merger agreement in order for SRC to enter into a superior proposal, should one be made, or if the
merger agreement were to be terminated by PDC in connection with a change in the SRC board's recommendation to its shareholders with respect to approval of the merger agreement.
-
-
Other Risks. The SRC board considered risks of the type and nature
described under the sections entitled "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" beginning on pages 41 and
55, respectively.
The
SRC board believed that, overall, the potential benefits of the merger to SRC shareholders outweighed the risks and uncertainties of the merger.
In
addition, the SRC board was aware of and considered that SRC's directors and executive officers may have interests in the merger that may be different from, or in addition to, their
interests as shareholders of SRC generally, as described below under the heading "Interests of SRC Directors and Executive Officers in the
Merger" beginning on page 115.
The
foregoing discussion of factors considered by the SRC board is not intended to be exhaustive, but includes the material factors considered by the SRC board. In light of the variety
of factors considered in connection with its evaluation of the merger, the SRC board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determinations and recommendations. Moreover, each member of the SRC board applied his or her own personal business judgment to the process and may have given different
weight to different factors. The SRC board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its
ultimate determination. The SRC board based its recommendation on the totality of the information presented.
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Opinions of Citi and Goldman Sachs, SRC's Financial Advisors
Opinion of Citi
On August 25, 2019, at a meeting of the SRC board at which the merger was approved, Citi rendered to the SRC board an oral opinion,
subsequently confirmed by delivery of a written opinion dated August 25, 2019, to the effect that, as of the date of its opinion and based on and subject to the matters described in its
opinion, the exchange ratio was fair, from a financial point of view, to holders (other than PDC and its affiliates) of SRC common stock.
The full text of Citi's written opinion, dated August 25, 2019, which describes the assumptions made, procedures followed, matters considered and
limitations and qualifications on the review undertaken, is attached to this joint proxy statement/prospectus as Annex C and is incorporated into this joint proxy statement/prospectus by
reference. The description of Citi's opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Citi's opinion. Citi's opinion was
addressed to, and provided for the information of the SRC board (in its capacity as such) in connection with its evaluation of the exchange ratio from a financial point of view and did not address any
other terms, aspects or implications of the merger. Citi expressed no view as to, and its opinion did not address, the underlying business decision of SRC to effect or enter into the merger, the
relative merits of the merger as compared to any alternative business strategies that might exist for SRC or the effect of any other transaction in which SRC might engage or consider. Citi's opinion
is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the merger or
otherwise.
In
arriving at its opinion, Citi had, among other things:
-
-
reviewed a draft, dated August 25, 2019, of the merger agreement;
-
-
held discussions with certain senior officers, directors and other representatives of SRC and certain senior officers and other representatives
of PDC concerning the businesses, operations and prospects of SRC and PDC;
-
-
reviewed certain publicly available business and financial information relating to SRC and PDC, as well as certain financial forecasts and
other information and data relating to SRC and PDC provided to and/or discussed with Citi by the managements of SRC and PDC, including certain internal financial forecasts and other information and
data relating to SRC prepared by the management of SRC, and certain internal financial forecasts and other information and data relating to PDC prepared by the management of PDC as reviewed and
approved by the management of SRC;
-
-
reviewed and discussed with the management of SRC certain publicly available future commodity price estimates and assumptions;
-
-
been provided with certain information and data relating to the potential strategic implications and financial and operational benefits
(including the amount, timing and achievability thereof) anticipated by the managements of SRC and PDC to result from the merger;
-
-
reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things: current and historical
market prices of SRC common stock and PDC common stock, the financial condition and certain historical and projected financial and operating data of SRC and PDC and the capitalization of SRC and PDC;
-
-
analyzed certain financial, stock market and other publicly available information relating to the businesses of certain other companies whose
operations it considered relevant in evaluating those of SRC and PDC;
-
-
reviewed certain potential pro forma financial effects of the merger on PDC utilizing the financial forecasts and other information and data
relating to SRC and PDC and the potential strategic implications and financial and operational benefits referred to above; and
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-
-
conducted such other analyses and examinations and considered such other information and financial, economic and market criteria Citi deemed
appropriate in arriving at its opinion.
In
rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available
or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the managements and representatives of SRC and PDC that they were not aware of any relevant information that
was omitted or remained undisclosed to Citi. With respect to the financial forecasts and other information and data that Citi was directed to utilize in its analyses, Citi was advised by the
management of SRC, and Citi assumed, with SRC's consent, that such forecasts and other information and data were reasonably prepared on bases reflecting the best currently available estimates and
judgments of the managements of SRC and PDC, as applicable, as to the future financial performance of SRC and PDC, the potential strategic implications and financial and operational benefits
(including the amount, timing, and achievability thereof) anticipated by the managements of SRC and PDC to result from, and the potential pro forma financial effects of, the merger and the other
matters covered thereby. With respect to the future commodity price estimates and assumptions that Citi was directed to utilize in its analyses, Citi assumed, with SRC's consent, and at SRC's
direction, that such estimates and assumptions were a reasonable basis upon which to evaluate the matters covered thereby. Citi assumed, with SRC's consent, that the financial results, including with
respect to the potential strategic implications and financial and operational benefits anticipated to result from the merger, reflected in such financial forecasts and other information and data would
be realized in the amounts and at the times projected.
Citi
relied, at SRC's direction, upon the assessments of the managements of SRC and PDC as to, among other things, (i) the oil, natural gas liquids and natural gas reserves, and
drilling, completion and development plans and exploration projects of SRC and PDC and related capital requirements and expenditures, (ii) the potential impact on SRC and PDC of market,
competitive, seasonal, cyclical and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the oil, natural gas
liquids and natural gas industry, including with respect to the geographical regions and basins in which SRC and PDC operate, environmental regulations and commodity pricing and supply and demand for
oil, natural gas liquids and natural gas, which are subject to significant volatility and which, if different than as assumed, could have a material impact on Citi's analyses or opinion,
(iii) existing and future contracts and relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, customers, service providers,
derivatives counterparties and other commercial relationships of SRC and PDC, and (iv) the ability to integrate the operations of SRC and PDC. Citi assumed, with SRC's consent, that there would
be no developments with respect to any such matters that would have an adverse effect on SRC, PDC or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in
any respect to Citi's analyses or opinion.
Citi
did not make and, except for certain reserve reports relating to SRC and PDC, Citi was not provided with an independent evaluation or appraisal of the assets or liabilities
(contingent, accrued, derivative, off-balance sheet or otherwise) of SRC, PDC or any other entity nor did Citi make any physical inspection of the properties or assets of SRC, PDC or any other entity.
Citi did not conduct or provide geological, environmental or other technical assessments and Citi is not an expert in the evaluation of oil, natural gas liquids or natural gas reserves or properties
and Citi expressed no view or opinion as to reserve quantities, or the exploration, development or production (including, without limitation, as to the feasibility or timing thereof), of any
properties of SRC, PDC or any other entity. Citi did not evaluate the solvency or fair value of SRC, PDC or any other entity under any state, federal or other laws relating to bankruptcy, insolvency
or similar matters. Citi expressed no view or opinion as to the potential impact on SRC, PDC or any other entity of any pending or potential litigation, claims or governmental, regulatory or other
proceedings, orders, audits or investigations. Citi assumed, with SRC's consent, that the merger would be consummated in accordance with its terms and
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in
compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that there would not be any
delays, limitations, restrictions, conditions or other actions, including any divestitures, amendments or modifications, in the course of obtaining the necessary governmental, regulatory or third
party approvals, consents, releases, waivers and agreements for the merger or otherwise that would be meaningful in any respect to Citi's analyses or opinion. Citi also assumed, with SRC's consent,
that the merger would qualify for the intended tax treatment contemplated by the merger agreement. Representatives of SRC advised Citi, and Citi assumed, that the final terms of the merger agreement
would not vary materially from those set forth in the draft reviewed by Citi. Citi's opinion, as expressed therein, relates to the relative values of SRC and PDC. Citi did not express any view or
opinion as to the actual value of PDC common stock when issued in connection with the merger or the prices at which SRC common stock, PDC common stock or any other securities would trade or otherwise
be
transferable at any time, including following the announcement or consummation of the merger. Citi also expressed no view or opinion with respect to accounting, tax, regulatory, legal or similar
matters, including, without limitation, the tax consequences resulting from the merger or otherwise to holders of shares of SRC common stock, and Citi relied, with SRC's consent, upon the assessments
of representatives of SRC as to such matters.
Citi's
opinion addressed only the fairness, from a financial point of view and as of the date thereof, of the exchange ratio (to the extent expressly specified in its opinion) without
regard to individual circumstances of specific holders of, or any rights, preferences, restrictions or limitations that may be attributable to, shares of SRC common stock or other securities of SRC
and did not address proportionate allocation or relative fairness among holders of SRC common stock. Citi's opinion did not address any other terms, aspects or implications of the merger, including,
without limitation, the form or structure of the merger or any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the merger or otherwise. In
connection with Citi's engagement, Citi was not requested to, and it did not, undertake a third party solicitation process on behalf of SRC with respect to the acquisition of all or a part of SRC.
Citi expressed no view as to, and its opinion did not address, the underlying business decision of SRC to effect or enter into the merger, the relative merits of the merger as compared to any
alternative business strategies that might have existed for SRC or the effect of any other transaction in which SRC might have engaged or considered. Citi expressed no view as to, and its opinion did
not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of any parties to the
merger, or any class of such persons, relative to the exchange ratio or otherwise. Citi's opinion was necessarily based upon information available, and financial, stock market and other conditions and
circumstances existing and disclosed to Citi, as of the date of its opinion. Although subsequent developments may affect its opinion, Citi has no obligation to update, revise or reaffirm its opinion.
As the SRC board of directors was aware, the credit, financial and stock markets, and the industry in which SRC and PDC operate, have experienced and continue to experience volatility and Citi
expressed no opinion or view as to any potential effects of such volatility on SRC, PDC or the merger (including the contemplated benefits thereof). The issuance of Citi's opinion was authorized by
Citi's fairness opinion committee.
In
preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description
of Citi's opinion or the analyses underlying, and factors considered in connection with, Citi's opinion. The preparation of a financial opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not
readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses and factors assessed as a whole, and did not draw, in isolation, conclusions from
or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Citi believes that the analyses must be considered
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as
a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of
the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.
In
its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which
are beyond the control of SRC and PDC. No company, business or transaction reviewed is identical or directly comparable to SRC, PDC or the merger and an evaluation of these analyses is not entirely
mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition
or other values of the companies, businesses or transactions reviewed or the results of any particular analysis.
The
estimates contained in Citi's analyses and the ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals
or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi's analyses are inherently subject to
substantial uncertainty.
Citi
was not requested to, and it did not, recommend or determine the specific consideration payable in the merger. The type and amount of consideration payable in the merger were
determined through negotiations between SRC and PDC and the decision to enter into the merger was solely that of the SRC board. Citi's opinion was only one of many factors considered by the SRC board
in its evaluation of the merger and should not be viewed as determinative of the views of the SRC board or management of SRC with respect to the merger, the exchange ratio or any other aspect of the
transactions contemplated by the merger agreement.
Summary of Financial Analyses of Citi
The summary of the financial analyses described below under this heading "Summary of Financial Analyses of
Citi" is a summary of the material financial analyses prepared for the SRC Board in connection with Citi's opinion, dated August 25, 2019. The
summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses
described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses
summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables
alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. Future results may be different from those
described and such differences may be material. Approximate implied per share equity value reference ranges derived from the financial analyses described below, except for the
52-week trading range, were rounded to the nearest $0.10. For purposes of the financial analyses described below, (i) the term "adjusted EBITDA" generally refers to earnings before interest,
taxes, depreciation and amortization, which is referred to as EBITDA, adjusted for, as applicable, certain non-recurring items, certain non-cash items and certain other items, and (ii) the term
"CFPS" refers to cash flow per share. Financial data utilized for SRC and PDC in the financial analyses described below, to the extent based on internal financial forecasts and estimates of
management, were based on certain financial forecasts and other information and data relating to SRC and PDC provided to and/or discussed with Citi by the managements of SRC and PDC, referred to as
the SRC forecasts and PDC forecasts, respectively, used by Citi at the direction of the management of SRC and as further described in "Certain SRC Unaudited
Forecasted Financial and Operating Information."
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In calculating implied exchange ratio reference ranges as reflected in the financial analyses described below, other than the relative contributions analysis,
Citi divided the low-ends (or high-ends, as the case may be) of the approximate implied per share equity value reference ranges derived for SRC from such analyses by the high-ends (or low-ends, as the
case may be) of the approximate implied per share equity value reference ranges derived for PDC from such analyses in order to calculate the low-ends (or high-ends) of the implied exchange ratio
reference ranges. In calculating an implied exchange ratio reference range as reflected in the relative contributions analysis described below, Citi derived overall low to high exchange ratios implied
by the relative adjusted EBITDA and operating cash flow contributions of SRC and PDC to the combined company.
Selected Public Companies Analyses
Citi performed separate selected public companies analyses of PDC and SRC in which Citi reviewed certain financial and stock market information
relating to PDC, SRC and the selected publicly traded companies listed below.
PDC. In its selected public companies analysis of PDC, Citi reviewed certain financial and stock market information relating to PDC and
the following
six selected companies (including SRC) described below that Citi considered generally relevant as publicly traded oil and gas exploration and production companies, collectively referred to as the PDC
selected companies.
-
-
Extraction Oil & Gas, Inc.
-
-
Matador Resources Company
-
-
QEP Resources, Inc.
-
-
SM Energy Company
-
-
SRC Energy, Inc.
-
-
Whiting Petroleum Corporation
Citi
reviewed, among other information, firm values, calculated as implied equity values based on the closing stock prices on August 23, 2019, the last trading date prior to the
announcement of the merger, plus total debt, preferred equity and non-controlling interests (as applicable), less cash and cash equivalents and estimated midstream assets (as applicable), as a
multiple of calendar year 2019 and calendar year 2020 estimated adjusted EBITDA and closing stock prices (as of August 23, 2019) as a multiple of calendar year 2019 and calendar year 2020
estimated CFPS. Financial data of the PDC selected companies were based on publicly available Wall Street research analysts' estimates, public filings and other publicly available information. The
overall low to high calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples and calendar year 2019 and calendar year 2020 estimated CFPS multiples observed for the PDC selected
companies were as follows:
-
-
calendar year 2019 estimated adjusted EBITDA multiples: 3.3x to 4.8x (with a median of 3.9x);
-
-
calendar year 2020 estimated adjusted EBITDA multiples: 3.0x to 3.7x (with a median of 3.2x);
-
-
calendar year 2019 estimated CFPS multiples: 0.7x to 3.7x (with a median of 1.4x); and
-
-
calendar year 2020 estimated CFPS multiples: 0.6x to 2.8x (with a median of 1.1x).
Citi
noted that the calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples observed for PDC were 3.0x and 2.5x, respectively, and the calendar year 2019 and
calendar year 2020 estimated CFPS multiples observed for PDC were 2.0x and 1.6x, respectively, in each case based on publicly available Wall Street research analysts' estimates. Citi then applied
selected ranges based on Citi's professional judgment of calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples of 3.0x to 4.3x and 2.5x to 3.5x, respectively, and calendar year
2019 and calendar
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year
2020 estimated CFPS multiples of 1.3x to 2.0x and 1.0x to 1.6x, respectively, to corresponding data of PDC based on the PDC forecasts utilizing publicly available Wall Street consensus commodity
price estimates (which is referred to in this section as "Wall Street Consensus Pricing"). This analysis indicated approximate implied per share equity value reference ranges for PDC based on calendar
year 2019 and calendar year 2020 estimated adjusted EBITDA multiples of $21.80 to $38.40 and $26.50 to $42.80, respectively, and approximate implied per share equity value reference ranges for PDC
based on calendar year 2019 and calendar year 2020 estimated CFPS multiples of $15.90 to $24.50 and $16.70 to $27.90, respectively.
SRC. In its selected public companies analysis of SRC, Citi reviewed certain financial and stock market information relating to SRC and
the following
four selected companies (including PDC) described below that Citi considered generally relevant as publicly traded oil and gas exploration and production companies, collectively referred to as the SRC
selected companies.
-
-
Centennial Resource Development Inc.
-
-
Extraction Oil & Gas, Inc.
-
-
Laredo Petroleum, Inc.
-
-
PDC Energy, Inc.
Citi
reviewed, among other information, firm values, calculated as implied equity values based on closing stock prices on August 23, 2019, the last trading date prior to the announcement of the
merger, plus total debt, preferred equity and non-controlling interests (as applicable), less cash and cash equivalents, as a multiple of calendar year 2019 and calendar year 2020 estimated adjusted
EBITDA and closing stock prices (as of August 23, 2019) as a multiple of calendar year 2019 and calendar year 2020 estimated CFPS. Financial data of the SRC selected companies were based on
publicly available Wall Street research analysts' estimates, public filings and other publicly available information. The overall low to high calendar year 2019 and calendar year 2020 estimated
adjusted EBITDA multiples and calendar year 2019 and calendar year 2020 estimated CFPS multiples observed for the SRC selected companies were as follows:
-
-
calendar year 2019 estimated adjusted EBITDA multiples: 3.0x to 3.8x (with a median of 3.2x);
-
-
calendar year 2020 estimated adjusted EBITDA multiples: 2.5x to 3.1x (with a median of 2.9x);
-
-
calendar year 2019 estimated CFPS multiples: 1.1x to 2.1x (with a median of 1.7x); and
-
-
calendar year 2020 estimated CFPS multiples: 0.9x to 1.8x (with a median of 1.5x).
Citi
noted that the calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples observed for SRC were 3.3x and 3.2x, respectively, and the calendar year 2019 and
calendar year 2020 estimated CFPS multiples observed for SRC were 2.1x and 2.1x, respectively, in each case based on publicly available Wall Street research analysts' estimates. Citi then applied
selected ranges based on Citi's professional judgment of calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples of 2.9x to 3.5x and 2.6x to 3.2x, respectively, and calendar year
2019 and calendar year 2020 estimated CFPS multiples of 1.5x to 2.1x and 1.3x to 2.1x, respectively, to corresponding data of SRC based on the SRC forecasts utilizing Wall Street Consensus Pricing.
This analysis indicated approximate implied per share equity value reference ranges for SRC based on calendar year 2019 and calendar year 2020 estimated adjusted EBITDA multiples of $3.00 to $4.20 and
$3.20 to $4.50, respectively, and
approximate implied per share equity value reference ranges for SRC based on calendar year 2019 and calendar year 2020 estimated CFPS multiples of $2.80 to $3.90 and $2.80 to $4.40, respectively.
Utilizing
the approximate implied per share equity value reference ranges derived for PDC and the approximate implied per share equity value reference ranges derived for SRC, in each
case as described
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above,
Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio:
|
|
|
|
|
|
|
|
|
Implied Exchange Ratio Reference Ranges Based on:
|
|
|
CY2019E Adj.
EBITDA
|
|
CY2020E Adj.
EBITDA
|
|
CY2019E
CFPS
|
|
CY2020E
CFPS
|
|
Exchange Ratio
|
0.0774x - 0.1940x
|
|
0.0745x - 0.1701x
|
|
0.1137x - 0.2441x
|
|
0.1000x - 0.2613x
|
|
0.1580x
|
Net Asset Value Analysis
Citi performed a net asset value analysis of SRC based on the SRC forecasts utilizing New York Mercantile Exchange strip pricing (referred to as
NYMEX Strip Pricing), public filings and other publicly available information. An implied aggregate reference range for SRC's proved developed producing reserves and currently undeveloped resources
was derived by calculating the net present values (as of June 30, 2019) of the unlevered, after-tax free cash flows that SRC was projected to generate from such assets based on the SRC
forecasts utilizing NYMEX Strip Pricing using a selected range of discount rates of 9.5% to 11.0%. In performing its analysis, Citi took into account, based on the SRC forecasts, public filings and
other publicly available information, as applicable, (a) the net present value (as of June 30, 2019, utilizing a discount rate range of 9.5% to 11.0%) of SRC's estimated post-tax
corporate expenses and net hedge gains and losses, and (b) SRC's estimated net debt as of June 30, 2019. This analysis indicated an approximate implied per share equity value reference
range for SRC of $3.00 to $3.80.
Citi
performed a net asset value analysis of PDC based on the PDC forecasts utilizing NYMEX Strip Pricing, public filings and other publicly available information. An implied aggregate
reference range for PDC's proved developed producing reserves and currently undeveloped resources was derived by calculating the net present values (as of June 30, 2019) of the unlevered,
after-tax free cash flows that PDC was projected to generate from such assets based on the PDC forecasts utilizing NYMEX Strip Pricing using a selected range of discount rates of 8.3% to 9.6%. In
performing its analysis, Citi took into account, based on the PDC forecasts, public filings and other publicly available information, as applicable, (a) the net present value (as of
June 30, 2019, utilizing a discount rate range of 8.3% to 9.6%) of PDC's estimated post-tax corporate expenses, net hedge gains and losses, and additional payments from the sale of PDC's
midstream assets, and (b) PDC's estimated net debt as of June 30,
2019. This analysis indicated an approximate implied per share equity value reference range for PDC of $21.90 to $26.10.
Utilizing
the approximate implied per share equity value reference ranges derived for PDC and the approximate implied per share equity value reference ranges derived for SRC, in each
case as described above, Citi calculated the following approximate implied exchange ratio reference range, as compared to the exchange ratio:
|
|
|
Implied Exchange Ratio Reference Ranges Based on:
|
|
Exchange Ratio
|
Net Asset Value
|
|
|
0.1145x - 0.1744x
|
|
0.1580x
|
Relative Contributions Analysis
Citi performed a relative contributions analysis in which Citi reviewed the relative contributions of SRC and PDC to the combined company's
calendar years 2019 and 2020 estimated adjusted EBITDA and calendar years 2019 and 2020 estimated operating cash flow. Financial data of SRC and PDC were based on the SRC forecasts and PDC forecasts,
both utilizing Wall Street Consensus Pricing. This analysis indicated overall approximate implied relative contribution percentages of SRC and PDC (i) to the Combined Company's calendar years
2019 and 2020 estimated adjusted EBITDA of 36.7% and
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33.3%,
respectively, in the case of SRC, and 63.3% and 66.7%, respectively, in the case of PDC, and (ii) to the combined company's calendar years 2019 and 2020 estimated operating cash flow of
36.4% and 32.7%, respectively, in the case of SRC, and 63.6% and 67.3%, respectively, in the case of PDC.
Utilizing
the approximate implied contribution percentage ranges derived for SRC and PDC described above, and with respect to the ranges derived from adjusted EBITDA data, adjusting to
reflect SRC's
and PDC's net debt, Citi calculated the following implied Exchange Ratio reference range, as compared to the Exchange Ratio:
|
|
|
Implied Exchange Ratio Reference Ranges Based on:
|
|
Exchange Ratio
|
Relative Contribution Analysis
|
|
|
0.1163x - 0.1510x
|
|
0.1580x
|
Certain Additional Information
Citi also observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was
noted for informational purposes, including the following:
-
-
historical closing prices of SRC Common Stock and PDC Common Stock during the 52-week period ended August 23, 2019, which indicated low
and high closing prices of SRC Common Stock of approximately $3.71 and $9.77 per share, and low and high closing prices of PDC Common Stock of approximately $25.25 and $54.99 per share, and the
historical implied Exchange Ratios of SRC Common Stock and PDC Common Stock during such 52-week period based on observed closing prices of such common stock, which indicated an implied Exchange Ratio
reference range of 0.1156x to 0.1834x; and
-
-
Wall Street research analysts' price targets, which were publicly available to Citi, for SRC Common Stock and PDC Common Stock, which indicated
an overall low to high target stock price range for SRC Common Stock of $4.50 to $8.10 per share on a discounted basis (discounted one year using a selected discount rate of 11.6%), and an overall low
to high target stock price range for PDC Common Stock of $31.70 to $68.00 per share on a discounted basis (discounted one year using a selected discount rate of 10.3%), and the Exchange Ratios implied
by the stock price targets of such analysts that had provided stock price targets for both SRC Common Stock and PDC Common Stock, which indicated an implied Exchange Ratio reference range of 0.1277x
to 0.1915x.
Miscellaneous
The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by
Citi. In connection with the evaluation of the merger by the SRC board of directors, Citi performed a variety of financial and comparative analyses for purposes of rendering its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described
above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Citi's opinion. In arriving at its fairness determination, Citi considered the results
of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Citi made its determination as
to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Citi may have given various analyses and factors more or less
weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular
analysis or combination of analyses described above should not be taken to be the view of Citi with respect to the actual value of the shares of SRC common stock. Further, Citi's analyses involve
complex
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considerations
and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies used, including
judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of SRC or its
advisors.
Citi
prepared these analyses for the purpose of providing an opinion to the SRC board of directors as to the fairness, from a financial point of view, of the merger consideration to the
holders (other than PDC and its affiliates) of SRC common stock entitled to receive such merger consideration. These analyses do not purport to be appraisals or to necessarily reflect the prices at
which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less
favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Citi's analyses are inherently subject to substantial uncertainty, and Citi assumes no
responsibility if future results are materially different from those forecasted in such estimates.
The
issuance of the fairness opinion was approved by the fairness opinion committee of Citi. Pursuant to the terms of Citi's engagement letter with SRC, Citi is entitled to receive a fee
estimated, based on the information available as of the date of announcement, at approximately $12 million if the merger is completed, against which a fee of $3 million that was payable
upon delivery of Citi's fairness opinion is fully creditable. Citi may receive an additional fee of up to $3.5 million at SRC's sole discretion. In addition, SRC has also agreed to reimburse
Citi for Citi's reasonable expenses (including reasonable
outside legal fees, expenses and disbursements) and to indemnify Citi for certain liabilities arising out of its engagement.
During
the two-year period prior to the date of its written opinion, Citi and its affiliates have provided, currently are providing and in the future may provide investment banking,
commercial banking and other similar financial services to SRC and certain of its affiliates unrelated to the merger, for which services Citi and its affiliates have received and expect to receive
compensation, including, during the past two years, having acted or acting as (i) joint book-running manager on a public equity offering of SRC and (ii) co-manager on a private debt
offering of SRC. For the services described above, during the 2-year period prior to the date of its written opinion, Citi and its affiliates received aggregate fees of approximately $600,000.
During
the two-year period prior to the date of its written opinion, neither Citi nor its affiliates has provided financial services to PDC and its affiliates for which Citi received
fees. In the future, Citi may provide financial or other services to SRC (subject to consummation of the merger) or PDC and their respective affiliates and in connection with any such services Citi
may receive compensation.
In
the ordinary course of business, Citi or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of SRC, PDC and their respective
affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.
SRC
engaged Citi to act as a financial advisor in connection with the merger based on Citi's reputation, experience and familiarity with SRC, PDC and their respective businesses. Citi is
an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.
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Opinion of Goldman Sachs
Goldman Sachs rendered its opinion to the SRC board that, as of August 25, 2019 and based upon and subject to the factors and assumptions
set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders (other than PDC and its affiliates) of shares of SRC common stock.
The full text of the written opinion of Goldman Sachs, dated August 25, 2019, which sets forth assumptions made, procedures followed, matters considered
and limitations on the review undertaken in connection with the opinion, is attached as Annex D. Goldman Sachs provided its opinion for the information and assistance of the SRC board in
connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of SRC common stock should vote with respect to the merger, or any
other matter.
In
connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other
things:
-
-
the merger agreement;
-
-
annual reports to shareholders of SRC, annual reports to stockholders of PDC and Annual Reports on Form 10-K of SRC and PDC for the five
years ended December 31, 2018;
-
-
certain interim reports to shareholders of SRC, stockholders of PDC and Quarterly Reports on Form 10-Q of SRC and PDC;
-
-
certain other communications from SRC and PDC to their respective shareholders and stockholders;
-
-
certain publicly available research analyst reports for SRC and PDC; and
-
-
certain internal financial analyses and forecasts for SRC prepared by its management (which we refer to for purposes of this section as the
"SRC Forecasts") and for PDC stand alone prepared by its management (which we refer to for purposes of this section as the "PDC Standalone Forecasts"), and certain financial analyses and forecasts for
PDC pro forma for the merger prepared by the management of PDC (which we refer to for purposes of this section as the "PDC Pro Forma Forecasts" and, together with the SRC Forecasts and the PDC
Standalone Forecasts, the "Forecasts"), in each case, as approved for Goldman Sachs' use by SRC, including certain operating synergies projected by the management of PDC to result from the merger, as
approved for Goldman Sachs' use by SRC (which we refer to for purposes of this section as the "Synergies").
Goldman
Sachs also held discussions with members of the senior managements of SRC and PDC regarding their assessment of the strategic rationale for, and the potential benefits of, the
merger and the past and current business operations, financial condition, and future prospects of SRC and PDC; reviewed the reported price and trading activity for the shares of SRC common stock and
the shares of PDC common stock; compared certain financial and stock market information for SRC and PDC 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 (which we refer to for purposes of this section as "E&P") industry and
performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For
purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and
completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it and it does not assume any responsibility for any such
information. Goldman Sachs did not make an independent evaluation, appraisal or geological or technical assessment of the assets and
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liabilities
(including any contingent, derivative or other off-balance-sheet assets and liabilities) of SRC or PDC or any of their respective subsidiaries, nor was any evaluation or appraisal of the
assets or liabilities of SRC or PDC or any of their respective subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed that the Forecasts, including the Synergies, were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the management of SRC. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for
the consummation of the merger will be obtained without any adverse effect on SRC or PDC or on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs has also assumed
that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to
its analysis.
Goldman
Sachs' opinion does not address the underlying business decision of SRC to engage in the merger or the relative merits of the merger as compared to any strategic alternatives
that may be available to SRC; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of, or other business combination with, SRC or any other alternative transaction. Goldman Sachs' opinion addresses only the fairness from a financial point of view, as of the
date of the opinion, of the exchange ratio pursuant to merger agreement to the holders (other than PDC and its affiliates) of shares of SRC common stock. Goldman Sachs' opinion does not express any
view on, and does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered
into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of
securities, creditors,
or other constituencies of SRC; 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 SRC, or class of such
persons, in connection with the merger, whether relative to the exchange ratio pursuant to the merger agreement or otherwise. Goldman Sachs' opinion was necessarily based on economic, monetary, market
and other conditions, as in effect on, and the information made available to it as of the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its
opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs does not express any opinion as to the prices at which shares of the PDC
common stock will trade at any time or as to the impact of the merger on the solvency or viability of SRC or PDC or the ability of SRC or PDC to pay its obligations when they come due. Goldman Sachs'
opinion was approved by a fairness committee of Goldman Sachs.
The
following is a summary of the material financial analyses delivered by Goldman Sachs to the SRC board in connection with rendering the opinion described above. The following summary,
however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to
those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary
and are alone not a complete description of Goldman Sachs' financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is
based on market data as it existed on or before August 23, 2019 (which we refer to for purposes of this section as the "last trading date"), the last completed trading day before the public
announcement of the merger, and is not necessarily indicative of current market conditions.
Historical Stock Trading Analysis. Goldman Sachs calculated the implied consideration per share of SRC common stock by multiplying the
exchange ratio
by the closing price per share of PDC common stock on the last trading day and analyzed the $3.99 implied consideration per share of SRC common stock represented by the exchange ratio in relation to
(i) the closing price per share of SRC
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common
stock on August 6, 2019 (which we refer to for purposes of this section as the "undisturbed date"), the last completed trading prior to the publication of press reports by third parties
regarding discussions between SRC and PDC regarding a potential transaction, (ii) the volume weighted average price per share of SRC common stock over the 20-day period ended on the undisturbed
date and (iii) the lowest closing price per share of SRC common stock over the 52-week period ended on the undisturbed date. The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
Historical Date or Period
|
|
Share Price
Premium / (Discount)
|
|
Price Per Share
|
|
Closing Price as of Undisturbed Date
|
|
|
0
|
%
|
$
|
3.97
|
|
20-Trading Day VWAP as of Undisturbed Date
|
|
|
(0
|
)%
|
$
|
4.00
|
|
52-Week Closing Low as of Undisturbed Date
|
|
|
8
|
%
|
$
|
3.71
|
|
Implied Exchange Ratio Analysis. Goldman Sachs reviewed the historical trading prices per share of SRC common stock and per share of
PDC common stock
for the two-year period ended on the last trading date and calculated historical exchange ratios by dividing the closing price per share of SRC common stock by the closing price per share of PDC
common stock over such two-year period. Goldman Sachs then calculated the premia implied by the exchange ratio in relation to (i) historical exchange ratios of shares of SRC common stock to
shares of PDC common stock based on the closing prices per share of SRC common stock and per share of PDC common stock on the undisturbed date and on the last trading day, (ii) historical
average exchange ratios over the 20-day period ended on the undisturbed date and the 20-day period ended on the last trading day, calculated by dividing the closing price per share of SRC common stock
on each trading day during each such period by the closing price per share of PDC common stock on the same trading day during each such period and then taking the average of these daily historical
exchange ratios over each such period and (iii) historical exchange ratios represented by the lowest closing price per share of SRC common stock and the lowest closing price per share of PDC
common stock over the 52-week periods ended on the undisturbed date and the last trading day. The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisturbed Date
|
|
|
|
Last Trading Date
|
|
|
|
|
|
Historical Exchange
Ratio
|
|
Premium/Discount
|
|
Historical Exchange
Ratio
|
|
Premium/Discount
|
|
Spot Exchange Ratio
|
|
|
0.1518x
|
|
|
4
|
%
|
|
0.1644x
|
|
|
(4
|
)%
|
20-Day Average
|
|
|
0.1396x
|
|
|
13
|
%
|
|
0.1548x
|
|
|
2
|
%
|
52-Week Low
|
|
|
0.1156x
|
|
|
37
|
%
|
|
0.1156x
|
|
|
37
|
%
|
Illustrative Discounted Cash Flow AnalysisSRC Standalone. Using the SRC Forecasts, Goldman Sachs performed a discounted cash flow
analysis of shares of SRC common stock on a standalone basis. Using discount rates ranging from 7.50% to 9.00%, reflecting estimates of SRC's weighted average cost of capital, Goldman Sachs discounted
to present value as of June 30, 2019 (i) estimates of unlevered free cash flow for SRC for July 1, 2019 through December 31, 2024 as reflected in the SRC Forecasts and
(ii) a range of illustrative terminal values for SRC, which were calculated by applying an illustrative terminal value to EBITDA multiple range of 3.0x to 4.5x to estimated terminal year EBITDA
for SRC, was reflected in the SRC Forecasts. Goldman Sachs derived such range of discount rates by application of the Capital Asset Pricing Model (which we refer to for purposes of this section as
"CAPM"), which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any,
future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The illustrative terminal value to EBITDA
multiple range for SRC was derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples implied by SRC's trading prices (and
estimates of next-twelve-months EBITDA as reported by Institutional Brokers' Estimate System ("IBES")) over certain prior periods.
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Goldman
Sachs derived a range of illustrative enterprise values for SRC by adding the range of present values it derived above. Goldman Sachs then subtracted from the range of illustrative enterprise
values it derived for SRC the amount of SRC's net debt as of June 30, 2019, as provided by the management of SRC, to derive a range of illustrative equity values for SRC. Goldman Sachs then
divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of SRC common stock, as provided by the management of SRC, to derive a range of
illustrative values per share of SRC common stock ranging from $3.20 to $6.26.
Illustrative Discounted Cash Flow AnalysisPDC Standalone. Using the PDC Standalone Forecasts, Goldman Sachs performed a
discounted cash
flow analysis of shares of PDC common stock on a standalone basis. Using discount rates ranging from 7.5% to 9.0%, reflecting estimates of PDC's weighted average cost of capital, Goldman Sachs
discounted to present value as of June 30, 2019 (i) estimates of unlevered free cash flow for PDC for July 1, 2019 through December 31, 2024 as reflected in the PDC
Standalone Forecasts and (ii) a range of illustrative terminal values for PDC, which were calculated by applying an illustrative terminal value to EBITDA multiple range of 2.5x to 4.0x to
estimated terminal year EBITDA for PDC, was reflected in the PDC Standalone Forecasts. Goldman Sachs derived such range of discount rates by application of CAPM, which requires certain
company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax
rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The illustrative terminal value to EBITDA multiple range for PDC was derived by
Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples implied by PDC's trading prices (and estimates of next-twelve-months EBITDA as
reported by IBES) over certain prior periods. Goldman Sachs derived a range of illustrative enterprise values for PDC by adding the range of present values it derived above. Goldman Sachs then
subtracted from the range of illustrative enterprise values it derived for PDC the amount of PDC's net debt as of June 30, 2019, as provided by the management of PDC, and added to such range
the estimated present value of the unconditional contingent payment to be made to PDC in connection with the sale of its midstream assets, as provided by the management of PDC, in each case as
approved for Goldman Sachs' use by the management of SRC, to derive a range of illustrative equity values for PDC. Goldman Sachs then divided the range of illustrative equity values it derived by the
number of fully diluted outstanding shares of PDC common stock, as provided by the management of PDC and approved for Goldman Sachs' use by the management of SRC, to derive a range of illustrative
values per share of PDC common stock ranging from $21.27 to $44.56.
Illustrative Discounted Cash Flow AnalysisImplied Valuation Uplift. Using the Pro Forma Forecasts, Goldman Sachs performed an
illustrative discounted cash flow analysis of the combined company on a pro forma basis as of June 30, 2019. Using discount rates ranging from 7.5% to 9.0%, reflecting estimates of the pro
forma combined company's weighted average cost of capital, Goldman Sachs discounted to present value as of June 30, 2019, (i) estimates of unlevered free cash flow for the pro forma
combined company for July 1, 2019 through December 31, 2024 as reflected in the Pro Forma
Forecasts and (ii) a range of illustrative terminal values for the pro forma combined company, which were calculated by applying an illustrative terminal value to EBITDA multiple range of 2.75x
to 4.25x to estimated terminal year EBITDA for the pro forma combined company, was reflected in the Pro Forma Forecasts. Goldman Sachs derived such range of discount rates by application of CAPM,
which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future
applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The illustrative terminal value to EBITDA multiple
ranges for the pro forma combined company were derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples implied by SRC's and
PDC's trading prices over certain prior periods (and estimates of next-twelve-months
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EBITDA
for SRC and PDC as reported by IBES). Goldman Sachs derived ranges of illustrative enterprise values for the pro forma combined company by adding the ranges of present values it derived above.
Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for the pro forma combined company the pro forma net debt for the combined company as of June 30, 2019,
as provided by management of PDC, and added to such range the estimated present value of the unconditional contingent payment to be made to PDC in connection with the sale of its midstream assets, as
provided by the management of PDC, in each case as approved for Goldman Sachs' use by the management of SRC, to derive a range of illustrative equity values for the pro forma combined company. Goldman
Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the pro forma combined company, as provided by management of PDC and approved
for Goldman Sachs' use by the management of SRC, to derive a range of illustrative values per share of PDC common stock pro forma for the merger. Goldman Sachs then calculated a range of illustrative
implied values for the pro forma value to be received per share of SRC common stock pursuant to the merger agreement by multiplying the range of implied values per share of PDC common stock pro forma
for the merger derived from the above analysis by the exchange ratio. This analysis resulted in a range of illustrative implied values for the pro forma value to be received per share of SRC common
stock pursuant to the merger agreement of $3.86 to $7.28.
Illustrative Net Asset Value AnalysisSRC. Goldman Sachs performed an illustrative net asset value analysis of SRC. Goldman Sachs
calculated indications of the present value of the after-tax future cash flows that SRC could be expected to generate from its existing proved developed reserves, its development plan for proved
undeveloped reserves and development of additional undeveloped reserves using the SRC Forecasts. Goldman Sachs calculated indications of net present values of the after-tax cash flows for SRC using
discount rates ranging from 7.5% to 9.0%, reflecting an estimate of SRC's weighted average cost of capital. Goldman Sachs then calculated indications of SRC's illustrative net asset value by adding to
the indications of the pre-tax future cash flows for such reserves (i) the present value of estimated mark to market commodity hedges, and subtracting (ii) (A) the present value
of general and administrative costs, (B) the estimated face value of SRC's net debt as of June 30, 2019 and (C) the present value of taxes payable by SRC, calculated using the SRC
Forecasts and SRC's net debt provided by the management of SRC for Goldman Sachs' use and by applying discount rates ranging from 7.5% to 9.0%, reflecting an
estimate of SRC's weighted average cost of capital. Goldman Sachs derived such discount rates by application of CAPM, which requires certain company-specific inputs, including the company's target
capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain
financial metrics for the United States financial markets generally. This analysis implied an illustrative range of net asset values per share of SRC common stock from $4.11 to $5.16.
Illustrative Net Asset Value AnalysisPDC Standalone. Goldman Sachs performed an illustrative net asset value analysis of PDC.
Goldman
Sachs calculated indications of the present value of the after-tax future cash flows that PDC could be expected to generate from its existing proved developed reserves, its development plan for proved
undeveloped reserves and development of additional undeveloped reserves using the PDC Forecasts. Goldman Sachs calculated indications of net present values of the after-tax cash flows for PDC using
discount rates ranging from 7.5% to 9.0%, reflecting an estimate of PDC's weighted average cost of capital. Goldman Sachs then calculated indications of PDC's illustrative net asset value by adding to
the indications of the pre-tax future cash flows for such reserves (i) (A) the present value of estimated mark to market commodity hedges and (B) the present value of net operating
losses and subtracting (ii) (A) the present value of general and administrative costs, (B) the estimated face value of PDC's net debt as of June 30, 2019, (C) the
present value of taxes payable by PDC and (D) certain contingent payments due by PDC, calculated using the PDC Standalone Forecasts, PDC's estimated net operating loss balance and PDC's net
debt provided by the management of PDC, as approved for Goldman Sachs' use by SRC management, and by applying discount rates ranging from 7.5% to 9.0%, reflecting an estimate of PDC's weighted average
cost of
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capital.
Goldman Sachs derived such discount rates by application of CAPM, which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of
long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States
financial markets generally. This analysis implied an illustrative range of net asset values per share of PDC common stock from $24.65 to $29.97.
Illustrative Present Value of Future Share Price AnalysisSRC. Goldman Sachs performed an illustrative analysis of the implied
present
values of illustrative future values per share of SRC common stock, which is designed to provide an indication of the present value of a theoretical future value of a company's equity as a function of
such company's financial multiples. Goldman Sachs calculated the implied values per share of SRC common stock as of December 31 for each of the years 2020 to 2023, by applying a range of
illustrative one-year forward EV/EBITDA multiples of 3.0x to 4.5x to estimated EBITDA for SRC for each of the years 2021 to 2024, as reflected in the SRC Forecasts
(which we refer to for purposes of this section as the "2021 SRC EBITDA Estimate", the "2022 SRC EBITDA Estimate", "2023 SRC EBITDA Estimate" and the "2024 SRC EBITDA Estimate", respectively). The
illustrative EV/EBITDA multiple range for SRC was derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples implied by trading
prices for shares of SRC common stock (and estimates of next-twelve-months EBITDA as reported by IBES) over certain prior periods. Goldman Sachs then discounted to present value as of June 30,
2019, using an illustrative discount rate of 8.6%, reflecting an estimate of SRC's cost of equity, the range of illustrative equity values it derived for SRC as of December 31 for each of 2020
to 2023. Goldman Sachs then divided the range of illustrative present equity values it derived for SRC by the number of fully diluted outstanding shares of SRC common stock, as provided by management
of SRC. This analysis resulted in a range of illustrative implied present values per share of SRC common stock of (i) $2.62 to $5.26 using the 2021 SRC EBITDA Estimate, (ii) $2.53 to
$4.93 using the 2022 SRC EBITDA Estimate, (iii) $3.51 to $6.16 using the 2023 SRC EBITDA Estimate and (iv) $3.48 to $6.06 using the 2024 SRC EBITDA Estimate.
Illustrative Present Value of Future Share Price AnalysisPDC Standalone. Goldman Sachs performed an illustrative analysis of the
implied
present values of illustrative future values per share of PDC common stock. Goldman Sachs calculated the implied values per share of PDC common stock as of December 31 for each of the years
2020 to 2023, by applying a range of illustrative one-year forward EV/EBITDA multiples of 2.5x to 4.0x to estimated EBITDA for PDC for each of the years 2021 to 2024, as reflected in the PDC
Standalone Forecasts (which we refer to for purposes of this section as the "2021 PDC EBITDA Estimate", the "2022 PDC EBITDA Estimate", "2023 PDC EBITDA Estimate" and the "2024 PDC EBITDA Estimate",
respectively). The illustrative EV/EBITDA multiple range for PDC was derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples
implied by trading prices for shares of PDC common stock (and estimates of next-twelve-months EBITDA as reported by IBES) over certain prior periods. Goldman Sachs then discounted to present value as
of June 30, 2019, using an illustrative discount rate of 8.6%, reflecting an estimate of PDC's cost of equity, the range of illustrative equity values it derived for PDC as of
December 31 for each of 2020 to 2023. Goldman Sachs then divided the range of illustrative present equity values it derived for PDC by the number of fully diluted outstanding shares of PDC
common stock, as provided by management of PDC. This analysis resulted in a range of illustrative implied present values per share of PDC common stock of (i) $20.31 to $40.58 using the 2021 PDC
EBITDA Estimate, (ii) $23.51 to $45.23 using the 2022 PDC EBITDA Estimate, (iii) $24.87 to $46.65 using the 2023 PDC EBITDA Estimate and (iv) $24.73 to $44.87 using the 2024 PDC
EBITDA Estimate.
Illustrative Present Value of Future Share Price AnalysisImplied Valuation Uplift. Goldman Sachs performed an illustrative
analysis of
the implied present values of illustrative future values per share of the
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combined
company on a pro forma basis and calculated the implied valuation uplift per share of SRC common stock upon consummation of the merger. Goldman Sachs calculated the implied values per share
of the combined company on a pro forma basis as of December 31 for each of the years 2020 to 2023, by applying a range of illustrative one-year forward EV/EBITDA multiples of 2.75x to 4.25x to
estimated EBITDA for the pro forma combined company for each of the years 2021 to 2024, as reflected in the Pro Forma Forecasts (which we refer to for purposes of this section as the "2021 Pro Forma
EBITDA Estimate", the "2022 Pro Forma EBITDA Estimate", the "2023 Pro Forma EBITDA Estimate" and the "2024 Pro Forma EBITDA Estimate", respectively). The illustrative EV/EBITDA multiple range for the
pro forma combined company was derived by Goldman Sachs using its professional judgment and experience, taking into account, among other things, EBITDA multiples implied by trading prices of shares of
SRC common stock and shares of PDC common stock (and estimates of next-twelve-months EBITDA for SRC and PDC as reported by IBES) over certain prior periods. Goldman Sachs then discounted to present
value as of June 30, 2019, using an illustrative discount rate of 8.6%, reflecting an estimate of the pro forma combined company's cost of equity, the range of illustrative equity values it
derived for the shares of the pro forma combined company as of December 31 for each of 2020 to 2023. Goldman Sachs then divided the range of illustrative present equity values it derived for
the shares of the pro forma combined company by the number of fully diluted outstanding shares for the pro forma combined company, as provided by management of PDC and approved for Goldman Sachs' use
by the management of SRC. Goldman Sachs then calculated a range of illustrative implied values for the pro forma value to be received per share of SRC common stock pursuant to the merger agreement by
multiplying the range of implied values per share of the pro forma combined company derived from the above analysis by the exchange ratio. This analysis resulted in a range of illustrative implied
values for the pro forma value to be received per share of SRC common stock pursuant to the merger agreement of (i) $3.36 to $6.47 using the 2021 Pro Forma EBITDA Estimate, (ii) $3.84 to
$6.99 using the 2022 Pro Forma EBITDA Estimate, (iii) $4.07 to $7.16 using the 2023 Pro Forma EBITDA Estimate and (iv) $4.30 to $7.24 using the 2024 Pro Forma EBITDA Estimate.
Premia Analysis. Using publicly available information, Goldman Sachs reviewed and analyzed the acquisition premia (discounts) for U.S.
E&P
transactions announced from January 1, 2009 through August 23, 2019 involving a public target company where the disclosed transaction value was between $1 billion and
$10 billion.
For
the entire period, using publicly available information, Goldman Sachs calculated the premia (discount) of the price paid in each of the all-stock U.S. E&P acquisition transactions
relative to the target company's last closing stock price prior to announcement of the transaction. This analysis indicated a range of illustrative premia (discount) of (2.0)% to 37.7%. Goldman Sachs
then applied this reference range of illustrative premia (discount) to the closing price per share of SRC common stock as of the last trading date to calculate an illustrative range of implied prices
per share of SRC common stock of $3.89 to $5.47. While none of the transactions used in the above analyses as a comparison is directly comparable to the contemplated transaction, such transactions
were U.S. E&P transactions of a size that, for purposes of analysis, in Goldman Sachs' professional judgment, may be considered similar to the contemplated transaction.
The
preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to
fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly
comparable to SRC or PDC or the merger.
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Goldman Sachs prepared these analyses for purposes of Goldman Sachs' providing its opinion to the SRC board as to the fairness from a financial point of view of
the exchange ratio pursuant to the merger agreement to the holders (other than PDC and its affiliates) of shares of SRC common stock. These analyses do not purport to be appraisals nor do they
necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of SRC, PDC, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The
exchange ratio was determined through arm's-length negotiations between SRC and PDC and was approved by the SRC board. Goldman Sachs provided advice to SRC during these negotiations.
Goldman Sachs did not, however, recommend any specific exchange ratio to SRC or its board of directors or that any specific exchange ratio constituted the only appropriate exchange ratio for the
merger.
As
described above, Goldman Sachs' opinion to the SRC board was one of many factors taken into consideration by the SRC board in making its determination to approve the merger agreement.
The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to
the written opinion of Goldman Sachs attached as Annex D.
Goldman
Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and
non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other
economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit
default swaps and other financial instruments of SRC, PDC, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the merger. Goldman Sachs acted as
financial advisor to SRC in connection with, and participated in certain of the negotiations leading to, the merger. In addition, Goldman Sachs has provided certain financial advisory and/or
underwriting services to PDC and/or its affiliates from time to time for which the investment banking division of Goldman Sachs has received, and may receive, compensation, including having acted as
co-manager with respect to PDC's offering of 5.75% senior unsecured notes due 2026 (aggregate principal amount $600,000,000) in November 2017. During the two-year period ended August 25, 2019,
Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to PDC and/or its affiliates of approximately $60,000. During
the two-year period ended August 25, 2019, the Investment Banking Division of Goldman Sachs has not been engaged by SRC or its affiliates to provide financial advisory or underwriting services
for which Goldman Sachs has recognized compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to SRC, PDC and their respective affiliates for which
the Investment Banking Division of Goldman Sachs may receive compensation.
The
SRC board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar
to the merger. Pursuant to a letter agreement dated August 7, 2019 (as amended August 25, 2019), SRC engaged Goldman Sachs to act as its financial advisor in connection with the merger.
The engagement letter between SRC and Goldman Sachs provides for a transaction fee of $12 million, approximately $9 million of which is contingent upon consummation of the transaction.
Goldman Sachs may receive an additional fee of up to $3.5 million at SRC's sole discretion. In addition, SRC has agreed to reimburse Goldman Sachs for certain of its expenses, including
attorneys' fees and disbursements, and
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to
indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
FUTURE STOCKHOLDER PROPOSALS
PDC Stockholder Proposals
PDC will hold an annual meeting of stockholders in 2020 (which we refer to as the "PDC 2020 annual meeting") regardless of whether the merger
has been completed.
Any
proposal that a stockholder wishes to include in PDC's proxy statement for the 2020 annual meeting of stockholders must be received by PDC at its principal office on or prior to
December 18, 2019, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to:
Corporate
Secretary
PDC Energy, Inc.
1775 Sherman Street, Suite 3000
Denver, CO, 80203
Any
proposal or nomination for director that a stockholder wishes to propose for consideration at the PDC 2020 annual meeting of stockholders, but does not seek to include in PDC's proxy
statement under applicable SEC rules, must be submitted in accordance with Section 2.9(A)(2) of the PDC bylaws, which provides that no business may be brought before an annual meeting of
stockholders unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the board of directors or by a stockholder entitled to vote who
has delivered advance notice to PDC. The notice must contain certain information specified in the bylaws and be delivered to the Corporate Secretary at the address set forth above not less than
80 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting. In the case of the 2020 annual meeting, the notice must be delivered between
February 29, 2020 and March 10, 2020. However, the bylaws also provide that if the meeting is held more than 30 days before the anniversary of the prior year's annual meeting or
60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which public announcement of the date of the annual meeting is first made by PDC.
Pursuant
to SEC Rule 14a-4(c)(1), if PDC's corporate secretary receives any stockholder proposal at the address listed above that is not timely under the PDC bylaws or after
March 2, 2020 if the bylaw deadline does not apply, the proxies designated by the PDC board of directors will have discretionary authority to vote on such proposal.
SRC Shareholder Proposals
If the merger agreement is not approved by the requisite vote of the SRC shareholders or if the merger is not completed for any reason, SRC
intends to hold an annual meeting of its shareholders in 2020 (which we refer to as the "SRC 2020 annual meeting").
Any
proposal that a shareholder wishes to include in SRC's proxy statement for the 2020 annual meeting of shareholders must be received by SRC at its principal office on or prior to
November 30, 2019, and must be submitted in compliance with SEC Rule 14a-8. Proposals should be addressed to:
SRC
Energy Inc.
Attention: Corporate Secretary
1675 Broadway, Suite 2600
Denver, CO 80202
Any
proposal or nomination for director that a shareholder wishes to propose for consideration at the SRC 2020 annual meeting of shareholders, but does not seek to include in SRC's proxy
statement under applicable SEC rules, must be submitted in accordance with Article II of the SRC bylaws, which provides that no business may be brought before an annual meeting of shareholders
unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction
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of
the board of directors or by a shareholder entitled to vote who has delivered advance notice to SRC. The advance notice must contain certain information specified in the SRC bylaws and be delivered
to the corporate secretary at the address set forth above not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting. In the case
of the SRC 2020 annual meeting, the notice must be delivered between January 16, 2020 and February 15, 2020. However, the SRC bylaws also provide that if the meeting is held more than
30 days before the anniversary of the prior year's annual meeting or 60 days after such anniversary, notice can generally be given not later than the tenth day following the day on which
public announcement of the date of the annual meeting is first made by SRC.
Pursuant
to SEC Rule 14a-4(c)(1), if SRC's corporate secretary receives any shareholder proposal at the address listed above after February 13, 2020 that is intended to be
presented at the SRC 2020 annual meeting of shareholders, the proxies designated by the Board will have discretionary authority to vote on such proposal.
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WHERE YOU CAN FIND MORE INFORMATION
Both PDC and SRC file annual, quarterly and current reports, proxy statements and other business and financial information with the SEC. PDC and
SRC file reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You will also be
able to obtain many of these documents, free of charge, from PDC at http://www.pdce.com or from SRC by accessing SRC's website at http://www.srcenergy.com. The information contained on the websites of
the SEC, PDC and SRC is expressly not incorporated by reference into this joint proxy statement/prospectus.
PDC
has filed a registration statement on Form S-4 of which this document forms a part. As permitted by SEC rules, this document does not contain all of the information
included in the registration statement or in the exhibits or schedules to the registration statement. Statements contained in this document as to the contents of any contract or other documents
referred to in this document are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to or incorporated by reference
into the registration statement. These documents contain important information about PDC and SRC and their financial condition.
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INFORMATION INCORPORATED BY REFERENCE
The SEC allows PDC and SRC to incorporate certain information into this document by reference to other information that has been filed with the
SEC. The information incorporated by reference is deemed to be part of this document, except for any information that is superseded by information in this document or by more recent information
incorporated by reference into this document. The documents that are incorporated by reference contain important information
about PDC and SRC, and you should read this document together with any other documents incorporated by reference in this document.
This
document incorporates by reference the following documents that have previously been filed with the SEC by PDC:
-
-
PDC's Annual Report on Form 10-K
for the year ended December 31, 2018;
-
-
the information specifically incorporated by
reference into the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 from PDC's definitive proxy statement on Schedule 14A;
-
-
PDC's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2019,
June 30, 2019 and
September 30, 2019;
-
-
PDC's Current Reports on Form 8-K, filed on
March 7, 2019,
May 31, 2019,
June 3, 2019,
June 13, 2019,
August 22, 2019,
August 26, 2019,
September 4, 2019 and
December 5, 2019; and
-
-
any description of shares of PDC common stock contained in a registration statement filed pursuant to the Exchange Act and any amendment or
report filed for the purpose of updating such description.
This
document also incorporates by reference the following documents that have previously been filed with the SEC by SRC:
In
addition, PDC and SRC are incorporating by reference (i) any documents they may file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of
the initial registration statement on Form S-4 filed by PDC on September 25, 2019, and prior to the effectiveness of the registration statement of which this joint proxy
statement/prospectus forms a part, and (ii) any documents they may file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this joint proxy
statement/prospectus and prior to the date of the respective special meetings of the PDC stockholders and the SRC shareholders, provided, however, that PDC and SRC are not incorporating by reference
any information furnished (but not filed), except as otherwise specified herein.
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You
may request copies of this joint proxy statement/prospectus and any of the documents incorporated by reference herein or certain other information concerning PDC or SRC, without
charge, upon written or oral request to the applicable company's principal offices. The respective addresses and phone numbers of such principal offices are listed below.
|
|
|
For PDC Stockholders:
PDC Energy, Inc.
1775 Sherman Street, Suite 3000
Denver, CO 80203
Attention: Corporate Secretary
Telephone: (303) 860-5800
|
|
For SRC Shareholders:
SRC Energy Inc.
1675 Broadway, Suite 2600
Denver, CO 80202
Attention: Corporate Secretary
Telephone: (720) 616-4300
|
To
obtain timely delivery of these documents before the PDC special meeting, PDC stockholders must request the information no later than January 6, 2020 (which is five business
days before the date of the PDC special meeting).
To
obtain timely delivery of these documents before the SRC special meeting, SRC shareholders must request the information no later than January 6, 2020 (which is five business
days before the date of the SRC special meeting).
Neither
PDC nor SRC has authorized anyone to give any information or make any representation about the merger or its companies that is different from, or in addition to, that contained
in this document or in any of the materials that have been incorporated into this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a
person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the
date of this document unless the information specifically indicates that another date applies.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
by and between
PDC ENERGY, INC.
and
SRC ENERGY INC.
Dated as
of August 25, 2019
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 25, 2019 (this "Agreement"), by and
between PDC Energy, Inc., a Delaware corporation ("Parent"), and SRC Energy Inc., a Colorado corporation (the
"Company").
WHEREAS,
the Company and Parent desire, upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, to effect the Merger (as defined herein);
WHEREAS,
the board of directors of the Company (the "Company Board"), at a meeting duly called and held, by unanimous vote,
(i) determined that this Agreement and the Transactions, including the Merger, are fair to, and in the best interests of, the Company and the Company's shareholders, (ii) adopted and
approved this Agreement and the Merger, (iii) directed that this Agreement and the
Merger be submitted to the holders of common stock of Company, par value $0.001 per share ("Company Common Stock") for approval and
(iv) recommended that the holders of Company Common Stock approve this Agreement and the Merger;
WHEREAS,
the board of directors of Parent (the "Parent Board"), at a meeting duly called and held, by unanimous vote,
(i) determined that this Agreement and the Transactions, including the Merger and the issuance of shares of common stock of Parent, par value $0.01 per share (the
"Parent Common Stock") pursuant to this Agreement (the "Parent Common Stock Issuance"), are fair to, and
in the best interests of, Parent and Parent's stockholders, (ii) adopted and approved this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance,
(iii) directed that this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance be submitted to the holders of Parent Common Stock for adoption and approval
and (iv) recommended that the holders of Parent Common Stock adopt and approve this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance; and
WHEREAS,
for U.S. federal income Tax purposes, it is intended that the Merger qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and the Treasury regulations promulgated thereunder (the "Treasury
Regulations") and this Agreement constitute and be adopted as a "plan of reorganization" within the meaning of Treasury Regulations §§ 1.368-2(g)
and 1.368-3(a).
NOW,
THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained in this Agreement, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Parent and the Company agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the capitalized terms have the meanings ascribed
to such terms in Annex A or as
otherwise defined elsewhere in this Agreement.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time,
the Company will be merged with and into Parent in accordance with the
provisions of the DGCL and the CBCA (the "Merger"). As a result of the Merger, the separate existence of the Company shall cease and Parent shall
continue its existence under the laws of the State of Delaware as the surviving corporation (in such capacity, Parent is sometimes referred to herein as the "Surviving
Corporation").
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2.2 Closing.
(a) The
closing of the Merger (the "Closing"), shall take place at 8:00 a.m., Mountain time, on a date that is two
(2) Business Days following the satisfaction or (to the extent permitted by applicable Law) waiver in accordance with this Agreement of all of the conditions set forth in Article VII
(excluding conditions that, by their nature, are to be satisfied by actions taken at the Closing, but subject to the satisfaction or
waiver of all conditions as of the Closing) at the offices of Wachtell, Lipton, Rosen & Katz in New York, New York, or at such other time and place as Parent and the Company may agree in
writing. For purposes of this Agreement, "Closing Date" shall mean the date on which the Closing occurs.
(b) As
early as practicable on the Closing Date, (i) a statement of merger containing such information as is required by the relevant provisions of the CBCA in order
to effect the Merger with the Secretary of State of the State of Colorado (the "Statement of Merger") shall be filed with the Office of the Secretary of
State of the State of Colorado and (ii) a certificate of merger prepared and executed in accordance with the relevant provisions of the DGCL (the "Certificate of
Merger") shall be filed with the Office of the Secretary of State of the State of Delaware. The Merger shall become effective at such time as is specified in the Statement of
Merger and Certificate of Merger or at such other date and time as may be provided by applicable Law (the "Effective Time").
2.3 Effect of the Merger. At the Effective Time, the Merger shall have the effects set forth in this
Agreement and the applicable provisions of the CBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all rights, immunities, and franchises of each of the Company and Parent, of a public as well as a private nature, and all
debts and obligations due the Company and Parent, shall be taken and deemed to be transferred and vested in the Surviving Corporation, and the Surviving Corporation shall be responsible and liable for
all of the liabilities and obligations of the Company and Parent.
2.4 Organizational Documents of the Surviving Corporation.
(a) At
the Effective Time, subject to Section 6.10(b), the Organizational Documents of Parent in effect immediately
prior to the Effective Time shall continue to be the Organizational Documents of the Surviving Corporation until thereafter amended as provided therein or as provided by applicable Law.
2.5 Directors and Officers of the Surviving Corporation.
(a) Parent
shall take all action to cause, effective at, and contingent upon, the Effective Time, the appointment to the Parent Board of two members of the Company Board
(such individuals to be mutually agreed upon by Parent and the Company), one director to serve as a Class I director with a term ending at the 2020 annual meeting of the stockholders of Parent,
and one director to serve as a Class III director with a term ending at the 2022 annual meeting of the stockholders of Parent.
(b) Subject
to Section 2.5(a), the directors and officers of Parent immediately prior to the Effective Time shall be
the directors and officers of the Surviving Corporation, and such directors and officers shall serve until their respective successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.
2.6 Tax Consequences. The parties intend that for U.S. federal income Tax purposes, (a) the
Merger shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and (b) this Agreement, including any amendment thereto, be and is hereby adopted as a "plan of reorganization" involving the Merger for purposes of
Section 354 and Section 361 of the Code.
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ARTICLE III
EFFECT OF MERGER ON THE CAPITAL STOCK OF THE COMPANY; EXCHANGE
3.1 Effect of the Merger on Capital Stock. At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, the Company or any holder of any securities of Parent or the Company:
(a) Capital Stock of the Company.
(i) Subject
to the other provisions of this Article III, each share of Company Common Stock, issued and outstanding
immediately prior to the Effective Time (excluding any Cancelled Shares and any Converted Shares), shall be converted into and shall thereafter represent the right to receive 0.158 (the
"Exchange Ratio") of a validly issued, fully paid and nonassessable shares of Parent Common Stock (such shares of Parent Common Stock, the
"Merger Consideration").
(ii) Subject
to the other provisions of this Article III, all such shares of Company Common Stock, when so converted
pursuant to Section 3.1(a)(i), shall automatically be cancelled and cease to exist. Each holder of a share of Company Common Stock that was
outstanding immediately prior to the Effective Time (other than Cancelled Shares and Converted Shares) shall cease to have any rights with respect thereto, except the right to receive (A) the
Merger Consideration, (B) any dividends or other distributions in accordance with Section 3.3(g), and (C) any cash to be paid in
lieu of any fractional shares of Parent Common Stock in accordance with Section 3.3(h), in each case to be issued or paid in consideration
therefor upon the surrender of any Certificates or Book-Entry Shares, as applicable, in accordance with Section 3.3.
(iii) All
shares of Company Common Stock held by the Company as treasury shares or by Parent immediately prior to the Effective Time and, in each case, not held on behalf of
third parties (the "Cancelled Shares") shall automatically be cancelled and cease to exist as of the Effective Time, and no
consideration shall be delivered in exchange therefor. Each share of Company Common Stock that is owned by any direct or indirect Subsidiary of the Company or Parent
("Converted Shares") shall automatically be converted into a number of validly issued, fully paid and nonassessable shares of Parent Common Stock equal
to the Exchange Ratio.
(iv) Each
share of Parent Common Stock issued and outstanding immediately prior to the Effective Time shall remain outstanding following the Merger as a share of Parent
Common Stock.
(b) Impact of Stock Splits, Etc. Without limiting the parties' respective obligations
under Section 6.1 and Section 6.2, in the event of any change in (i) the number of
shares of Company Common Stock, or securities convertible or exchangeable into or exercisable for shares of Company Common Stock or (ii) the number of shares of Parent Common Stock, or
securities convertible or exchangeable into or exercisable for shares of Parent Common Stock (including options to purchase Parent Common Stock), in each case issued and outstanding after the date of
this Agreement and prior to the Effective Time by reason of any stock split, reverse stock split, stock dividend, subdivision, reclassification, recapitalization, combination, exchange of shares or
the like, the Exchange Ratio shall be equitably adjusted to reflect the effect of such change and, as so adjusted, shall from and after the date of such event, be used to calculate the Merger
Consideration, subject to further adjustment in accordance with this Section 3.1(b).
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3.2 Treatment of Company Equity Awards.
(a) Company RSU Awards. Immediately prior to the Effective Time, each then outstanding Company RSU Award,
whether vested or unvested, shall automatically, and without any action on the part of the holder thereof, become fully vested and, in lieu of the issuance of shares of Company Common Stock in respect
of such Company RSU Award, each outstanding Company RSU Award shall be cancelled and converted automatically, without any action on the part of the holder thereof, into the right to receive the Merger
Consideration in respect of each share of Company Common Stock subject to such Company RSU Award as of immediately prior to the Effective Time (less required withholdings as provided in Section 3.3(i)); provided that if such Company RSU Award is subject to Section 409A of the Code, the Merger Consideration shall be paid on
the applicable settlement date for such Company RSU Award if required by the terms of the applicable award agreement to comply with Section 409A of the Code.
(b) Company PSU Awards. Except as provided with respect to the New Company PSU Awards in Section 3.2(c), immediately
prior to the Effective Time, each then outstanding Company PSU Award, whether vested or unvested, shall
automatically, and without any action on the part of the holder thereof, become vested (with performance-based vesting to be deemed satisfied as if performance had been achieved at the target level
(i.e., 100%)) and, in lieu of the issuance of the target number of shares of Company Common Stock in respect of such Company PSU Award, each then
outstanding Company PSU Award shall be cancelled and converted automatically, without any action on the part of the holder thereof, into the right to receive the Merger Consideration in respect of
each share of Company Common Stock subject to such Company PSU Award (with such number of shares determined by deeming the applicable performance goals to be achieved at the target level of
performance (i.e., 100%) (less required withholdings as provided in Section 3.3(i));
provided that if such Company PSU Award is subject to Section 409A of the Code, the Merger Consideration shall be paid on the applicable settlement date for such Company PSU Award if required
by the terms of the applicable award agreement to comply with Section 409A of the Code. Any Company PSUs that do not vest as described in the immediately preceding sentence
(i.e., any Company PSUs that would have been earned if performance was achieved in excess of target) shall be canceled for no consideration.
(c) New Company PSU Awards. The Company shall grant the New Company PSU Awards (as defined on Schedule 3.2(c) of the
Company Disclosure Letter) at the times, to the individuals, and on the terms and in the amounts, set forth on Schedule 3.2(c) of the Company Disclosure Letter. Immediately prior to the Effective
Time, each then outstanding New Company PSU Award shall,
automatically, and without any action on the part of the holder, be assumed or substituted by Parent and converted automatically into a restricted stock unit award with respect to a number of shares
of Parent Common Stock equal to the product obtained by multiplying (i) the total number of shares of Company Common Stock subject to the New Company PSU Award immediately prior to the
Effective Time by (ii) the Exchange Ratio and rounding the resulting number to the nearest whole number of shares of Parent Common Stock (each, a "Parent Assumed PSU
Award"). Each Parent Assumed PSU Award shall remain outstanding under the 2015 Company Equity Plan and shall otherwise be subject to the same terms and conditions as were
applicable to the New Company PSU Award immediately prior to the Effective Time including any performance-based vesting terms (and which for the avoidance of doubt shall not become vested upon the
Effective Time and may, subject to the achievement of applicable performance goals following the Closing, be earned at the levels set forth in the applicable award agreement).
(d) Company Options. Immediately prior to the Effective Time, each then outstanding In-the-Money Company Option
shall, whether vested or unvested, automatically become fully vested and each then outstanding In-the-Money Company Option shall be cancelled and converted automatically into the right to receive, in
respect of each Net Option Share subject to such
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In-the-Money
Company Option immediately prior to the Effective Time, the Merger Consideration (less required withholdings as provided in Section 3.3(i)). Immediately prior to the Effective Time, each then
outstanding Out-of-the-Money Company Option shall, to the extent unvested,
automatically become fully vested, and each then outstanding Out-of-the-Money Company Option shall be cancelled in exchange for no consideration.
(e) Company Stock Bonus Awards. Immediately prior to the Effective Time, each then outstanding Company Stock
Bonus Award, whether vested or unvested, shall automatically, and without any action on the part of the holder thereof, become fully vested and, in lieu of the issuance of shares of Company Common
Stock in respect of such Company Stock Bonus Award, each outstanding Company Stock Bonus Award shall be cancelled and converted automatically, without any action on the part of the holder thereof,
into the right to receive the Merger Consideration in respect of each share of Company Common Stock subject to such Company Stock Bonus Award as of immediately prior to the Effective Time (less
required withholdings as provided in Section 3.3(i)); provided that if such Company Stock Bonus Award is subject to Section 409A of the
Code, the Merger Consideration shall be paid on the applicable settlement date for such Company Stock Bonus Award if required by the terms of the applicable award agreement to comply with
Section 409A of the Code.
(f) Company Actions. Prior to the Effective Time, the Company Board and/or the duly authorized compensation
committee of the Company Board shall adopt resolutions approving the treatment of the Company Equity Awards pursuant to the terms of this Section 3.2, to the extent applicable.
(g) Surviving Corporation/Parent Actions. The Surviving Corporation shall take all necessary actions promptly
following the Effective Time to pay the Merger Consideration payable to the holders of the Company Equity Awards immediately prior to the Effective Time in accordance with this Section 3.2 and
Section 3.3. At or prior to the Effective Time, Parent shall take such
actions as are necessary to reserve for issuance a number of authorized but unissued shares of Parent Common Stock for delivery upon settlement of the Parent Assumed PSU Awards. Not later than the
Effective Time, to the extent necessary, Parent shall, with respect to the Parent Assumed PSU Awards, file with the SEC a registration statement on Form S-3 or Form S-8, as the case may
be (or any successor form), or another appropriate form with respect to such Parent Common Stock and shall use commercially reasonable efforts to have such registration statement declared effective as
soon as practicable following such filing and, thereafter, until all Parent Assumed PSU Awards have been settled, the Surviving Corporation shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement.
3.3 Payment for Securities; Exchange.
(a) Exchange Agent; Exchange Fund. Prior to the Effective Time, Parent shall enter into an agreement with the
Company's transfer agent, or another firm reasonably acceptable to the Company and Parent, to act as agent for the holders of Company Common Stock in connection with the Merger (the
"Exchange Agent") and to receive the Merger Consideration and cash sufficient to pay any dividends and other distributions pursuant to Section 3.3(g)
and in lieu of fractional shares pursuant to Section 3.3(h) to which such
holders shall become entitled pursuant to this Article III. On the Closing Date and prior to the Effective Time, Parent shall deposit, or cause
to be deposited, with the Exchange Agent, for the benefit of the former holders of shares of Company Common Stock, for distribution in accordance with this Article III through the Exchange Agent,
the number of shares of Parent Common Stock constituting at least the amounts necessary to satisfy the
payment of the Merger Consideration to the holders of Company Common Stock outstanding immediately prior to the Effective Time pursuant to this Article III. Parent agrees to make available to the
Exchange Agent, from time to time as needed, cash sufficient to pay any
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dividends
and other distributions pursuant to Section 3.3(g) and to make payments in lieu of fractional shares pursuant to Section 3.3(h). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration contemplated to be issued in
exchange for shares of Company Common Stock pursuant to this Agreement out of the Exchange Fund to the holders of Company Common Stock. Except as contemplated by this Section 3.3(a) and
Sections 3.3(g) and 3.3(h),
the Exchange Fund shall not be used for any other purpose. Any cash and shares of Parent Common Stock deposited with the Exchange Agent (including as payment for fractional shares in accordance with Section 3.3(h)
and any dividends or other distributions in accordance with Section 3.3(g))
shall hereinafter be referred to as the "Exchange Fund." The Surviving Corporation shall pay all charges and expenses, including those of the Exchange
Agent, in connection with the exchange of shares for the Merger Consideration. Any interest or other income resulting from investment of the cash portion of the Exchange Fund shall become part of the
Exchange Fund.
(b) Payment Procedures.
(i) As
soon as practicable after the Effective Time, but in no event more than two (2) Business Days after the Closing Date, Parent shall cause the Exchange Agent to
deliver to each record holder, as of
immediately prior to the Effective Time, of (A) shares represented by a certificate or certificates that immediately prior to the Effective Time represented shares of Company Common Stock (the
"Certificates") or (B) shares of Company Common Stock represented by book-entry ("Book-Entry
Shares"), in each case other than Cancelled Shares or Converted Shares, a letter of transmittal ("Letter of Transmittal") (which
shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent or, in the case of
Book-Entry Shares, upon adherence to the procedures set forth in the Letter of Transmittal, and which shall be in a customary form and agreed to by Parent and the Company prior to the Closing) and
instructions for use in effecting the surrender of the Certificates or, in the case of Book-Entry Shares, the surrender of such shares, for payment of the Merger Consideration set forth in Section 3.1(a)(i)
.
(ii) Each
holder of a share of Company Common Stock that has been converted into a right to receive the Merger Consideration, upon surrender to the Exchange Agent of a
Certificate or a Book-Entry Share, together with the Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other customary documents as may
be reasonably required by the Exchange Agent, shall be entitled to receive in exchange therefor (A) one or more shares of Parent Common Stock (which shall be in noncertificated book-entry form
unless a physical certificate is requested by such holder) representing, in the aggregate, the whole number of shares of Parent Common Stock, if any, that such holder has the right to receive pursuant
to Section 3.1(a)(i) and (B) a check in the amount of any cash payable for dividends or other distributions pursuant to Section 3.3(g) and
cash payable in lieu of any fractional shares of Parent Common Stock payable pursuant to Section 3.3(h), and the Certificate or Book-Entry Shares so surrendered shall forthwith be cancelled. No
interest shall be paid or accrued for
the benefit of holders of the Certificates or Book-Entry Shares on the Merger Consideration payable in respect of the Certificates or Book-Entry Shares.
(iii) If
payment of the Merger Consideration is to be made to a Person other than the record holder of such shares of Company Common Stock, it shall be a condition of
payment that shares so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the Person requesting such payment shall have paid any transfer and other Taxes
required by reason of the payment of the Merger Consideration to a Person other than the registered holder of such shares surrendered or shall have established to the satisfaction of Parent that such
Taxes either have been paid or are not applicable. Until surrendered as
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contemplated
by Section 3.3(b)(ii), each Certificate and each Book-Entry Share shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender (A) the Merger Consideration payable in respect of such shares of Company Common Stock, (B) any dividends or other
distributions payable pursuant to Section 3.3(g), and (C) cash in lieu of any fractional shares of Parent Common Stock payable pursuant to Section 3.3(h)
.
(c) Termination of Rights. All Merger Consideration (including any dividends or other distributions with respect
to Parent Common Stock pursuant to Section 3.3(g) and any cash in lieu of fractional shares of Parent Common Stock pursuant to Section 3.3(h))
paid upon the surrender of and in exchange for shares of Company Common Stock in accordance with the terms hereof shall be deemed
to have been paid in full satisfaction of all rights pertaining to such Company Common Stock. At the Effective Time, the stock transfer books of the Surviving Corporation shall be closed immediately,
and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates or Book-Entry Shares are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged for the Merger
Consideration payable in respect of the shares of Company Common Stock previously represented by such Certificates or Book-Entry Shares (other than Certificates or Book-Entry Shares evidencing shares
of Company Common Stock described in Section 3.1(a)(iii)), any cash in lieu of fractional shares of Parent Common Stock to which the holders
thereof are entitled pursuant to Section 3.3(h) and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 3.3(g)
, without any interest thereon.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the former
shareholders of the Company on the 180th day after the Closing Date shall be delivered to the Surviving Corporation, upon demand, and any former common shareholders of the Company who have not
theretofore received the Merger Consideration, any cash in lieu of fractional shares of Parent Common Stock to which they are entitled pursuant to Section 3.3(h) and any dividends or other
distributions with respect to Parent Common Stock to which they are entitled pursuant to Section 3.3(g), in each case without interest thereon, to which they are entitled under this Article III shall thereafter look only to the Surviving Corporation for payment of their claim for such amounts.
(e) No Liability. Neither the Surviving Corporation nor the Exchange Agent shall be liable to any holder of
Company Common Stock for any amount of Merger Consideration properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate or
Book-Entry Share has not been surrendered prior to the time that is immediately prior to the time at which Merger Consideration in respect of such Certificate or Book-Entry Share would otherwise
escheat to or become the property of any Governmental Entity, any such shares, cash, dividends or distributions in respect of such Certificate or Book-Entry Share shall, to the extent permitted by
applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto.
(f) Lost, Stolen, or Destroyed Certificates. If any Certificate (other than a Certificate evidencing shares of
Company Common Stock described in Section 3.1(a)(iii)) shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the
Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration payable in respect of the shares of Company Common Stock formerly represented by such Certificate, any cash in lieu of
fractional shares of Parent Common Stock to which the holders thereof are entitled pursuant to Section 3.3(h) and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section 3.3(g).
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(g) Distributions with Respect to Unexchanged Shares of Parent Common Stock. No
dividends or other distributions declared or made with respect to shares of Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate
or Book-Entry Shares with respect to the whole shares of Parent Common Stock that such holder would be entitled to receive upon surrender of such Certificate or Book-Entry Shares and no cash payment
in lieu of fractional shares of Parent Common Stock shall be paid to any such holder, in each case until such holder shall surrender such Certificate or Book-Entry Shares in accordance with this Section 3.3. Following surrender of any such Certificate or Book-Entry Shares, there shall be paid to such holder of whole shares of Parent
Common Stock issuable in exchange therefor, without interest, (i) promptly after the time of such surrender, the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of 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 with a subsequent payment date with respect to such whole shares of Parent Common Stock. For purposes of dividends or other distributions in respect of shares of
Parent Common Stock, all whole shares of Parent Common Stock to be issued pursuant to the Merger shall be entitled to dividends pursuant to the immediately preceding sentence as if such whole shares
of Parent Common Stock were issued and outstanding as of the Effective Time.
(h) No Fractional Shares of Parent Common Stock. No fractional shares of Parent Common Stock shall be issued
upon the surrender for exchange of Certificates or Book-Entry Shares and such fractional share interests will not entitle the owner thereof to vote or to have any rights of a stockholder of Parent or
a holder of shares of Parent Common Stock. Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates and Book-Entry Shares delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Parent Common Stock multiplied by
(ii) the volume weighted average price of Parent Common Stock for the five (5) consecutive trading days ending on the date that is two (2) Business Days prior to the Closing Date
as reported by Bloomberg L.P. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates and Book-Entry Shares delivered by such holder), the
Exchange Agent shall so notify Parent, and Parent shall cause the Exchange Agent to forward payments to such holders of fractional interests subject to and in accordance with the terms hereof.
(i) Withholding Taxes. Notwithstanding anything in this Agreement to the contrary, Parent, the Surviving
Corporation and the Exchange Agent shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement any amount required to be deducted and withheld with respect
to the making of such payment under applicable Tax Laws. To the extent that any amounts are so deducted or withheld, 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 or withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter dated as of the date of this Agreement and delivered by the Company to Parent on or prior to the
date of this Agreement (the "Company Disclosure Letter") and except as disclosed in the Company SEC Documents filed prior to the date hereof (including
all exhibits and schedules thereto and documents incorporated by reference therein and excluding any
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disclosures
set forth or referenced in any risk factor section or in any other section, in each case, to the extent they are forward-looking statements or cautionary, predictive, non-specific or
forward-looking in nature), it being understood that any matter disclosed in such Company SEC Documents shall not be
deemed disclosed for purposes of Section 4.2(a), and Section 4.2(b) of this Agreement, the
Company represents and warrants to Parent as follows:
4.1 Organization, Standing and Power. The Company is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Colorado, with all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business as now being conducted, other than where the failure to be so organized or to have such power or authority has not had
and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole (a "Company
Material Adverse Effect"). The Company is duly qualified and in good standing to do business in each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary, other than where the failure to so qualify or be in good standing has not had and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Each Subsidiary of the Company is a corporation, partnership or limited liability company duly organized, as the case may be,
validly existing and in good standing under the Laws of its jurisdiction of incorporation or organization, with all requisite entity power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, other than where the failure to be so organized or to have such power or authority has not had and would not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. Each Subsidiary of the Company is duly qualified and in good standing to do business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than where the failure to so qualify or be in good standing has not had and would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The Company has heretofore made available to Parent complete and correct copies of the
Organizational Documents of the Company and each of its Subsidiaries that is, as of the date of this Agreement, a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X
(in each case, as amended prior to the date of this Agreement).
4.2 Capital Structure.
(a) As
of the date of this Agreement, the authorized capital stock of the Company consists of (i) 400,000,000 shares of Company Common Stock and
(ii) 10,000,000 shares of preferred stock, par value $0.01 per share ("Company Preferred Stock" and, together with the Company Common Stock, the
"Company Capital Stock"). At the close of business on August 23, 2019: (A) 243,500,877 shares of Company Common Stock were issued and
outstanding, which includes no restricted shares of Company Common Stock; (B) no shares of Company Common Stock were treasury stock; (C)4,577,834 shares of Company Common Stock were reserved
for issuance upon the exercise of outstanding Company Options; (D) 2,560,287 shares of Company Common Stock were reserved for issuance upon the vesting or earning of outstanding Company RSU
Awards; (E) 3,947,536 shares of Company Common Stock were reserved for issuance upon the vesting or earning of outstanding Company PSU Awards (assuming achievement of performance goals at
maximum); (F) 97,300 shares of Company Common Stock were reserved for issuance upon the vesting of outstanding Company Stock Bonus Awards; (G) no shares of Company Preferred Stock were
issued and outstanding and (H) 994,565 shares of Company Common Stock were reserved for issuance of future awards pursuant to the 2015 Company Equity Plan.
(b) All
outstanding shares of Company Capital Stock have been issued and granted in compliance in all material respects with (i) applicable securities Laws and other
applicable Law and (ii) all requirements set forth in applicable contracts (including the Company Equity Plans). All outstanding shares of capital stock or other equity interests of the
Subsidiaries of the Company
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are owned by the Company, or a direct or indirect owned Subsidiary of the Company, have been duly authorized, are validly issued, fully paid and non-assessable and are not subject to preemptive
rights and are free and clear of all Encumbrances, except for Permitted Encumbrances. All outstanding shares of Company Capital Stock have been duly authorized, are validly issued, fully paid and
non-assessable and are not subject to preemptive rights. Except as set forth in this Section 4.2, and except for changes since August 23,
2019 resulting from (x) stock grants or other equity-based awards granted, issued, repurchased or redeemed in accordance with Section 6.1(b) or (y) the exercise of stock options (and the
issuance of shares thereunder) or settlement of equity-based awards, in each
case, outstanding as of such date, there are outstanding: (i) no shares of Company Capital Stock, (ii) no Voting Debt or other voting securities or equity of the Company, (iii) no
options, subscriptions, warrants, calls, or other rights (including preemptive rights) to subscribe for, purchase, or acquire shares of Company Capital Stock or Voting Debt or other voting or equity
securities of the Company or any Subsidiary or securities convertible into or exchangeable or exercisable for shares of Company Capital Stock or Voting Debt or other voting or equity securities of the
Company or such Subsidiary, (iv) no equity appreciation, phantom equity, stock unit, profit participation, cash-settled equity equivalents or awards, equity-based performance or other similar
rights in respect of Company Capital Stock and (v) no other commitments or agreements to which the Company or any Subsidiary of the Company is a party or by which it is bound that would
(A) obligate the Company or any Subsidiary of the Company to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired,
additional shares of Company Capital Stock or any Voting Debt or other voting or equity securities of the Company or any of its Subsidiaries; (B) obligate the Company or any Subsidiary of the
Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement; or (C) obligate Parent to issue additional shares of Parent Common Stock at the Effective
Time pursuant to the terms of this Agreement (including pursuant to Section 3.1 and Section 3.2).
(c) There
are no shareholder agreements, voting trusts or other agreements to which the Company or any of its Subsidiaries is a party or by which it is bound relating to the
voting of any shares of the Company Capital Stock or other voting securities of the Company or any of its Subsidiaries. The Company and its Subsidiaries have no (i) material joint venture or
other similar material equity interests in any Person other than its Subsidiaries or (ii) obligations, whether contingent or otherwise, to consummate any material additional investment in any
Person other than its Subsidiaries. The Company owns, directly or indirectly, all of the equity interests of its Subsidiaries.
(d) Schedule 4.2(d) of the Company Disclosure Letter sets forth a complete and correct list, as of the date of this
Agreement, of (i) each outstanding Company Equity Award, (ii) the name of each holder of an outstanding Company Equity Award, (iii) the number of shares of Company Common Stock
underlying each outstanding Company Equity Award (assuming satisfaction of performance conditions at the maximum level), (iv) the date on which each outstanding Company Equity Award was granted
and (v) the expiration date of each outstanding Company Equity Award, if applicable. All outstanding Company Equity Awards were (A) granted in accordance with the terms of the applicable
Company Equity Plans, and in material compliance with the Exchange Act, all other applicable Laws and rules of the NYSE and (B) properly accounted for in all material respects in accordance
with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company SEC Documents in accordance with the Exchange Act and all other applicable Laws.
4.3 Authority; No Violations; Consents and Approvals.
(a) The
Company has all requisite corporate power and authority to execute and deliver this Agreement, perform its obligations hereunder and to consummate the Transactions,
subject, with
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respect
to consummation of the Merger, to the Company Shareholder Approval. The execution and delivery of this Agreement by the Company and the consummation by the Company of the Transactions have
been duly authorized by all necessary corporate action on the part of the Company, subject, with respect to consummation of the Merger, to the Company Shareholder Approval. This Agreement has been
duly executed and delivered by the Company and, assuming the due and valid execution of this Agreement by Parent, constitutes a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization, moratorium and other Laws of general applicability relating to or affecting creditors'
rights and to general principles of equity regardless of whether such enforceability is considered in a Proceeding in equity or at law (collectively, "Creditors'
Rights"). The Company Board, at a meeting duly called and held, unanimously: (i) determined that this Agreement and the Merger, are fair to, and in the best interests
of, the Company and the Company's shareholders, (ii) adopted and approved this Agreement and the Merger, (iii) directed that this Agreement and the Merger be submitted to the holders of
Company Common Stock for approval and (iv) recommended that the holders of Company Common Stock approve this Agreement and the Merger (such recommendation described in this clause (iv), the
"Company Board Recommendation"). The Company Shareholder Approval is the only
vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the Merger.
(b) The
execution, delivery and performance of this Agreement does not, and (assuming the Company Approvals are duly and timely obtained) the consummation of the
Transactions will not (with or without notice or lapse of time, or both) (i) contravene, conflict with or result in a violation of any provision of the Organizational Documents of the Company
(assuming that the Company Shareholder Approval is obtained) or any of its Subsidiaries, (ii) except as set forth on Schedule 4.3(b) of
the Company Disclosure Letter, require any notice, consent or approval under, result in a violation of, a termination (or right of termination) of, or default under, or the creation or acceleration of
any material obligation or the loss of a material benefit under, or result in the creation of any Encumbrance (other than a Permitted Encumbrance) upon any of the properties or assets of the Company
or any of its Subsidiaries under, any provision of any Company Contract or material Company Permit, or (iii) assuming the Company Approvals are duly and timely obtained or made and the Company
Shareholder Approval has been obtained, contravene, conflict with or result in a violation of any Law applicable to the Company or any of its Subsidiaries or any of their respective properties or
assets, other than, solely in the case of this clause (iii), any such contraventions, conflicts, or violations that have not had and would not
reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.4 Consents. No Consent from, order of, or registration, declaration, notice or filing with, or
permit from, any Governmental Entity is required to be obtained or made by the
Company or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement by the Company or the consummation by the Company of the Transactions, except for:
(a) the filing of a notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the
"HSR Act"), and the expiration or termination of the applicable waiting period with respect thereto; (b) the filing with the SEC of (i) a
joint proxy statement in preliminary and definitive form (including any amendments or supplements, the "Joint Proxy Statement") relating to the meeting
of the shareholders of the Company to consider the approval of this Agreement (including any postponement, adjournment or recess thereof, the "Company Shareholders
Meeting") and the meeting of the stockholders of the Parent to consider the approval of this Agreement and the Transactions, including the Merger and the Parent Common Stock
Issuance (including any postponement, adjournment or recess thereof, the "Parent Stockholders Meeting") and (ii) such reports under
Section 13(a) of the Exchange Act, and such other compliance with the Exchange Act and the rules and regulations thereunder, as may be required in connection with this
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and the Transactions; (c) the filing of the Statement of Merger with the Office of the Secretary of State of the State of Colorado and the Certificate of Merger with the Office of the
Secretary of State of the State of Delaware; (d) filings with the NYSE; (e) such filings and approvals as may be required by any applicable state securities or "blue sky" Laws or
Takeover Laws; and (f) any
such Consent, order, registration, declaration, notice, filing or permit that the failure to obtain or make would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect (collectively, the "Company Approvals").
4.5 SEC Documents; Financial Statements.
(a) Since
January 1, 2018, the Company has timely filed or furnished with the SEC all forms, reports, schedules and statements (in each case, including all
appropriate exhibits and schedules thereto) required to be filed or furnished under the Securities Act or the Exchange Act, respectively (such forms, reports, schedules and statements, collectively,
the "Company SEC Documents"). As of their respective dates, each of the Company SEC Documents, as amended, complied as to form in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, applicable to such Company SEC Documents, and none of the Company SEC Documents contained, when filed
or, if amended prior to the date of this Agreement, as of the date of such amendment with respect to those disclosures that are amended, contain any untrue statement of a material fact or omitted to
state 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. The Company has made all
certifications and statements required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder (the
"Sarbanes-Oxley Act") with respect to the Company SEC Documents and the statements contained in any such certifications were true and correct as of the
date such certifications were made. As of the date hereof, neither the Company nor any of its officers has received notice from any Governmental Entity challenging or questioning the accuracy,
completeness, form or manner of filing of such certifications. As of the date hereof, there are no outstanding or unresolved comments received by the Company from the SEC with respect to any of the
Company SEC Documents. As of the date hereof, to the knowledge of the Company, none of the Company SEC Documents is the subject of ongoing SEC review or investigation.
(b) The
audited consolidated financial statements and unaudited interim consolidated financial statements of the Company included in the Company SEC Documents, including all
notes and schedules thereto, complied in all material respects, when filed or if amended prior to the date of this Agreement, as of the date of such amendment, with the rules and regulations of the
SEC with respect thereto, were prepared in accordance with generally accepted accounting principles in the United States ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X of
the SEC) and fairly present in all material respects in accordance with applicable requirements of GAAP (subject, in the case of the unaudited statements, to normal year-end audit adjustments) the
financial position of the Company and its consolidated Subsidiaries as of their respective dates and the results of operations and the cash flows of the Company and its consolidated Subsidiaries for
the periods presented therein.
(c) The
Company has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material
information relating to the Company, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of
the Company by others within those entities in connection with the reports it files under the Exchange Act. Such disclosure controls and procedures are effective to ensure that all information
required to be disclosed in any Company SEC Documents are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and
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designed and maintained to provide reasonable assurance regarding the reliability of the Company's financial reporting and the preparation of Company financial statements for external purposes
in accordance with GAAP. There (i) is no significant deficiency or material weakness in the design or operation of internal control over financial reporting utilized by the Company or its
Subsidiaries, (ii) is not, and since January 1, 2018 there has not been, any illegal act or fraud, whether or not material, that involves management or employees of the Company or its
Subsidiaries, and (iii) is not, and since January 1, 2018 there has not been, any "extensions of credit" (within the meaning of Section 402 of the Sarbanes-Oxley Act) or
prohibited loans to any executive officer of the Company (as defined in Rule 3b-7 under the Exchange Act) or director of the Company or any of its Subsidiaries.
4.6 Absence of Certain Changes or Events.
(a) Since
June 30, 2019, there has not been any Company Material Adverse Effect, or any Effect that has had or would reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect.
(b) Except
as set forth on Schedule 4.6 of the Company Disclosure Letter, from June 30, 2019 through the date
of this Agreement, (i) the Company and its Subsidiaries have conducted their business in the ordinary course of business consistent with past practice in all material respects,
(ii) there has not been any material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, including the Company Oil and Gas Properties, whether or not covered by insurance, and (iii) none of the Company or any of its Subsidiaries has undertaken any action that, if
taken after the date hereof, would constitute a breach of or would require the consent of Parent pursuant to Section 6.1(b)(i), (iii), (iv), (v), (vi) (vii),
(viii), (x), (xi), or (xii).
4.7 No Undisclosed Liabilities. Except as set forth on Schedule 4.7 of the Company Disclosure Letter, there are no liabilities of the
Company or any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than: (a) liabilities reflected on or for which
reserves, if applicable, have been provided in accordance with GAAP on the balance sheet of the Company dated as of June 30, 2019 (including the notes thereto) contained in the Company's
Quarterly Report on Form 10-Q for the three (3) months ended June 30, 2019; (b) liabilities incurred in the ordinary course of business consistent with past practice
subsequent to June 30, 2019; (c) liabilities incurred in connection with the Transactions and/or expressly permitted by this Agreement and (d) liabilities that have not had and
would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.8 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 on
Form S-4 to be filed with the SEC by Parent pursuant to which shares of Parent Common Stock issuable in the Merger will be registered with the SEC (including any amendments or supplements, the
"Registration Statement") shall, at the time the Registration Statement 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 in order to make the statements therein, in light of the circumstances under which they are made, not
misleading or (b) the Joint Proxy Statement will, at the date it is first mailed to shareholders of the Company or to stockholders of Parent or at the time of the Company Shareholders Meeting
or the Parent Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement and the Registration Statement as it pertains to the information supplied by or on behalf of
the Company and the Company Shareholders Meeting will comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act; provided, however, that no representation is
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by the Company with respect to statements made therein based on information supplied by or on behalf of Parent specifically for inclusion or incorporation by reference therein.
4.9 Company Permits; Compliance with Applicable Laws. Except as set forth on Schedule 4.9 of the Company Disclosure Letter, the Company and its Subsidiaries
hold, and at all times since January 1, 2018 have held, all permits, licenses, certificates, registrations, consents, authorizations, variances, exemptions, certificates, orders, franchises and
approvals of all Governmental Entities necessary to own, lease and operate their respective properties and assets and for the lawful conduct of their respective businesses (the
"Company Permits"), and have paid all fees and assessments due and payable in connection therewith, except where the failure to so hold or make such a
payment has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. All Company Permits are in full force
and effect and no suspension or cancellation of any of the Company Permits is pending or, to the knowledge of the Company, threatened, and the Company and its Subsidiaries are in compliance with the
terms of the Company Permits, except where the failure to so comply has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Company and its
Subsidiaries, taken as a whole. The businesses of the Company and its Subsidiaries are currently being conducted, and at all times since January 1, 2017 have been conducted, in compliance with
all applicable Laws, except where the failure to so comply has not been and would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries,
taken as a whole. No investigation or review by any Governmental Entity with respect to the Company or any of its Subsidiaries is pending or threatened in writing (or, to the knowledge of the Company,
threatened orally), other than those the outcome that would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole.
4.10 Compensation; Benefits.
(a) Schedule 4.10 of the Company Disclosure Letter sets forth a true, correct and complete list of all material
Company Benefit Plans as of the date hereof. For purposes of this Agreement, "Company Benefit Plans" means all employee benefit plans (as defined in
Section 3(3) of ERISA), whether or not subject to ERISA, and all stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, retention, bonus, employment, change in control, termination or severance plans, programs, agreements or arrangements that are maintained, contributed to or sponsored by, or
required to be contributed to by, the Company or any of its Subsidiaries for the benefit of any current or former employee or director of the Company or any of its Subsidiaries, excluding, in each
case, (A) any of the foregoing that is maintained by a Governmental Entity to which the Company or any of its Subsidiaries contributes (or has an obligation to contribute) as required by
applicable Law and (B) any Multiemployer Plan.
(b) The
Company has heretofore made available to Parent true and complete copies of (i) each material Company Benefit Plan, including any amendments thereto, and
(ii) to the extent applicable, (A) the most recently received determination, opinion or advisory letter from the Internal Revenue Service relating to such Company Benefit Plan,
(B) the most recently prepared actuarial report for each Company Benefit Plan, and (C) the most recently completed Form 5500 for each Company Benefit Plan, including all schedules
thereto.
(c) Each
Company Benefit Plan has been established, operated and administered in accordance with its terms and the requirements of all applicable Laws, including ERISA and
the Code, except for such noncompliance that has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(d) The
Internal Revenue Service has issued a favorable determination, opinion or advisory letter with respect to each Company Benefit Plan that is intended to be qualified
under
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Section 401(a)
of the Code (the "Company Qualified Plan") and the related trust, and, to the knowledge of the Company, there are no existing
circumstances and no events have occurred that would reasonably be expected to adversely affect the qualified status of the Company Qualified Plan or the related trust.
(e) No
Company Benefit Plan is subject to Section 302 or Title IV of ERISA or Section 412, 430 or 4971 of the Code. During the immediately preceding six
(6) years, no Controlled Group Liability has been incurred by the Company or its ERISA Affiliates that has not been satisfied in full and, to the knowledge of the Company, no condition exists
that presents a risk to the Company or its ERISA Affiliates of incurring any such liability, except as would not reasonably be expected to have, individually or in the aggregate, a Company Material
Adverse Effect. For purposes of this Agreement, "Controlled Group Liability" means any and all liabilities (i) under Title IV of ERISA,
(ii) under Section 302 of ERISA, (iii) under Sections 412, 430 and 4971 of the Code, or (iv) as a result of a failure to comply with the continuing coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the Code. For purposes of this Agreement, "ERISA Affiliate" means, with
respect to any entity, trade or business, any other entity, trade or business that is, or was at the relevant time, a member of a group described in Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA that includes or included the first entity, trade or business, or that is, or was at the relevant time, a member of the same "controlled
group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.
(f) None
of the Company, any of its Subsidiaries or any of their respective ERISA Affiliates has, at any time during the last six (6) years, contributed to or been
obligated to contribute to any plan that is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or
a plan that has two (2) or more contributing sponsors, at least two (2) of whom are not under common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan").
(g) Neither
the Company nor any of its Subsidiaries sponsors any employee benefit plan that provides for any post-employment or post-retirement health or medical or life
insurance benefits for any group of retired or former employees or their beneficiaries or dependents, except as required by Section 4980B of the Code or similar state Law.
(h) All
contributions required to be made to any Company Benefit Plan by applicable Law or by any plan document, and all premiums due or payable with respect to insurance
policies funding any Company Benefit Plan, for any period through the date hereof, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof,
have been fully reflected on the books and records of the Company, except as, either individually or in the aggregate, would not reasonably be expected to result in a material liability of the
Company.
(i) There
are no pending or, to the knowledge of the Company, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have
been asserted or instituted against (i) the Company Benefit Plans, (ii) to the knowledge of the Company, any fiduciaries thereof with respect to their duties to the Company Benefit Plans
or (iii) the assets of any of the trusts under any of the Company Benefit Plans, except as, either individually or in the aggregate, would not reasonably be expected to result in a material
liability of the Company.
(j) No
Company Benefit Plan exists that, as a result of the execution and delivery of this Agreement or the consummation of the Transactions contemplated by this Agreement
(whether alone or in conjunction with any other event) will (i) result in, cause the vesting, exercisability or delivery of, cause the Company or any of its Subsidiaries to transfer or set
aside any assets to fund, any material benefits under any Company Benefit Plan, (ii) increase in the amount or value of, any payment, right or other benefit to any employee or director of the
Company or any of its Subsidiaries, (iii) result in any limitation on the right of the Company or any of its Subsidiaries to
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merge, terminate or receive a reversion of assets from any Company Benefit Plan or related trust, or (iv) result in any payment (whether in cash or property or the vesting of property)
to any "disqualified individual" (as such term is defined in Treasury Regulations § 1.280G-1) that would constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code). For purposes of this representation, no arrangements or agreements that may be implemented by or at the direction of Parent, no New Company PSU Awards or Parent
Assumed PSU Awards and no payments or benefits pursuant to Item 1 set forth on Schedule 6.1(b)(ix) of the Company Disclosure
Letter, in each case, with any current or former employee, officer, director or service provider of the Company or its Subsidiaries shall be taken into account.
(k) Neither
the Company nor any of its Subsidiaries is a party to any plan, program, 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).
(l) No
Company Benefit Plan is subject to the Laws of any jurisdiction outside of the United States.
4.11 Labor Matters. Except as set forth on Schedule 4.11 of the Company Disclosure Letter:
(a) There
are no pending or, to the knowledge of the Company, threatened material labor grievances or material unfair labor practice claims or charges against the Company or
any of its Subsidiaries, or any strikes or other material labor disputes against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is party to or bound by any
collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company
or any of its Subsidiaries, and, to the knowledge of the Company, there have been no organizing efforts by any union or other group seeking to represent any employees of the Company and its
Subsidiaries since January 1, 2017.
(b) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and each of its
Subsidiaries are, and since January 1, 2017 have been, in compliance in all respects with all applicable Laws respecting employment or labor practices (including all applicable Laws relating to
wages, hours, child labor, collective bargaining, employment discrimination, disability rights or benefits, equal opportunity, plant closures and layoffs, civil rights, classification of employees,
classification of service providers as employees and/or independent contractors, affirmative action, safety and health, workers' compensation, immigration, pay equity and the collection and payment of
withholding or social security), and except for Proceedings the outcome of which has not had and would not reasonably be expected to be, individually or in the aggregate, a Company Material Adverse
Effect, there are no Proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, by or on behalf of any applicant for employment, any current or
former employee, current or former independent contractor or any class of the foregoing, relating to any of the foregoing applicable Laws, or alleging breach of any express or implied contract of
employment or service, wrongful termination of employment or service, or alleging any other discriminatory, wrongful or tortious conduct in connection with the employment or service relationship.
(c) Except
as would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole, since
January 1, 2017, neither the Company nor any of its Subsidiaries has received any written notice of the intent of the Equal Employment Opportunity
Commission, the National Labor Relations Board, the Department of Labor or any other Governmental Entity responsible for the enforcement of labor or employment Laws to conduct an investigation or been
subject to such an investigation, in each case, with respect to the Company or any of its Subsidiaries.
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(d) To
the knowledge of the Company, no employee, officer, or director of the Company or any of its Subsidiaries has engaged in any conduct constituting sexual misconduct,
sexual harassment, harassment, or discrimination, or aided or assisted any other person or entity to engage in any conduct or cover-up of such conduct, that could cause any material harm to the
Company's or its Subsidiaries' reputation or business.
4.12 Taxes.
(a) Except
as set forth on Schedule 4.12 of the Company Disclosure Letter, and as has not had and would not reasonably
be expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(i) (A)
All Tax Returns required to be filed (taking into account extensions of time for filing) by the Company or any of its Subsidiaries have been timely filed with the
appropriate Taxing Authority, and all such Tax Returns are true, correct and complete, and (B) all Taxes that are due and payable by the Company or any of its Subsidiaries (including Taxes
required to be withheld from payments to employees, creditors, shareholders or other Persons) have been paid in full (other than, in the case of clause (B), to the extent such Taxes are being
contested in good faith by appropriate proceedings or adequate reserves have been established
therefor in accordance with GAAP in the financial statements included in the Company SEC Documents).
(ii) There
is not in force any waiver or agreement for any extension of time for the assessment or payment of any Tax by the Company or any of its Subsidiaries.
(iii) There
is no outstanding claim, assessment or deficiency against the Company or any of its Subsidiaries for any Taxes that has been asserted or threatened in writing by
any Governmental Entity except for any such claim, assessment or deficiency for which adequate reserves have been established in accordance with GAAP in the financial statements included in the
Company SEC Documents.
(iv) There
are no disputes, audits, examinations, investigations or Proceedings pending or threatened in writing in respect of any Taxes or Tax Returns of the Company or any
of its Subsidiaries, and neither the Company nor any of its Subsidiaries is a party to any litigation or administrative proceeding relating to Taxes, in each case, other than in respect of matters for
which adequate reserves have been established, in accordance with GAAP in the financial statements included in Company SEC Documents.
(v) There
are no Encumbrances for Taxes on any property of the Company or any of its Subsidiaries other than Permitted Encumbrances.
(vi) Neither
the Company nor any of its Subsidiaries is a party to any Tax allocation, sharing or indemnity contract or arrangement (not including, for the avoidance of
doubt (A) any contract or arrangement solely between or among the Company and/or any of its Subsidiaries, or (B) any customary Tax sharing or indemnification provisions contained in any
commercial agreement entered into in the ordinary course of business and the primary purpose of which is not related to Taxes). Neither the Company nor any of its Subsidiaries has (x) been a
member of an affiliated group filing a consolidated U.S. federal income Tax Return (other than a group the common parent of which is or was the Company or any of its Subsidiaries) or (y) any
liability for Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury Regulations § 1.1502-6 (or any similar provision of state, local or foreign Law)
or as a transferee or successor.
(vii) Neither
the Company nor any of its Subsidiaries has requested, has received or is subject to any written ruling of a Taxing Authority that will be binding on it for
any taxable
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period
(or portion thereof) ending 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).
(viii) Neither
the Company nor any of its Subsidiaries has participated, or is currently participating, in a "listed transaction," as defined in Treasury Regulations
§ 1.6011-4(b)(2) (or any similar provision of state, local or foreign Law).
(b) Neither
the Company nor any of its Subsidiaries has constituted a "distributing corporation" or a "controlled corporation" in a distribution of stock intended to qualify
for tax-free treatment under Section 355 of the Code in the two (2) years prior to the date of this Agreement.
(c) Neither
the Company nor any of its Subsidiaries is aware of the existence of any fact, or has taken or agreed to take any action, that would reasonably be expected to
prevent or impede the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code.
(d) Notwithstanding
anything herein to the contrary, the representations and warranties contained in this Section 4.12, to the extent relating to Taxes or Tax matters, Section 4.5(b)
, and, to the
extent expressly referring to Code sections, Section 4.10 are the sole and exclusive representations of the Company with respect to Taxes and Tax
matters.
4.13 Litigation. Except as set forth on Schedule 4.13 of the Company Disclosure Letter, and for such matters as have not
been and would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole, there is no (a) Proceeding pending, or
threatened in writing (or, to the knowledge of the Company, threatened orally) against the Company or any of its Subsidiaries or any of the Company Oil and Gas Properties or, to the knowledge of the
Company, any present or former officers, directors or employees of the Company or any of its Subsidiaries in their respective capacities as such, or (b) judgment, decree, injunction, ruling,
writ, stipulation, determination, award or order of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries.
4.14 Intellectual Property.
(a) The
Company and its Subsidiaries own or have the right to use all Intellectual Property used in or necessary for the operation of the businesses of each of the Company
and its Subsidiaries as presently conducted (collectively, the "Company Intellectual Property") free and clear of all Encumbrances except for Permitted
Encumbrances, except where the failure to own or have the right to use such properties has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material
Adverse Effect. To the knowledge of the Company, the use of the Company Intellectual Property by the Company and its Subsidiaries in the operation of the business of each of the Company and its
Subsidiaries as presently conducted does not infringe upon or misappropriate, or otherwise violate, any Intellectual Property of any other Person, except for such matters that have not had and would
not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The Company and its Subsidiaries have taken reasonable measures to protect the confidentiality
of trade secrets used in the businesses of each of the Company and its Subsidiaries as presently conducted, except where failure to do so has not had and would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
(b) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company IT Systems
(i) are sufficient for the current needs of the businesses of the Company and its Subsidiaries; (ii) have not
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malfunctioned
or failed since January 1, 2018; and (iii) to the knowledge of the Company, are free from any malicious code.
(c) Since
January 1, 2018, except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect
(i) the Company and each of its Subsidiaries have used commercially reasonable measures to ensure the confidentiality, privacy and security of Personal Information collected or held for use by
the Company or its Subsidiaries and (ii) to the knowledge of the Company, there has been no unauthorized access to or unauthorized use of any Company IT Systems, Personal Information or trade
secrets owned or held for use by the Company or its Subsidiaries.
4.15 Real Property. Except as set forth on Schedule 4.15 of the Company Disclosure Letter, has not had and would not reasonably
be expected to have, individually or in the aggregate, a Company Material Adverse Effect, and with respect to clauses (a) and (b), except with respect
to any of the Company's Oil and Gas Properties, (a) the Company and its Subsidiaries have good, valid and defensible
title to all real property owned by the Company or any of its Subsidiaries (collectively, the "Company Owned Real Property") and valid leasehold estates
in all real property leased, subleased, licensed or otherwise occupied (whether as tenant, subtenant or pursuant to other occupancy arrangements) by the Company or any Subsidiary of the Company
(collectively, including the improvements thereon, the "Company Leased Real Property") free and clear of all Encumbrances, except Permitted
Encumbrances, (b) each agreement under which the Company or any Subsidiary of the Company is the landlord, sublandlord, tenant, subtenant or occupant with respect to the Company Leased Real
Property (each, a "Company Real Property Lease") to the knowledge of the Company is in full force and effect and is valid and enforceable against the
parties thereto in accordance with its terms, subject, as to enforceability, to Creditors' Rights, and neither the Company nor any of its Subsidiaries, or to the knowledge of the Company, any other
party thereto, has received written notice of any default under any Company Real Property Lease and (c) there does not exist any pending or, to the knowledge of the Company, threatened,
condemnation or eminent domain proceedings that affect any of the Company's Oil and Gas Properties, Company Owned Real Property or Company Leased Real Property.
4.16 Rights-of-Way. Each of the Company and its Subsidiaries has such consents, easements,
rights-of-way, fee assets, permits and licenses from each Person (collectively,
"Rights-of-Way") as are sufficient to conduct its business in the manner described, and subject to the limitations, qualifications, reservations and
encumbrances contained in any Company SEC Document, except for such Rights-of-Way the absence of which has not had and would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Each of the Company and its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Rights-of-Way and conducts its business in a
manner that does not violate any Rights-of-Way, except for such non-fulfillment, non-performance or violation that have not had and would not reasonably be expected to be, individually or in the
aggregate, material to the Company and its Subsidiaries, taken as a whole. No event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or would
result in any impairment of the rights of the holder of any such Rights-of-Way, except for such revocations, terminations and impairments that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. All pipelines operated by the Company and its Subsidiaries are subject to Rights-of-Way, and there are no gaps (including any
gap arising as a result of any breach by the Company or any of its Subsidiaries of the terms of any Rights-of-Way) in the Rights-of-Way other than gaps that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.17 Oil and Gas Matters. Except as set forth on Schedule 4.17 of the Company Disclosure Letter:
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(a) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect and except for property
(i) sold or otherwise disposed of in the ordinary course of business since the dates of the reserve report prepared by Ryder Scott Company, L.P. (in such capacity, the
"Company Independent Petroleum Engineers") relating to the Company interests referred to therein as of December 31, 2018 (the
"Company Reserve Report") or (ii) reflected in the Company Reserve Report or in the Company SEC Documents as having been sold or otherwise
disposed of, as of the date hereof, the Company and its Subsidiaries have good and defensible title to all Oil and Gas Properties forming the basis for the reserves reflected in the Company Reserve
Report (the "Company Oil and Gas Properties") and in each case as attributable to interests owned by the Company and its Subsidiaries, free and clear of
any Encumbrances, except for Permitted Encumbrances. For purposes of the foregoing sentence, "good and defensible title" means that the Company's or one or more of its Subsidiaries', as applicable,
title (as of the date hereof and as of the Closing), beneficially or of record, to each of the Oil and Gas Properties held or owned by them (or purported to be held or owned by them) that
(A) entitles the Company (or one or more of its Subsidiaries, as applicable) 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, (B) obligates the Company (or one or
more of its Subsidiaries, as applicable) to 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 any increases that are accompanied by a proportionate (or greater) net revenue interest in
such Oil and Gas Properties) and (C) is free and clear of all Encumbrances (other than Permitted Encumbrances).
(b) Except
for any such matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect, the
factual, non-interpretive data supplied by or on behalf of the Company or its Subsidiaries to the Company Independent Petroleum Engineers relating to the Company interests referred to in the Company
Reserve Report was, as of the time provided, accurate in all respects. Except for any such matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a
Company Material Adverse Effect, the oil and gas reserve estimates of the Company set forth in the Company Reserve Report are derived from reports that have been prepared by the Company Independent
Petroleum Engineers, and such reserve estimates fairly reflect, in all respects, the oil and gas reserves of the Company at the dates indicated therein and are in accordance with SEC guidelines
applicable thereto applied on a consistent basis throughout the periods involved. 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 change in respect of the matters addressed in the Company Reserve Report that has had or would reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect.
(c) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (i) all rentals, shut-ins
and similar payments owed to
any Person or individual under (or otherwise with respect to) any Oil and Gas Leases that are a part of the Company Oil and Gas Properties ("Company Oil and Gas
Leases") have been properly and timely paid, (ii) all royalties, minimum royalties, overriding royalties and other Production Burdens with respect to any Company Oil and
Gas Properties have been timely and properly paid, (iii) none of the Company or any of its Subsidiaries (and, to the knowledge of the Company, no third-party operator) has violated any
provision of, or taken or failed to take any action that, with or without notice, lapse of time, or both, would constitute a default under the
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provisions
of any Company Oil and Gas Lease (or entitle the lessor thereunder to cancel or terminate such Company Oil and Gas Lease) included in the Company Oil and Gas Properties.
(d) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, all proceeds from the sale of
Hydrocarbons produced from the Company Oil and Gas Properties are being received by such selling entities in a timely manner and no proceeds from the sale of Hydrocarbons produced from any such
Company Oil and Gas Properties are being held in suspense (by the Company, any of its Subsidiaries, any third party operator thereof or any other Person or individual) for any reason other than
(i) as reported in the Company SEC Documents or (ii) awaiting preparation and approval of division order title opinions for recently drilled Wells. Neither the Company nor its
Subsidiaries is obligated by virtue of a take-or-pay payment, advance payment, or similar payment (other than royalties, overriding royalties and similar arrangements established in the Oil and Gas
Leases) to deliver Hydrocarbons or proceeds from the sale thereof, attributable to such Person's interest in its Oil and Gas Properties at some future time without receiving payment therefor at the
time of delivery, except, in each case, as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
(e) All
of the Wells and all water, CO2, injection or other wells located on the Oil and Gas Leases of the Company and its Subsidiaries or otherwise associated with an Oil
and Gas Property of the Company or its Subsidiaries have been drilled, completed and operated within the limits permitted by the applicable contracts entered into by the Company or any of its
Subsidiaries related to such wells and applicable Law, and all drilling and completion (and plugging and abandonment) of such wells and all related development, production and other operations have
been conducted in compliance with all applicable Law except, in each case, as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(f) Except
as has not had and 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 or its Subsidiaries is subject to any preferential purchase, consent, tag-along or similar right that would become operative as a result of the Transactions.
(g) Except
as has not had and would not reasonably be expected to have a Company Material Adverse Effect, to the knowledge of the Company, (a) there are no wells that
constitute a part of the Company Oil and Gas Properties in respect of which the Company has received a notice, claim, demand or order from any Governmental Entity notifying, claiming, demanding or
requiring that such well(s) be temporarily or permanently plugged and abandoned; and (b) all wells drilled by the Company or any of its Subsidiaries are either (i) in use for purposes of
production, injection or water sourcing, (ii) suspended or temporarily abandoned in accordance with applicable Law, or (iii) permanently plugged and abandoned in accordance with
applicable Law.
4.18 Environmental Matters.
(a) Except
as set forth on Schedule 4.18(a) of the Company Disclosure Letter, and for those matters that have not had
and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:
(i) the
Company and its Subsidiaries and their respective operations and assets are, and at all times since January 1, 2017 have been, in compliance with
Environmental Laws;
(ii) as
of the date of this Agreement, the Company and its Subsidiaries are not subject to any pending or, to the knowledge of the Company, threatened Proceeding, judgment,
decree, injunction, ruling or order related to Environmental Laws;
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(iii) (A)
there have been no Releases of Hazardous Substances at, under, to, or from any property currently or, to the knowledge of the Company, formerly owned, operated or
otherwise used by the Company or any of its Subsidiaries, or, to the knowledge of the Company, by any predecessors of the Company or any Subsidiary of the Company, which Releases have resulted or are
reasonably likely to result in liability to the Company or its Subsidiaries under any Environmental Law, (B) neither the Company nor any of its Subsidiaries has handled, stored, transported,
disposed of, arranged for or
permitted the disposal of, or Released any Hazardous Substances in a manner that has resulted or is reasonably likely to result in liability to the Company or its Subsidiaries under any Environmental
Law, and (C) neither the Company nor any of its Subsidiaries has received any written notice asserting a liability or obligation under any Environmental Laws, including any liability or
obligation with respect to the investigation, remediation, removal or monitoring of the Release of any Hazardous Substances at or from any property currently or formerly owned, operated, or otherwise
used by the Company, or at or from any off-site location where Hazardous Substances from the Company's operations have been sent for treatment, disposal storage or handling;
(iv) neither
the Company nor any of its Subsidiaries has assumed, either expressly or by operation of Law, any liability of any other Person related to Hazardous Substances
or Environmental Laws; and
(v) there
have been no environmental investigations, studies, audits, or other analyses conducted on properties currently owned or operated by the Company during the past
three (3) years by or on behalf of, or that are in the possession of, the Company or its Subsidiaries addressing potentially material environmental matters with respect to any property
owned, operated or otherwise used by any of them that have not been delivered or otherwise made available to Parent prior to the date hereof.
(b) Except
as expressly set forth in this Section 4.18 and except for the representations and warranties relating to
the Company Permits as expressly set forth in Section 4.9, neither the Company nor its Subsidiaries makes any representation or warranty
regarding compliance or failure to comply with, or any actual or contingent liability under, any Environmental Law.
4.19 Material Contracts.
(a) Schedule 4.19 of the Company Disclosure Letter, together with the lists of exhibits contained in the Company SEC
Documents, sets forth a true and complete list, as of the date of this Agreement, of each of the following agreements to which or by which the Company or any Subsidiary of the Company is a party or to
which their respective properties or assets is otherwise bound (but excluding any Company Benefit Plan):
(i) each
"material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K under the Exchange Act);
(ii) each
agreement or Organizational Document of the Company or any of its Subsidiaries that would, on or after the Closing Date, prohibit or restrict the ability of the
Surviving Corporation or any of its Subsidiaries to declare and pay dividends or distributions with respect to their capital stock, pay any Indebtedness for borrowed money, obligations or liabilities
from time to time owed to the Surviving
Corporation or any of its Subsidiaries, make loans or advances to the Surviving Corporation or any of its Subsidiaries, or transfer any of its properties or assets to the Surviving Corporation and any
of its Subsidiaries;
(iii) each
contract that provides for the acquisition, disposition, license, use, distribution or outsourcing of assets, services, rights or properties (other than Oil and
Gas Properties) with respect to which the Company reasonably expects that the Company and its Subsidiaries will make annual payments in excess of $2,000,000 or aggregate payments in excess of
$8,000,000;
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(iv) each
contract that creates, evidences, secures, guarantees or otherwise relates to (A) Indebtedness for borrowed money in any amount in excess of $2,000,000 or
(B) other Indebtedness of the Company or any of its Subsidiaries (whether incurred, assumed, guaranteed or secured by any asset) in excess of $2,000,000, other than agreements solely between or
among the Company and its Subsidiaries;
(v) each
contract for lease of personal property or real property (excluding Oil and Gas Leases) involving annual payments in excess of $2,000,000 or aggregate payments in
excess of $8,000,000 that are not terminable without penalty or other liability to the Company (other than any ongoing obligation pursuant to such contract that is not caused by any such termination)
within sixty (60) days, other than contracts related to drilling rigs;
(vi) each
contract containing any area of mutual interest, joint bidding area, joint acquisition area, or non-compete or similar type of provision that, following the
Effective Time, by virtue of Parent becoming an Affiliate of the Company as a result of the Transactions, would by its terms (A) materially restrict the ability of Parent or any of its
Subsidiaries (including the Company and its Subsidiaries following the Closing) to (x) compete in any line of business or geographic area or with any Person during any period of time after the
Effective Time or (y) make, sell or distribute any products or
services, or use, transfer or distribute, or enforce any of their rights with respect to, any of their material assets or properties or (B) could require the disposition of any material assets
or line of business of Parent or any of its Subsidiaries (including the Company and its Subsidiaries following the Effective Time);
(vii) each
contract involving the pending acquisition or sale of (or option to purchase or sell) any material amount of the assets or properties of the Company or its
Subsidiaries, taken as a whole, other than contracts involving the acquisition or sale of (or option to purchase or sell) Hydrocarbons in the ordinary course of business;
(viii) each
contract for any Derivative Transaction (including, for the avoidance of doubt, a listing of each confirmation number with respect thereto);
(ix) each
partnership, joint venture or limited liability company agreement, other than any customary joint operating agreements, unit agreements or participation agreements
affecting the Company Oil and Gas Properties;
(x) each
joint development agreement, exploration agreement, participation, farmout, farm-in or program agreement or similar contract requiring the Company or any of its
Subsidiaries to make annual expenditures in excess of $3,000,000 or aggregate payments in excess of $10,000,000 during the twelve (12)-month period following the date of this Agreement, other than
customary joint operating agreements and continuous development obligations under Oil and Gas Leases;
(xi) any
contract that (A) provides for the sale by the Company or any of its Subsidiaries of Hydrocarbons (1) in excess of 5,000 barrels of oil equivalent of
Hydrocarbons per day over a period of one (1) month (calculated on a yearly average basis) or (2) for a term greater than ten (10) years and (B) has a remaining term of
greater than sixty (60) days and does not allow the Company or such Subsidiary to terminate it without penalty to the Company or such Subsidiary within sixty (60) days;
(xii) each
agreement that contains any exclusivity, "most favored nation" or most favored customer provision, call or put option, preferential right or rights of first or
last offer, negotiation or refusal, in each case other than those contained in (A) any agreement in which such provision is solely for the benefit of the Company or any of its Subsidiaries,
(B) customary royalty pricing provisions in Oil and Gas Leases, or (C) customary preferential
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rights
in joint operating agreements, unit agreements or participation agreements affecting the business or the Company Oil and Gas Properties, to which the Company or any of its Subsidiaries or any
of their respective Affiliates is subject, and, in each case, is material to the business of the Company and its Subsidiaries, taken as a whole;
(xiii) any
contract or agreement that would be required to be disclosed in a Company SEC Document between the Company or any of its Subsidiaries, on the one hand, and
(x) any of their respective current or former officers or directors, (y) any beneficial owner of five percent (5%) or more of the outstanding shares of Company Common Stock or
(z) any Affiliate, "associate" or member of the "immediate family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of any of the Persons described
in the foregoing clauses (x) or (y), on the other hand;
(xiv) any
contract that creates future payment obligations (including settlement agreements or contracts that require any capital contributions to, or investments in, any
Person) of the Company or any of its Subsidiaries outside the ordinary course of business, in each case, involving annual payments in excess of $2,500,000 or aggregate payments in excess of
$10,000,000, or creates or would create an Encumbrance on any material asset or property of the Company or its Subsidiaries (other than Permitted Encumbrances);
(xv) any
contract (other than Oil and Gas Leases) pursuant to which the Company or any of its Subsidiaries has paid amounts associated with any Production Burden in excess
of $2,500,000 during the immediately preceding fiscal year or with respect to which the Company reasonably expects that it will make payments associated with any Production Burden in any of the next
three (3) succeeding fiscal years that could, based on current projections, exceed $2,500,000 annually or $10,000,000 in the aggregate; and
(xvi) any
acquisition contract that contains "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 the Company set forth in the Company Reserve Report), that would reasonably be expected to result in annual payments in excess
of $2,500,000 or aggregate payments in excess of $10,000,000 after the date hereof.
(b) Collectively,
the contracts set forth in Section 4.19(a) (including all amendments, amendments and restatements,
modifications or supplements thereto (whether or not material)) are herein referred to as the "Company Contracts." A true and complete copy of each
Company Contract has been made
available to Parent. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, each Company Contract is legal, valid,
binding and enforceable in accordance with its terms on the Company and each of its Subsidiaries that is a party thereto and, to the knowledge of the Company, each other party thereto, and is in full
force and effect, subject, as to enforceability, to Creditors' Rights. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse
Effect, neither the Company nor any of its Subsidiaries is in breach or default under any Company Contract nor, to the knowledge of the Company, is any other party to any such Company Contract in
breach or default thereunder and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company or its Subsidiaries, or, to the
knowledge of the Company, any other party thereto. There are no disputes pending or threatened in writing (or, to the knowledge of the Company, threatened orally) with respect to any Company Contract
and neither the Company nor any of its Subsidiaries has received any written notice of the intention of any other party to any Company Contract to terminate for default, convenience or otherwise any
Company Contract, nor to the knowledge of the Company, is any such party threatening to do so,
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in
each case except as has not had or would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
4.20 Derivative Transactions.
(a) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, all Derivative Transactions
entered into by the Company or any of its Subsidiaries or for the account of any of its customers as of the date of this Agreement were 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 and its Subsidiaries, and were entered into with
counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative Transactions.
(b) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and each of its
Subsidiaries have duly performed in all respects all of their respective obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and there are no
breaches, violations, collateral
deficiencies, requests for collateral or demands for payment, or defaults or allegations or assertions of such by any party thereunder.
4.21 Insurance. The Company and its Subsidiaries have obtained and maintained insurance, underwritten
by financially reputable insurance companies, in such amounts, on such terms
and covering such risks as is reasonably adequate and customary for their businesses and operations. Except as has not had and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, each material insurance policy held by the Company or any of its Subsidiaries as of the date of this Agreement (collectively, the
"Material Company Insurance Policies") is in full force and effect on the date of this Agreement. Except as has not had and would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse Effect, all premiums payable under the Material Company Insurance Policies prior to the date of this Agreement have been
duly and timely paid to date and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that (including with respect to the Transactions), with notice or
lapse of time or both, would constitute a breach or default, or permit a termination of any of the Material Company Insurance Policies. Except as has not had and would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, as of the date of this Agreement, no written notice of cancellation or termination has been received with respect to any
Material Company Insurance Policy.
4.22 Opinion of Financial Advisors. The Company Board has received the respective opinions of each of
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC, addressed
to the Company Board to the effect that, based upon and subject to the limitations, qualifications and assumptions set forth therein, as of the date of such opinion, the Exchange Ratio is fair from a
financial point of view to the holders (other than Parent and its Affiliates) of Company Common Stock. A copy of such opinions will be provided (on a confidential basis and solely for informational
purposes) by the Company to Parent promptly following the execution of this Agreement and it is agreed and understood that such opinions are for the benefit of the Company Board and may not be relied
on by Parent, or any director, officer or employee of Parent.
4.23 Brokers. Except for the fees and expenses payable to Citigroup Global Markets Inc. and
Goldman Sachs & Co. LLC pursuant to the engagement
letters copies of which have been provided by the Company to Parent prior to the execution of this Agreement and that are in an aggregate amount not to exceed the amount reflected on Schedule 4.23
of the Company Disclosure Letter, no broker, investment banker, or other Person is entitled to any broker's, finder's or other
similar fee or
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commission
in connection with the Transactions based upon arrangements made by or on behalf of the Company.
4.24 Regulatory Matters.
(a) Neither
the Company nor any Subsidiary of the Company is, or on the Closing Date will be, required to be registered as an investment company under the Investment Company
Act of 1940, as amended.
(b) All
natural gas pipeline and related facilities owned by the Company or any of its Subsidiaries are (i) "gathering facilities" that are exempt from regulation by
the U.S. Federal Energy Regulatory Commission under the Natural Gas Act of 1938 and (ii) not subject to rate regulation or comprehensive nondiscriminatory access regulation under the Laws of
any state or other local jurisdiction.
4.25 No Additional Representations.
(a) The
Company acknowledges that except for the representations and warranties made in Article V or in any
certificate delivered by Parent to the Company pursuant to Article VII, neither Parent nor any other Person makes any express or implied
representation or warranty with respect to Parent or its Subsidiaries or their respective businesses, operations, assets, liabilities or conditions (financial or otherwise) in connection with this
Agreement or the Transactions, and Parent hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, the Company acknowledges that except
for the representations and warranties made by Parent in Article V or in any certificate delivered by Parent to the Company pursuant to Article VII, neither Parent nor any other Person makes or has made any representation or warranty to the Company or any of its Affiliates or
Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospect information relating to Parent or any of its Subsidiaries or their respective businesses; or
(ii) any oral or written information presented to the Company or any of its Affiliates or Representatives in the course of their due diligence investigation of Parent, the negotiation of this
Agreement or in the course of the Transactions.
(b) Notwithstanding
anything contained in this Agreement to the contrary, the Company acknowledges and agrees that neither Parent nor any other Person has made or is making,
and the Company
expressly disclaims reliance upon, any representations, warranties or statements relating to Parent or its Subsidiaries whatsoever, express or implied, beyond those expressly given by Parent in Article V or in any certificate delivered by Parent to the Company pursuant to Article VII, including expressly disclaiming reliance upon any implied representation or warranty as to the accuracy or
completeness of any
information regarding Parent furnished or made available to the Company, or any of its Representatives and that the Company has not relied on any such other representation or warranty not set forth in
this Agreement. Without limiting the generality of the foregoing, the Company acknowledges that no representations or warranties are made with respect to any projections, forecasts, estimates, budgets
or prospect information that may have been made available to the Company or any of its Representatives (including in certain "data rooms," "virtual data rooms," management presentations or in any
other form in expectation of, or in connection with, the Merger or the other Transactions).
(c) Nothing
in this Section 4.25 shall be construed as a waiver (or an admission of non-reliance) by the Company with
respect to a Willful and Material Breach of any covenant, agreement or obligation hereunder or intentional and knowing fraud by Parent.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure letter dated as of the date of this Agreement and delivered by Parent to the Company on or prior to the
date of this Agreement (the "Parent Disclosure Letter") and except as disclosed in the Parent SEC Documents filed prior to the date hereof (including
all exhibits and schedules thereto and documents incorporated by reference therein and excluding any disclosures set forth or referenced in any risk factor section or in any other section, in each
case, to the extent they are forward-looking statements or cautionary, predictive, non-specific or forward-looking in nature), it being understood that any matter disclosed in such Parent SEC
Documents shall not be deemed disclosed for purposes of Section 5.2(a) and Section 5.2(b)
of this Agreement, Parent represents and warrants to the Company as follows:
5.1 Organization, Standing and Power. Parent is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware, with all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as
now being conducted, other than where the failure to be so organized or to have such power or authority has not had and would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent and its Subsidiaries, taken as a whole (a "Parent Material Adverse Effect"). Parent is duly qualified and in good
standing to do business in each
jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than where the failure to so qualify or be in
good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Each Subsidiary of Parent is a corporation, partnership or
limited liability company duly organized, as the case may be, validly existing and in good standing under the Laws of its jurisdiction of incorporation or organization, with all requisite entity power
and authority to own, lease and operate its properties and to carry on its business as now being conducted, other than where the failure to be so organized or to have such power or authority has not
had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Each Subsidiary of Parent is duly qualified and in good standing to do business in
each jurisdiction in which the business it is conducting, or the operation, ownership or leasing of its properties, makes such qualification necessary, other than where the failure to so qualify or be
in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Parent has heretofore made available to the Company
complete and correct copies of the Organizational Documents of Parent and each of its Subsidiaries that is, as of the date of this Agreement, a "significant subsidiary" as defined in
Rule 1-02(w) of Regulation S-X (in each case, as amended prior to the date of this Agreement).
5.2 Capital Structure.
(a) As
of the date of this Agreement, the authorized capital stock of Parent consists of (i) 150,000,000 shares of Parent Common Stock and (ii) 50,000,000
shares of preferred stock, par value $0.01 per share ("Parent Preferred Stock" and, together with the Parent Common Stock, the
"Parent Capital Stock"). At the close of business on August 23, 2019: (A) 62,648,844 shares of Parent Common Stock were issued and
outstanding, including 0 shares of restricted Parent Common Stock; (B) 42,249 shares of Parent Common Stock were treasury stock; (C) 290,258 shares of Parent Common Stock were reserved
for issuance upon the exercise of outstanding stock appreciation or option rights to purchase Parent Common Stock; (D) 822,019 shares of Parent Common Stock were reserved for issuance upon the
settlement of outstanding time-vesting restricted stock unit awards in respect of shares of Parent Common Stock; (E) 484,222 (assuming satisfaction of performance goals at the maximum level)
shares of Parent Common Stock were reserved for issuance upon the settlement of outstanding performance-vesting restricted stock unit awards in respect of shares of Parent Common Stock; (F) no
shares of Parent Preferred Stock
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were
issued and outstanding; and (G) 1,408,565 shares of Parent Common Stock were reserved for issuance of future awards pursuant to the Parent Equity Plan.
(b) All
outstanding shares of Parent Capital Stock have been duly authorized, are validly issued, fully paid and non-assessable and are not subject to preemptive rights. All
outstanding shares of Parent Capital Stock have been issued and granted in compliance in all material respects with (i) applicable securities Laws and other applicable Law and (ii) all
requirements set forth in applicable contracts (including the Parent Equity Plan). The Parent Common Stock to be issued pursuant to this Agreement, when issued, will be (A) validly issued,
fully paid and nonassessable and not subject to preemptive rights and (B) issued in compliance in all material respects with (1) applicable securities Laws and other applicable Law and
(2) all requirements set forth in applicable contracts (including the Parent Equity Plan). All outstanding shares of capital stock or other equity interests of the Subsidiaries of Parent that
are owned by Parent, or a direct or indirect owned Subsidiary of Parent, have been duly authorized, are validly issued, fully paid and non-assessable and are not subject to preemptive rights and are
free and clear of all Encumbrances, except for Permitted Encumbrances. Except as set forth on Schedule 5.2(b) of the Parent Disclosure Letter, as
set forth in this Section 5.2, and except for changes since August 23, 2019 resulting from (x) stock grants or other equity-based
awards granted, issued, repurchased or redeemed in accordance with Section 6.2 or (y) the exercise of stock options (and the issuance of
shares thereunder) or settlement of equity-based awards, in each case, outstanding as of such date, there are outstanding: (i) no shares of Parent Capital Stock, (ii) no Voting Debt or
other voting securities or equity of Parent, (iii) no options, subscriptions, warrants, calls, or other rights (including preemptive rights) to subscribe for, purchase or acquire shares of
Parent Capital Stock or Voting Debt or other voting or equity securities of Parent or any Subsidiary or securities convertible into or exchangeable or exercisable for Parent Capital Stock or Voting
Debt or other voting or equity securities of Parent or such Subsidiary, (iv) no equity appreciation, phantom equity, stock unit, profit participation, cash-settled equity equivalents or awards,
equity-based performance or other similar rights in respect of Parent Capital Stock, and (v) no other commitments or agreements to which Parent or any Subsidiary of Parent is a party or by
which it is bound that would (A) obligate Parent or any Subsidiary of Parent to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of Parent Capital Stock or any Voting Debt or other voting or equity securities of Parent or any of its Subsidiaries, (B) obligate Parent or any Subsidiary of Parent
to grant, extend or enter into any such option, warrant, call, right, commitment or agreement; or (C) obligate Parent to issue additional shares of Parent Common Stock at the Effective Time
(other than pursuant to the terms of this Agreement (including pursuant to Section 3.1 and Section 3.2)).
(c) There
are no stockholder agreements, voting trusts or other agreements to which Parent or any of its Subsidiaries is a party or by which it is bound relating to the
voting of any shares of the Parent Capital Stock or other voting securities of Parent or any of its Subsidiaries. Parent and its Subsidiaries have no (i) material joint venture or other similar
material equity interests in any Person other than its Subsidiaries or (ii) obligations, whether contingent or otherwise, to consummate any material additional investment in any Person other
than its Subsidiaries. Parent owns, directly or indirectly, all of the equity interests of its Subsidiaries.
5.3 Authority; No Violations, Consents and Approvals.
(a) Parent
has all requisite corporate power and authority to execute and deliver this Agreement, perform its obligations hereunder and to consummate the Transactions,
subject, with respect to
consummation of the Merger, to the Parent Stockholder Approval. The execution and delivery of this Agreement by Parent and the consummation by Parent of the Transactions have been duly authorized by
all necessary corporate action on the part of Parent, subject, with respect
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to
consummation of the Merger, to the Parent Stockholder Approval. This Agreement has been duly executed and delivered by Parent and, assuming the due and valid execution of this Agreement, by the
Company, constitutes a valid and binding obligation of Parent enforceable against Parent in accordance with its terms, subject as to enforceability to Creditors' Rights. The Parent Board, at a meeting
duly called and held, unanimously: (i) determined that this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance, are fair to, and in the best interests of,
Parent and Parent's stockholders, (ii) adopted and approved this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance, (iii) directed that this
Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance be submitted to the holders of Parent Common Stock for adoption and approval and (iv) recommended that
the holders of Parent Common Stock adopt and approve this Agreement and the Transactions, including the Merger and the Parent Common Stock Issuance (such recommendation described in this
clause (iv), the "Parent Board Recommendation"). The Parent Stockholder Approval is the only vote of the holders of any class or series of
Parent's capital stock necessary to approve this Agreement, the Merger, the Parent Common Stock Issuance and the other Transactions.
(b) Except
as set forth on Schedule 5.3(b) of the Parent Disclosure Letter, the execution, delivery and performance of
this Agreement does not, and (assuming the Parent Approvals are duly and timely obtained) the consummation of the Transactions will not (with or without notice or lapse of time, or both)
(i) contravene, conflict with or result in a violation of any provision of the Organizational Documents of Parent (assuming that the Parent Stockholder Approval is obtained) or any Subsidiary
of Parent, (ii) require any notice, consent or approval under, result in a violation of, a termination (or right of termination) of, or default under, or the creation or acceleration of any
material obligation or the loss of a material benefit under, or result in the creation of any Encumbrance (other than a Permitted Encumbrance) upon any of the properties or assets of the Parent or any
of its Subsidiaries under, any provision of any material contract to which Parent or any of its Subsidiaries is a party or material Parent Permit or (iii) assuming the Parent Approvals are duly
and timely obtained or made and the Parent Stockholder Approval has been obtained, contravene, conflict with or result in a violation of any Law applicable to Parent or any of its Subsidiaries or any
of their respective properties or assets, other than, solely in the case of this clause (iii), any such contraventions, conflicts, or violations,
that have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
5.4 Consents. No Consent from, order of, or registration, declaration, notice or filing with, or
permit from, any Governmental Entity is required to be obtained or made by
Parent or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement by Parent or the consummation by Parent of the Transactions, except for: (a) the
filing of a notification and report form under the HSR Act and the expiration or termination of the applicable waiting period with respect thereto; (b) the filing with the SEC of (i) the
Joint Proxy Statement and the Registration Statement and (ii) such reports under Section 13(a) of the Exchange Act and such other compliance with the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and the Transactions; (c) the filing of the Statement of Merger with the Office of the Secretary of State of the
State of Colorado and the Certificate of Merger with the Office of the Secretary of State of the State of Delaware; (d) filings with NASDAQ; (e) such filings and approvals as may be
required by any applicable state securities or "blue sky" Laws or Takeover Laws; and (f) any such Consent, order, registration, declaration, notice, filing or permit that the failure to obtain
or make would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect (collectively, the "Parent
Approvals").
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5.5 SEC Documents; Financial Statements.
(a) Since
January 1, 2018, Parent has timely filed or furnished with the SEC all forms, reports, schedules and statements (in each case, including all appropriate
exhibits and schedules thereto) required to be filed or furnished under the Securities Act or the Exchange Act, respectively (such forms, reports, schedules and statements, collectively, the
"Parent SEC Documents"). As of their respective dates, each of the Parent SEC Documents, as amended, complied as to form in all material respects with
the applicable requirements of the Securities Act or the Exchange Act, as the case may be, applicable to such Parent SEC Documents, and none of the Parent SEC Documents contained, when filed or, if
amended prior to the date of this Agreement, as of the date of such amendment with respect to those disclosures that are amended, contain any untrue statement of a material fact or omitted to state 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. Parent has made all certifications
and statements required by Sections 302 and 906 of the Sarbanes-Oxley Act with respect to the Parent SEC Documents and the statements contained in any such certifications were true and correct
as of the date such certifications were made. As of the date hereof, neither Parent nor any of its officers has received notice from any Governmental Entity challenging or questioning the accuracy,
completeness, form or manner of filing of such certifications. As of the date hereof, there are no outstanding or unresolved comments received by Parent from the SEC with respect to any of the Parent
SEC Documents. As of the date hereof, to the knowledge of Parent, none of the Parent SEC Documents is the subject of ongoing SEC review or investigation.
(b) The
audited consolidated financial statements and unaudited interim consolidated financial statements of Parent included in the Parent SEC Documents, including all notes
and schedules thereto, complied in all material respects, when filed or if amended prior to the date of this Agreement, as of the date of such amendment, with the rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present in all material respects in accordance with applicable requirements of GAAP (subject, in the case
of the unaudited statements, to normal year-end audit adjustments) the financial position of Parent and its consolidated Subsidiaries as of their respective dates and the results of operations and the
cash flows of Parent and its consolidated Subsidiaries for the periods presented therein.
(c) Parent
has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information
relating to Parent, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Parent by others within those entities in connection with the reports it
files under the Exchange Act. Such disclosure controls and procedures are effective to ensure that all information required to be disclosed in any Parent SEC Documents are recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC, and further designed and maintained to provide reasonable assurance regarding the reliability of Parent's
financial reporting and the preparation of Parent financial statements for external purposes in accordance with GAAP. Except as set forth on Schedule 5.5(c) of the Parent Disclosure Letter, there
(i) is no significant deficiency or material weakness in the design or operation of
internal control over financial reporting utilized by Parent or its Subsidiaries, (ii) is not, and since January 1, 2018 there has not been, any illegal act or fraud, whether or not
material, that involves management or employees of Parent or its Subsidiaries and (iii) is not, and since January 1, 2018 there has not been, any "extensions of credit" (within the
meaning of Section 402 of the Sarbanes-Oxley Act) or prohibited loans to any executive officer of Parent (as defined in Rule 3b-7 under the Exchange Act) or director of Parent or any of
its Subsidiaries.
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5.6 Absence of Certain Changes or Events.
(a) Since
June 30, 2019, there has not been any Parent Material Adverse Effect, or any Effect that has had or would reasonably be expected to have, individually or in
the aggregate, a Parent Material Adverse Effect.
(b) From
June 30, 2019 through the date of this Agreement, (i) there has not been any material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or
otherwise used by Parent or any of its Subsidiaries, including the Parent Oil and Gas Properties, whether or not covered by insurance, and (ii) none of Parent or any of its Subsidiaries has
undertaken any action that, if taken after the date hereof, would constitute a breach of or would require the consent of the Company pursuant to Section 6.2(b)(i), (iii)
, (iv), (v) or (vi).
5.7 No Undisclosed Liabilities. Except as set forth on Schedule 5.7 of the Parent Disclosure Letter, there are no liabilities of Parent or
any of its Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than: (a) liabilities reflected on or for which reserves, if
applicable, have been provided in accordance with GAAP on the balance sheet of Parent dated as of June 30, 2019 (including the notes thereto) contained in Parent's Quarterly Report on
Form 10-Q for the three (3) months ended June 30, 2019; (b) liabilities incurred in the ordinary course of business consistent with past practice subsequent to
June 30, 2019; (c) liabilities incurred in connection with the Transactions and/or expressly permitted under this Agreement; and (d) liabilities that have not had and would not
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
5.8 Information Supplied. None of the information supplied or to be supplied by Parent for inclusion
or incorporation by reference in (a) the Registration Statement shall, at the
time the Registration Statement 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 in order to make the statements therein, in light of the circumstances under which they are made, not misleading or (b) the Joint Proxy Statement will, at the date it is first mailed
to shareholders of the Company or to stockholders of Parent or at the time of the Company Shareholders Meeting or the Parent Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint
Proxy Statement and the Registration Statement as it pertains to the information supplied by or on behalf of Parent and the Parent Stockholders Meeting will comply as to form in all material respects
with the provisions of the Securities Act and the Exchange Act; provided, however, that no
representation is made by Parent with respect to statements made therein based on information supplied by or on behalf of the Company specifically for inclusion or incorporation by reference therein.
5.9 Parent Permits; Compliance with Applicable Laws. Except as set forth on Schedule 5.9 of the Parent Disclosure Letter, Parent and its Subsidiaries hold, and
at all times since January 1, 2018 have held, all permits, licenses, certificates, registrations, consents, authorizations, variances, exemptions, certificates, orders, franchises, and
approvals of all Governmental Entities necessary to own, lease and operate their respective properties and assets and for the lawful conduct of their respective businesses (the
"Parent Permits"), and have paid all fees and assessments due and payable in connection therewith, except where the failure to so hold or make such a
payment has not been and would not reasonably be expected to be, individually or in the aggregate, material to Parent and its Subsidiaries, taken as a whole. All Parent Permits are in full force and
effect and no suspension or cancellation of any of the Parent Permits is pending or, to the knowledge of Parent, threatened, and Parent and its Subsidiaries are in compliance with the terms of the
Parent Permits, except where the failure to so comply has not been and would not reasonably be expected to be, individually or in the aggregate, material to Parent
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and
its Subsidiaries, taken as a whole. The businesses of Parent and its Subsidiaries are currently being conducted, and at all times since January 1, 2017 have been conducted, in compliance
with all applicable Laws, except where the failure to so comply has not been and would not reasonably be expected to be, individually or in the aggregate, material to Parent and its Subsidiaries,
taken as a whole. No investigation or review by any Governmental Entity with respect to Parent or any of its Subsidiaries is pending or threatened in writing (or, to the knowledge of Parent,
threatened orally), other than those the outcome that would not reasonably be expected to be, individually or in the aggregate, material to Parent and its Subsidiaries, taken as a whole.
5.10 Compensation; Benefits.
(a) For
purposes of this Agreement, "Parent Benefit Plans" means all employee benefit plans (as defined in
Section 3(3) of ERISA), whether or not subject to ERISA, and all stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, retention, bonus, employment, change in control, termination or severance plans, programs, agreements or arrangements that are maintained, contributed to or sponsored by, or
required to be contributed to by, Parent or any of its Subsidiaries for the benefit of any current or former employee or director of Parent or any of its Subsidiaries, excluding, in each case,
(A) that is maintained by a Governmental Entity to which Parent or any of its Subsidiaries contributes (or has an obligation to contribute) as required by applicable Law and (B) any
Multiemployer Plan.
(b) Each
Parent Benefit Plan has been established, operated and administered in accordance with its terms and the requirements of all applicable Laws, including ERISA and
the Code, except for such
noncompliance that has not had, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(c) The
Internal Revenue Service has issued a favorable determination, opinion or advisory letter with respect to each Parent Benefit Plan that is intended to be qualified
under Section 401(a) of the Code (the "Parent Qualified Plans") and the related trust, and, to the knowledge of Parent, there are no existing
circumstances and no events have occurred that would reasonably be expected to adversely affect the qualified status of any Parent Qualified Plan or the related trust.
(d) No
Parent Benefit Plan is subject to Section 302 or Title IV of ERISA or Section 412, 430 or 4971 of the Code. During the immediately preceding six
(6) years, no Controlled Group Liability has been incurred by Parent or its ERISA Affiliates that has not been satisfied in full, and, to the knowledge of Parent, no condition exists that
presents a risk to Parent or its ERISA Affiliates of incurring any such liability, except as would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
(e) None
of the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates has, at any time during the last six (6) years, contributed to or been
obligated to contribute to any Multiemployer Plan or Multiple Employer Plan.
(f) Except
as set forth on Schedule 5.10(f) of the Parent Disclosure Letter, neither Parent nor any of its
Subsidiaries sponsors any employee benefit plan that provides for any post-employment or post-retirement health or medical or life insurance benefits for any group of retired or former employees or
their beneficiaries or dependents, except as required by Section 4980B of the Code or similar state Law.
(g) All
contributions required to be made to any Parent Benefit Plan by applicable Law or by any plan document, and all premiums due or payable with respect to insurance
policies funding any Parent Benefit Plan, for any period through the date hereof, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof,
have been fully
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reflected
on the books and records of Parent, except as, either individually or in the aggregate, would not reasonably be expected to result in a material liability of Parent.
(h) There
are no pending or, to the knowledge of Parent, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have been
asserted or instituted against (i) the Parent Benefit Plans, (ii) to the knowledge of Parent, any fiduciaries thereof with respect to their duties to the Parent Benefit Plans or
(iii) the assets of any of the trusts under any of the Parent Benefit Plans, except as, either individually or in the aggregate, would not reasonably be expected to result in a material
liability of Parent.
(i) No
Parent Benefit Plan exists that, as a result of the execution and delivery of this Agreement or the consummation of the Transactions contemplated by this Agreement
(whether alone or in conjunction with any other event) will (i) result in, cause the vesting, exercisability or delivery of, cause Parent or any of its Subsidiaries to transfer or set aside any
assets to fund, any material benefits under any Parent Benefit Plan, (ii) increase in the amount or value of, any payment, right or other benefit to any employee or director Parent or any of
its Subsidiaries, (iii) result in any limitation on the right of Parent or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Parent Benefit Plan or
related trust or (iv) result in any payment (whether in cash or property or the vesting of property) to any "disqualified individual" (as such term is defined in Treasury Regulations
§ 1.280G-1) that would constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code).
(j) Neither
Parent nor any of its Subsidiaries is a party to any plan, program, 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).
(k) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, each Parent Benefit Plan subject
to the Laws of any jurisdiction outside of the United States (i) has been maintained in all respects in accordance with all applicable requirements; (ii) that is intended to qualify for
special Tax treatment meet all requirements for such treatment; and (iii) that is intended to be funded and/or book reserved are fully funded and/or book reserved, as appropriate, based upon
reasonable actuarial assumptions.
5.11 Taxes.
(a) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect:
(i) (A)
All Tax Returns required to be filed (taking into account extensions of time for filing) by Parent or any of its Subsidiaries have been timely filed with the
appropriate Taxing Authority, and all such Tax Returns are true, correct and complete, and (B) all Taxes that are due and payable by Parent or any of its Subsidiaries (including Taxes required
to be withheld from payments to employees, creditors, stockholders or other Persons) have been paid in full (other than, in the case of this clause (B), to the extent such Taxes are being contested
in good faith by appropriate proceedings or adequate reserves have been established
therefor in accordance with GAAP in the financial statements included in the Parent SEC Documents).
(ii) There
is not in force any waiver or agreement for any extension of time for the assessment or payment of any Tax by the Parent or any of its Subsidiaries.
(iii) There
is no outstanding claim, assessment or deficiency against Parent or any of its Subsidiaries for any Taxes that has been asserted or threatened in writing by any
Governmental Entity except for any such claim, assessment or deficiency for which adequate reserves have been established in accordance with GAAP in the financial statements included in the Parent SEC
Documents.
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(iv) There
are no disputes, audits, examinations, investigations or Proceedings pending or threatened in writing in respect of any Taxes or Tax Returns of Parent or any of
its Subsidiaries, and neither Parent nor any of its Subsidiaries is a party to any litigation or administrative proceeding relating to Taxes, in each case, other than in respect of matters for which
adequate reserves have been established, in accordance with GAAP in the financial statements included in Parent SEC Documents.
(v) There
are no Encumbrances for Taxes on any property of Parent or any of its Subsidiaries other than Permitted Encumbrances.
(vi) Neither
Parent nor any of its Subsidiaries is a party to any Tax allocation, sharing or indemnity contract or arrangement (not including, for the avoidance of doubt
(A) any contract or arrangement solely between or among Parent and/or any of its Subsidiaries, or (B) any customary Tax sharing or indemnification provisions contained in any commercial
agreement entered into in the ordinary course of business and the primary purpose of which is not related to Taxes). Neither Parent nor any of its Subsidiaries has (x) been a member of an
affiliated group filing a consolidated U.S. federal income Tax Return (other than a group the common parent of which is or was Parent or any of its Subsidiaries) or (y) any liability for Taxes
of any Person (other than Parent or any of its Subsidiaries) under Treasury
Regulations § 1.1502-6 (or any similar provision of state, local or foreign Law) or as a transferee or successor.
(vii) Neither
Parent nor any of its Subsidiaries 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 (or portion thereof) ending 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).
(viii) Neither
Parent nor any of its Subsidiaries has participated, or is currently participating, in a "listed transaction" as defined in Treasury Regulations
§ 1.6011-4(b)(2) (or any similar provision of state, local or foreign Law).
(b) Neither
Parent nor any of its Subsidiaries has constituted a "distributing corporation" or a "controlled corporation" in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement.
(c) Neither
Parent nor any of its Subsidiaries is aware of the existence of any fact, or has taken or agreed to take any action, that would reasonably be expected to prevent
or impede the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code.
(d) Notwithstanding
anything herein to the contrary, the representations and warranties contained in this Section 5.11, to the extent relating to Taxes or Tax matters, Section 5.5(b)
, and, to the
extent expressly referring to Code sections, Section 5.10 are the sole and exclusive representations of Parent with respect to Taxes and Tax
matters.
5.12 Labor Matters. Except as has not had and would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect, there are no Proceedings
pending or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries, by or on behalf of any applicant for employment, any current or former employee, current or former
independent contractor or any class of the foregoing, relating to any applicable Laws respecting employment or labor practices (including all applicable Laws relating to wages, hours, child labor,
collective bargaining, employment discrimination, disability rights or benefits, equal opportunity, plant closures and layoffs, civil rights, classification of employees, classification of service
providers as employees and/or independent contractors, affirmative action, safety and health, workers' compensation, immigration, pay equity and the collection and payment of withholding or social
security), or alleging breach of any express or implied contract of employment or service, wrongful termination of employment or service, or alleging
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any
other discriminatory, wrongful or tortious conduct in connection with the employment or service relationship.
5.13 Litigation. Except as set forth on Schedule 5.13 of the Parent Disclosure Letter, and for such matters as have not been
and would not reasonably be expected to be, individually or in the aggregate, material to Parent and its Subsidiaries, taken as a whole, there is no (a) Proceeding pending, or threatened in
writing (or, to the knowledge of Parent, threatened orally) against Parent or any of its Subsidiaries or any of the Parent Oil and Gas Properties or, to the knowledge of Parent, any present or former
officers, directors or employees of Parent or any of its Subsidiaries in their respective capacities as such, or (b) judgment, decree, injunction, ruling, writ, stipulation, determination,
award or order of any Governmental Entity or arbitrator outstanding against Parent or any of its Subsidiaries.
5.14 Intellectual Property.
(a) Parent
and its Subsidiaries own or have the right to use all Intellectual Property used in or necessary for the operation of the businesses of each of Parent and its
Subsidiaries as presently conducted (collectively, the "Parent Intellectual Property") free and clear of all Encumbrances except for Permitted
Encumbrances, except where the failure to own or have the right to use such properties has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect. To the knowledge of Parent, the use of the Parent Intellectual Property by Parent and its Subsidiaries in the operation of the business of each of Parent and its Subsidiaries as
presently conducted does not infringe upon or misappropriate, or otherwise violate, any Intellectual Property of any other Person, except for such matters that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Parent and its Subsidiaries have taken reasonable measures to protect the confidentiality of trade secrets used in
the businesses of each of Parent and its Subsidiaries as presently conducted, except where failure to do so has not had and would not reasonably be expected to have, individually or in the aggregate,
a Parent Material Adverse Effect.
(b) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, the Parent IT Systems
(i) are sufficient for the current needs of the businesses of Parent and its Subsidiaries; (ii) have not malfunctioned or failed since January 1, 2018; and (iii) to the
knowledge of Parent, are free from any malicious code.
(c) Since
January 1, 2018, except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect
(i) Parent and each of its Subsidiaries have used commercially reasonable measures to ensure the confidentiality, privacy and security of Personal Information collected or held for use by
Parent or its Subsidiaries and (ii) to the knowledge of Parent, there has been no unauthorized access to or unauthorized use of any Parent IT Systems, Personal Information or trade secrets
owned or held for use by Parent or its Subsidiaries.
5.15 Real Property. Except as has not had and would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect, and with respect to clauses (a) and (b), except with respect to any of Parent's Oil and Gas
Properties,
(a) Parent and its Subsidiaries have good, valid and defensible title to all real property owned by Parent or any of its Subsidiaries (collectively, the "Parent Owned
Real Property") and valid leasehold estates in all real property leased, subleased, licensed or otherwise occupied (whether as tenant, subtenant or pursuant to other occupancy
arrangements) by Parent or any Subsidiary of Parent (collectively, including the improvements thereon, the "Parent Leased Real Property") free and clear
of all Encumbrances, except Permitted Encumbrances, (b) each agreement under which Parent or any Subsidiary of Parent is the landlord, sublandlord, tenant, subtenant or occupant with respect to
the Parent Leased Real Property (each, a "Parent Real Property Lease") to the knowledge of Parent is in full force and effect and is valid and
enforceable against the parties thereto in accordance with its terms, subject, as to enforceability, to Creditors' Rights, and
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neither
Parent nor any of its Subsidiaries, or to the knowledge of Parent, any other party thereto, has received written notice of any default under any Parent Real Property Lease, and
(c) there does not exist any pending or, to the knowledge of Parent, threatened, condemnation or eminent domain proceedings that affect any of Parent's Oil and Gas Properties, Parent Owned Real
Property or Parent Leased Real Property.
5.16 Rights-of-Way. Each of Parent and its Subsidiaries has such Rights-of-Way as are sufficient to
conduct its business in the manner described, and subject to the limitations,
qualifications, reservations and encumbrances contained in any Parent SEC Document, except for such Rights-of-Way the absence of which has not had and would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. Each of Parent and its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Rights-of-Way
and conducts its business in a manner that does not violate any Rights-of-Way, except for such non-fulfillment, non-performance or violation that have not had and would not reasonably be expected to
be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole. No event has occurred that allows, or after notice or lapse of time would allow, revocation or
termination thereof or would result in any impairment of the rights of the holder of any such Rights-of-Way, except for such revocations, terminations and impairments that have not had and would not
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. All pipelines operated by Parent and its Subsidiaries are subject to Rights-of-Way, and there are no
gaps (including any gap arising as a result of any breach by Parent or any of its Subsidiaries of the terms of any Rights-of-Way) in the Rights-of-Way other than gaps that have not had and would not
reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
5.17 Oil and Gas Matters.
(a) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect and except for property
(i) sold or otherwise disposed of in the ordinary course of business since the dates of the reserve reports prepared by Ryder Scott Company, L.P. and Netherland Sewall &
Associates, Inc. (in such capacity, the "Parent Independent Petroleum Engineers") relating to the Parent interests referred to therein as of
December 31, 2018 (the "Parent Reserve Reports") or (ii) reflected in the Parent Reserve Reports or in the Parent SEC Documents as having
been sold or otherwise disposed of, as of the date hereof, Parent and its Subsidiaries have good and defensible title to all Oil and Gas Properties forming the basis for the reserves reflected in the
Parent Reserve Reports (the "Parent Oil and Gas Properties") and in each case as attributable to interests owned by Parent and its Subsidiaries, free
and clear of any Encumbrances, except for Permitted Encumbrances. For purposes of the foregoing sentence, "good and defensible title" means that Parent's or one or more of its Subsidiaries', as
applicable, title (as of the date hereof and as of the Closing), beneficially or of record, to each of the Oil and Gas Properties held or owned by them (or purported to be held or owned by them) that
(A) entitles Parent (or one or more of its Subsidiaries, as applicable) to receive (after satisfaction of all Production Burdens applicable thereto), not less than the net revenue interest
share shown in the Parent Reserve Reports of all Hydrocarbons produced from such Oil and Gas Properties throughout the life of such Oil and Gas Properties, (B) obligates Parent (or one or more
of its Subsidiaries, as applicable) to 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 Reports for such Oil and Gas Properties (other than any increases that are accompanied by a proportionate (or greater) net revenue interest in such Oil
and Gas Properties) and (C) is free and clear of all Encumbrances (other than Permitted Encumbrances).
(b) Except
for any such matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect, the
factual,
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non-interpretive
data supplied by or on behalf of Parent or its Subsidiaries to the Parent Independent Petroleum Engineers relating to the Parent interests referred to in the Parent Reserve Reports
was, as of the time provided, accurate in all respects. Except for any such matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material
Adverse Effect, the oil and gas reserve estimates of Parent set forth in the Parent Reserve Reports are derived from reports that have been prepared by the Parent Independent Petroleum Engineers, and
such reserve estimates fairly reflect, in all respects, the oil and gas reserves of Parent at the dates indicated therein and are in accordance with SEC guidelines applicable thereto applied on a
consistent basis throughout the periods involved. 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 change in respect of the matters addressed in the Parent Reserve Reports that has had or would reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(c) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, (i) all rentals, shut-ins
and similar payments owed to any Person or individual under (or otherwise with respect to) any Oil and Gas Leases that are a part of the Parent Oil and Gas Properties ("Parent
Oil and Gas Leases") have been properly and timely paid, (ii) all royalties, minimum royalties, overriding royalties and other Production Burdens with respect to any
Parent Oil and Gas Properties have been timely and properly paid, (iii) none of Parent or any of its Subsidiaries (and, to the knowledge of Parent, no third party operator) has violated any
provision of, or taken or failed to take any action that, with or without notice, lapse of time, or both, would constitute a default under the provisions of any Parent Oil and Gas Lease (or entitle
the lessor thereunder to cancel or terminate such Parent Oil and Gas Lease) included in the Parent Oil and Gas Properties.
(d) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, all proceeds from the sale of
Hydrocarbons produced from the Parent Oil and Gas Properties are being received by such selling entities in a timely manner and no proceeds from the sale of Hydrocarbons produced from any such Parent
Oil and Gas Properties are being held in suspense (by Parent, any of its Subsidiaries, any third party operator thereof or any other Person or individual) for any reason other than (i) as
reported in the Parent SEC Documents or (ii) awaiting preparation and approval of division order title opinions for recently drilled Wells. Neither Parent nor its Subsidiaries is obligated by
virtue of a take-or-pay payment, advance payment, or similar payment (other than royalties, overriding royalties and similar arrangements established in the Oil and
Gas Leases) to deliver Hydrocarbons or proceeds from the sale thereof, attributable to such Person's interest in its Oil and Gas Properties at some future time without receiving payment therefor at
the time of delivery, except, in each case, as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(e) All
of the Wells and all water, CO2, injection or other wells located on the Oil and Gas Leases of Parent and its Subsidiaries or otherwise associated with an Oil and
Gas Property of Parent or its Subsidiaries have been drilled, completed and operated within the limits permitted by the applicable contracts entered into by Parent or any of its Subsidiaries related
to such wells and applicable Law, and all drilling and completion (and plugging and abandonment) of such wells and all related development, production and other operations have been conducted in
compliance with all applicable Law except, in each case, as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(f) Except
as has not had and 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 Parent or
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its
Subsidiaries is subject to any preferential purchase, consent, tag-along or similar right that would become operative as a result of the Transactions.
(g) Except
as has not had and would not reasonably be expected to have a Parent Material Adverse Effect, to the knowledge of Parent, (a) there are no wells that
constitute a part of the Parent Oil and Gas Properties in respect of which Parent has received a notice, claim, demand or order from any Governmental Entity notifying, claiming, demanding or requiring
that such well(s) be temporarily or permanently plugged and abandoned; and (b) all wells drilled by Parent or any of its Subsidiaries are either (i) in use for purposes of production,
injection or water sourcing, (ii) suspended or temporarily abandoned in accordance with applicable Law, or (iii) permanently plugged and abandoned in accordance with applicable Law.
5.18 Environmental Matters.
(a) Except
for those matters that have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect:
(i) Parent
and its Subsidiaries and their respective operations and assets are, and at all times since January 1, 2017 have been, in compliance with Environmental
Laws;
(ii) as
of the date of this Agreement, Parent and its Subsidiaries are not subject to any pending or, to the knowledge of Parent, threatened Proceeding, judgment, decree,
injunction, ruling or order related to Environmental Laws;
(iii) (A)
there have been no Releases of Hazardous Substances at, under, to, or from any property currently or, to the knowledge of Parent, formerly owned, operated or
otherwise used by Parent or any of its Subsidiaries, or, to the knowledge of Parent, by any predecessors of Parent or any Subsidiary of Parent, which Releases have resulted or are reasonably likely to
result in liability to Parent or its Subsidiaries under any Environmental Law, (B) neither Parent nor any of its Subsidiaries has handled, stored, transported, disposed of, arranged for or
permitted the disposal of, or Released any Hazardous Substances in a manner that has resulted or is reasonably likely to result in liability to Parent or its Subsidiaries under any Environmental Law,
and (C) neither Parent nor any of its Subsidiaries has received any written notice asserting a liability or obligation under any Environmental Laws, including any liability or obligation with
respect to the investigation, remediation, removal or monitoring of the Release of any Hazardous Substances at or from any property currently or formerly owned, operated, or otherwise used by Parent,
or at or from any off-site location where Hazardous Substances from Parent's operations have been sent for treatment, disposal storage or handling;
(iv) neither
Parent nor any of its Subsidiaries has assumed, either expressly or by operation of Law, any liability of any other Person related to Hazardous Substances or
Environmental Laws; and
(v) there
have been no environmental investigations, studies, audits, or other analyses conducted on properties currently owned or operated by Parent during the past three
years by or on behalf of, or that are in the possession of, Parent or its Subsidiaries addressing potentially material environmental matters with respect to any property owned, operated or otherwise
used by any of them that have not been delivered or otherwise made available to Parent prior to the date hereof.
(b) Except
as expressly set forth in this Section 5.18 and except for the representations and warranties relating to
the Parent Permits as expressly set forth in Section 5.9, neither Parent nor its Subsidiaries makes any representation or warranty regarding
compliance or failure to comply with, or any actual or contingent liability under, any Environmental Law.
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5.19 Derivative Transactions.
(a) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, all Derivative Transactions
entered into by Parent or any of its Subsidiaries or for the account of any of its customers as of the date of this Agreement were 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 Parent and its Subsidiaries, and were entered into with counterparties believed
at the time to be financially responsible and able to understand (either alone or in consultation with their advisers) and to bear the risks of such Derivative Transactions.
(b) Except
as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, Parent and each of its
Subsidiaries have duly performed in all respects all of their respective obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and there are no
breaches, violations, collateral deficiencies, requests for collateral or demands for payment, or defaults or allegations or assertions of such by any party thereunder.
5.20 Insurance. Parent and its Subsidiaries have obtained and maintained insurance, underwritten by
financially reputable insurance companies, in such amounts, on such terms and
covering such risks as is reasonably adequate and customary for their businesses and operations. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect, each material insurance policy held by Parent or any of its Subsidiaries as of the date of this Agreement (collectively, the "Material Parent
Insurance Policies") is in full force and effect on the date of this Agreement. Except as has not had and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, all premiums payable under the Material Parent Insurance Policies prior to the date of this Agreement have been duly and timely paid to date and neither
Parent nor any of its Subsidiaries has taken any action or failed to take any action that (including with respect to the Transactions), with notice or lapse of time or both, would constitute a breach
or default, or permit a termination of any of the Material Parent Insurance Policies. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect, as of the date of this Agreement, no written notice of cancellation or termination has been received with respect to any Material Parent Insurance Policy.
5.21 Opinion of Financial Advisor. The Parent Board has received the opinion of J.P. Morgan
Chase & Co., addressed to the Parent Board to the effect that, based upon and subject to
the limitations, qualifications and assumptions set forth therein, as of the date of such opinion, the Exchange Ratio is fair, from a financial point of view, to Parent. A copy of such opinion will be
provided (on a confidential basis and solely for informational purposes) by Parent to the Company promptly following the execution of this Agreement and it is agreed and understood that such opinion
is for the benefit of the Parent Board and may not be relied on by the Company, or any director, officer or employee of the Company.
5.22 Brokers. Except for the fees and expenses payable to J.P. Morgan Chase & Co., no
broker, investment banker, or other Person is entitled to any broker's,
finder's or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of Parent.
5.23 Regulatory Matters.
(a) Neither
Parent nor any Subsidiary of Parent is, or as of the Closing Date will be, required to be registered as an investment company under the Investment Company Act of
1940, as amended.
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(b) All
natural gas pipeline and related facilities owned by Parent or any of its Subsidiaries are (i) "gathering facilities" that are exempt from regulation by the
U.S. Federal Energy Regulatory Commission under the Natural Gas Act of 1938 and (ii) not subject to rate regulation or comprehensive nondiscriminatory access regulation under the Laws of any
state or other local jurisdiction.
5.24 Sufficiency of Funds.
(a) As
of the date hereof and as of the Effective Time, Parent and its Subsidiaries will have available to them cash and other sources of immediately available funds,
including commitments under the Parent
Credit Agreement, to pay all cash amounts payable at the Effective Time pursuant to this Agreement or otherwise in connection with the Merger or the transactions relating thereto, including the
Company Credit Agreement Amounts and amounts payable pursuant to any Change of Control Offer (as defined in the Company Notes Indenture) that results from the Merger (the
"Transaction Amounts"). Parent and its Subsidiaries expressly acknowledge and agree that their obligations under this Agreement, including their
obligations to consummate the Merger or any of the other transactions contemplated by this Agreement, are not subject to, or conditioned on, the receipt or availability of any funds or financing,
including, without limitation, the Committed Financing and/or the Financing.
(b) Parent
has delivered to the Company true, complete and correct copies of (i) the Commitment Letter pursuant to which JPMorgan Chase Bank, N.A has agreed, subject
to the terms and conditions therein, to provide Parent with the debt financing set forth therein in connection with the Merger and the other transactions contemplated hereby and (ii) fee letter
referenced therein (together with all exhibits, schedules and annexes thereto, the "Debt Fee Letter", and together with the Commitment Letter, the
"Debt Commitment Letter") redacted solely for confidential provisions related to fees, "pricing flex" and other economic terms, none of
which (x) subject the funding of the Committed Financing (as defined below) to any additional conditions precedent or (y) could reduce the total amount of the Committed Financing
available to Parent on the Closing Date (other than as a result of changes to fees or original issue discount in accordance with the "flex" terms of the Debt Fee Letter). The debt financing committed
pursuant to the Debt Commitment Letter shall be referred to herein as the "Committed Financing".
(c) Other
than the Debt Commitment Letter and the Parent Credit Agreement (and the other documents previously delivered by Parent and its Subsidiaries pursuant to the terms
of the Parent Credit Agreement), there are no side letters or other agreements, contracts, understandings or arrangements related to the Committed Financing to which Parent or any of its affiliates is
a party.
(d) As
of the date of this Agreement, the Debt Commitment Letter is in full force and effect and is a legal, valid and binding obligation of Parent and, to the knowledge of
Parent, the other parties thereto, and are enforceable in accordance with their terms against Parent and, to the knowledge of Parent, the other parties thereto, subject to Creditors' Rights.
(e) As
of the date of this Agreement and assuming the accuracy of all representations and warranties of the Company in the Agreement, no event has occurred which, with or
without notice, lapse of time or both, would reasonably be expected to constitute a default or breach on the part of Parent, or to the knowledge of Parent, the other parties thereto, under any term or
condition of the Debt Commitment Letter.
(f) There
are no conditions relating to the funding of the full amount of the Committed Financing other than as set forth in the Debt Commitment Letter delivered to the
Company on the date hereof. As of the date of this Agreement and assuming the accuracy of all representations and warranties of the Company in the Agreement, Parent has no reason to believe that any
of the conditions to be satisfied by Parent relating to the funding of the full amount of the Committed Financing will not be satisfied at
or prior to the Effective Time or that the Committed Financing will not be available to Parent at the Effective Time.
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(g) Parent
has fully paid any and all commitment fees or other fees required by the Debt Commitment Letter to be paid on or prior to the date of this Agreement and shall in
the future pay any such fees as they become due.
5.25 No Additional Representations.
(a) Parent
acknowledges that except for the representations and warranties made in Article IV or in any certificate
delivered by the Company to Parent pursuant to Article VII, neither the Company nor any other Person makes any express or implied representation
or warranty with respect to the Company or its Subsidiaries or their respective businesses, operations, assets, liabilities or conditions (financial or otherwise) in connection with this Agreement or
the Transactions, and the Company hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, Parent acknowledges that except for the
representations and warranties made by the Company in Article IV or in any certificate delivered by the Company to Parent pursuant to Article VII,
neither the Company nor any other Person makes or has made any representation or warranty to Parent or any of
its Affiliates or Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospect information relating to the Company or any of its Subsidiaries or their
respective businesses; or (ii), any oral or written information presented to Parent or any of its Affiliates or Representatives in the course of their due diligence investigation of the Company, the
negotiation of this Agreement or in the course of the Transactions.
(b) Notwithstanding
anything contained in this Agreement to the contrary, Parent acknowledges and agrees that none of the Company or any other Person has made or is making,
and Parent expressly disclaims reliance upon, any representations, warranties or statements relating to the Company or its Subsidiaries whatsoever, express or implied, beyond those expressly given by
the Company in Article IV or in any certificate delivered by the Company to Parent pursuant to Article VII, including expressly disclaiming
reliance upon any implied representation or warranty as to the accuracy or completeness of any
information regarding the Company furnished or made available to Parent or any of its Representatives and that Parent has not relied on any such other representation or warranty not set forth in this
Agreement. Without limiting the generality of the foregoing, Parent acknowledges that no representations or warranties are made with respect to any projections, forecasts, estimates, budgets or
prospect information that may have been made available to Parent or any of its Representatives (including in certain "data rooms," "virtual data rooms," management presentations or in any other form
in expectation of, or in connection with, the Merger or the other Transactions).
(c) Nothing
in this Section 5.25 shall be construed as a waiver (or an admission of non-reliance) by Parent with
respect to a Willful and Material Breach of any covenant, agreement or obligation hereunder or intentional and knowing fraud by the Company.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 Conduct of Company Business Pending the Merger.
(a) Except
as set forth on Schedule 6.1 of the Company Disclosure Letter, as expressly permitted or required by this
Agreement, as may be required by applicable Law or otherwise consented to by Parent in writing (after consultation with the Company, if practicable), the Company covenants and agrees that, until the
earlier of the Effective Time and the termination of this Agreement pursuant to Article VIII, it shall, and shall cause each of its Subsidiaries
to, (i) comply with applicable Law in all material respects and (ii) conduct its businesses in the ordinary course, including by using commercially reasonable efforts to preserve
substantially intact its present business organization and preserve its existing relationships with its key customers,
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suppliers,
creditors and employees; provided, however, that no action by the Company or its Subsidiaries
with respect to the matters specifically addressed by any provision of Section 6.1(b) shall be deemed a breach of this sentence unless such
action would constitute a breach of such other provision of Section 6.1(b).
(b) Except
as set forth on Schedule 6.1 of the Company Disclosure Letter, as expressly permitted or required by this
Agreement, as may be required by applicable Law or otherwise consented to by Parent in writing (after consultation with the Company, if practicable), until the earlier of the Effective Time and the
termination of this Agreement pursuant to Article VIII the Company shall not, and shall not permit its Subsidiaries to:
(i) (A)
declare, set aside or pay any dividends on, or make any other distribution in respect of any outstanding capital stock of, or other equity interests in, or other
securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of specific events) into or exchangeable for any shares of capital
stock of, the Company or its Subsidiaries, except for (1) dividends or distributions required by the Organizational Documents of any Subsidiary of the Company and (2) dividends or
distributions by a wholly owned Subsidiary of the Company to the Company or another wholly owned Subsidiary of the Company; (B) split, combine or reclassify any capital stock of, or other
equity interests in, the Company or any of its Subsidiaries; or (C) purchase, redeem or otherwise acquire, or offer to purchase, redeem or otherwise acquire, any capital stock of, or other
equity interests in, the Company, except as required by the terms of any capital stock or equity interest of a Subsidiary or as contemplated or permitted by the terms of any Company Benefit Plan
(including any award agreement applicable to any Company Equity Award);
(ii) offer,
issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant or sell, any capital stock of, or other equity interests in, the Company
or any of its Subsidiaries or any securities convertible into, or any rights, warrants or options to acquire, any such capital stock or equity interests, other than: (A) the issuance of Company
Common Stock upon the vesting, settlement, exercise or lapse of any restrictions on any Company Equity Awards outstanding as of the date hereof that were granted under the Company Equity Plans;
(B) issuances of New Company PSU Awards pursuant to Section 3.2(c) of this Agreement; (C) the shares of capital stock or other
equity issued as a dividend made in accordance with Section 6.1(b)(i); and (D) transactions solely between the Company and a wholly owned
Subsidiary of the Company or solely between wholly owned Subsidiaries of the Company;
(iii) amend
or propose to amend the Company's Organizational Documents or amend or propose to adopt any material change in the Organizational Documents of any of the
Company's material Subsidiaries or otherwise take any action to exempt any Person from any provision of the Organizational Documents of the Company or any of its Subsidiaries;
(iv) (A)
merge, consolidate, combine or amalgamate with any Person or announce, authorize, propose or recommend any such merger, consolidation, combination or amalgamation
(other than the Merger) or (B) acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, exchanging,
licensing, or by any other manner), any properties, assets, business or any corporation, partnership, association or other business organization or division thereof, in each case other than
(1) any such action solely between or among the Company and its Subsidiaries or between or among Subsidiaries of the Company, (2) acquisitions of inventory or other assets in the
ordinary course of business consistent with past practice or pursuant to existing contracts or (3) acquisitions for which the consideration is $2,000,000 individually or $8,000,000 in the
aggregate or less;
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(v) sell,
lease, exchange or otherwise dispose of, or agree to sell, lease, exchange or otherwise dispose of, any material portion of its assets or properties, other than
(A) pursuant to an agreement of the Company or any of its Subsidiaries in effect on the date of this Agreement, (B) among the Company and its wholly owned Subsidiaries or among wholly
owned Subsidiaries of the Company, (C) sales, leases, exchanges or dispositions for which the consideration and fair value is $2,000,000 individually or $8,000,000 in the aggregate or less or
(D) sales of Hydrocarbons made in the ordinary course of business; provided that the Company shall not be permitted to sell any asset if as a
result of such sale the Company would fail the "the substantially-all test" of Code Section 368(a);
(vi) consummate,
authorize, recommend, propose or announce any intention to adopt a plan of complete or partial liquidation or dissolution of the Company or any of its
Subsidiaries, or a restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries of a similar nature, other than such transactions among the Company and any
Subsidiaries of the Company or among Subsidiaries of the Company;
(vii) change
in any material respect their financial accounting principles, practices or methods that would materially affect the consolidated assets, liabilities or results
of operations of the Company and its Subsidiaries, except as required by GAAP or applicable Law;
(viii) (A)
make (other than in the ordinary course of business consistent with past practice), change or rescind any material election relating to Taxes (including any such
election for any joint venture,
partnership, limited liability company or other investment where the Company has the authority to make such binding election), (B) amend any material Tax Return, (C) settle or compromise
any Tax claim or assessment by any Taxing Authority, except where the amount of any such settlements or compromises does not exceed $2,000,000 in the aggregate, or (D) change any material
method of Tax accounting from those employed in the preparation of its Tax Returns that have been filed for prior taxable years;
(ix) except
as required by the terms of any Company Benefit Plan, (A) enter into, adopt or terminate any material Company Benefit Plan, other than entering into
employment agreements in the ordinary course of business that can be terminated within thirty (30) days without penalty or payment of severance, (B) amend any Company Benefit Plan, other
than amendments in the ordinary course of business (including, for the avoidance of doubt, annual renewals of welfare benefit plans) that do not materially increase the cost to the Company of
maintaining such Company Benefit Plan, (C) increase the compensation payable to any current or former employee or director, (D) grant or award, or pay or award, any severance or
termination pay, bonuses, retention or incentive compensation, to any current or former employee or director, (E) hire or terminate the employment of any employee with an annual base salary
greater than or equal to $125,000 or with a title equal to director or above, other than terminations for cause; (F) provide any funding for any rabbi trust or similar arrangement, or
(G) enter into or amend any collective bargaining or works council or similar labor agreement;
(x) (A)
incur, create, assume or guarantee any Indebtedness, other than (1) incurrences under the Company Credit Agreement in the ordinary course of business in an
aggregate amount under this clause (x)(A)(1) that would not cause outstanding borrowings under the Company Credit Agreement to exceed $200,000,000 or (2) transactions solely between or
among the Company and its Subsidiaries or solely between or among Subsidiaries of the Company, and in each case guarantees thereof or (B) incur, create or suffer to exist any Encumbrance, other
than (1) Encumbrances securing the Company Credit Agreement or other Indebtedness of the Company or its Subsidiaries existing on the date hereof or incurred in compliance with the foregoing
clause (A), in each case in accordance with the terms
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thereof,
(2) Encumbrances in existence on June 30, 2019 and disclosed in the Company's Quarterly Report on Form 10-Q for the three-months ended June 30, 2019 or
(3) Permitted Encumbrances;
(xi) except
as expressly permitted in this Section 6.1 and other than in the ordinary course of business consistent
with past practice, (A) enter into or assume any contract that would have been a Company Contract (excluding any Company Benefit Plan) had it been entered into prior to the date of this
Agreement or (B) terminate, materially amend, assign, transfer, modify, supplement, deliver a notice of
termination under, fail to renew, or waive or accelerate any material rights or defer any liabilities under any Company Contract (excluding any Company Benefit Plan) or any contract (excluding any
Company Benefit Plan) that would have been a Company Contract had it been entered into prior to the date of this Agreement, excluding any termination upon expiration of a term in accordance with the
terms of such Company Contract;
(xii) other
than the settlement of any Proceedings reflected or reserved against on the balance sheet of the Company (or in the notes thereto), settle or offer or propose to
settle, any Proceeding (excluding (A) any audit, claim or other proceeding in respect of Taxes, which shall be governed exclusively by Section 6.1(b)(viii) and (B) any Transaction
Litigation, which shall be governed exclusively by Section 6.11) involving solely the payment of monetary damages by the Company or any of its
Subsidiaries of any amount exceeding $2,000,000 in the aggregate; provided, however, that neither the
Company nor any of its Subsidiaries shall settle or compromise any Proceeding if such settlement or compromise (1) involves a material conduct remedy or material injunctive or similar relief,
(2) involves an admission of criminal wrongdoing by the Company or any of its Subsidiaries or (3) has a materially restrictive impact on the business of the Company or any of its
Subsidiaries;
(xiii) authorize
or make capital expenditures that are in the aggregate greater than one hundred fifteen percent (115.0%) of the aggregate amount of capital expenditures
scheduled to be made in the Company's drilling and completion capital expenditure budget for the applicable fiscal quarter as set forth in Schedule 6.1(b)(xiii) of the Company Disclosure Letter,
except to the extent such operations are specifically further described in such Schedule 6.1(b)(xiii) of the Company Disclosure Letter, except, in each case, for capital expenditures to repair
damage resulting from insured
casualty events or capital expenditures required on an emergency basis or for the safety of individuals, assets or the environment;
(xiv) (A)
enter into any lease for real property that would be a Company Real Property Lease if entered into prior to the date hereof or (B) terminate, amend, assign,
transfer, modify, supplement, deliver a notice of termination under, fail to renew, or waive or accelerate any rights or defer any liabilities under any Company Real Property Lease;
(xv) fail
to maintain in full force and effect in all material respects, or fail to replace or renew, the material insurance policies of the Company and its Subsidiaries to
the extent commercially reasonable in the Company's business judgment in light of prevailing conditions in the insurance market; or
(xvi) agree
to take any action that is prohibited by this Section 6.1(b).
6.2 Conduct of Parent Business Pending the Merger.
(a) Except
as set forth on Schedule 6.2 of the Parent Disclosure Letter, as expressly permitted or required by this
Agreement, as may be required by applicable Law or otherwise consented to by the Company in writing (which consent shall not be unreasonably withheld, delayed or conditioned), Parent covenants and
agrees that, until the earlier of the Effective Time and the termination of this Agreement pursuant to Article VIII, it shall, and shall cause each of its
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Subsidiaries
to, use commercially reasonable efforts to preserve substantially intact its existing relationships with its key customers, suppliers, creditors and employees; provided, however, that no
action by Parent or its Subsidiaries with respect to the matters specifically addressed by any provision of Section 6.2(b) shall be deemed a breach of this sentence unless such action would
constitute a breach of such other provision of Section 6.2(b).
(b) Except
as set forth on Schedule 6.2 of the Parent Disclosure Letter, as expressly permitted or required by this
Agreement, as may be required by applicable Law or otherwise consented to by the Company in writing (which consent shall not be unreasonably withheld, delayed or conditioned), until the earlier of the
Effective Time and the termination of this Agreement pursuant to Article VIII, Parent shall not, and shall not permit its Subsidiaries to:
(i) (A)
declare, set aside or pay any dividends on, or make any other distribution in respect of any outstanding capital stock of, or other equity interests in, or other
securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of specific events) into or exchangeable for any shares of capital
stock of Parent or its Subsidiaries, except for (1) dividends or distributions required by the Organizational Documents of any Subsidiary of Parent and (2) dividends or distributions by
a wholly owned Subsidiary of Parent to Parent or another wholly owned Subsidiary of Parent; (B) split, combine or reclassify any capital stock of, or other equity interests in, Parent or any of
its Subsidiaries; or (C) purchase, redeem or otherwise acquire, or offer to purchase, redeem or otherwise acquire, any capital stock of, or other equity interests in, Parent, except as required
by the terms of any capital stock or equity interest of a Subsidiary or as contemplated or permitted by the terms of any Parent Benefit Plan as in effect on the date hereof (including any award
agreement applicable to any Parent Equity Award granted under the Parent Equity Plan in effect on the date hereof or adopted or entered into in accordance with this Agreement);
(ii) offer,
issue, deliver, grant or sell, or authorize or propose to offer, issue, deliver, grant or sell, any capital stock of, or other equity interests in, Parent or any
of its Subsidiaries or any securities convertible into, or any rights, warrants or options to acquire, any such capital stock or equity interests, other than: (A) the issuance of Parent Common
Stock upon the vesting, settlement, exercise or lapse of
any restrictions on any Parent Equity Awards granted under the Parent Equity Plan and outstanding on the date hereof; (B) issuances of Parent Equity Awards under the Parent Equity Plan to
employees, directors and other service providers in the ordinary course of business and consistent with past practice; (C) the shares of capital stock or other equity issued as a dividend made
in accordance with Section 6.2(b)(i); (D) transactions between Parent and a wholly owned Subsidiary of Parent or between wholly owned
Subsidiaries of Parent and (E) the issuance of Parent Common Stock in connection with the types of transactions referenced in Section 6.2(b)(iv);
(iii) amend
or propose to amend Parent's Organizational Documents or amend or propose to adopt any material change in the Organizational Documents of any of Parent's
material Subsidiaries in a manner that would adversely affect the consummation of the Transactions, in either case, including by merger, consolidation or otherwise;
(iv) consummate
(A) a merger, consolidation, combination or amalgamation with any Person other than another wholly owned Subsidiary of Parent; (B) an
acquisition (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, or by any other manner) of any business or any corporation,
partnership, association or other business organization or division thereof; (C) any partnership, joint venture or similar arrangement involving a material investment or expenditure of funds by
Parent or any of its Subsidiaries; or (D) any transaction to which Parent would issue shares of Parent Common
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Stock
in consideration of such transaction and such issuance would require the vote of the stockholders of Parent pursuant to the rules of NASDAQ, in each case of clauses (A)-(D)
, if such action would reasonably be expected to prevent the consummation of the
Transaction by Parent;
(v) consummate,
authorize, recommend, propose or announce any intention to adopt a plan of complete or partial liquidation or dissolution of Parent or any of its
Subsidiaries, or a restructuring, recapitalization or other reorganization of Parent or any of its Subsidiaries of a similar nature, other than such transactions among the Parent and any Subsidiaries
of Parent or among Subsidiaries of Parent;
(vi) change
in any material respect their financial accounting principles, practices or methods that would materially affect the consolidated assets, liabilities or results
of operations of Parent and its Subsidiaries, except as required by GAAP or applicable Law; or
(vii) agree
to take any action that is prohibited by this Section 6.2(b).
6.3 No Solicitation by the Company.
(a) The
Company will, and will cause its Affiliates and Subsidiaries, and its and their respective directors, officers and Representatives to, immediately cease, and cause
to be terminated, any solicitation, encouragement, discussion or negotiations that commenced prior to and were ongoing as of the date of this Agreement with any Person with respect to a Company
Competing Proposal.
(b) Except
as otherwise expressly permitted by this Section 6.3, from and after the date of this Agreement until the
Effective Time, or if earlier, the termination of this Agreement in accordance with Article VIII hereof, the Company will not, and will cause its
Affiliates and Subsidiaries, and its and their respective directors, officers and Representatives not to, and will not announce any intention to, directly or indirectly, (i) initiate, solicit
or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a Company Competing Proposal, (ii) engage in any discussions or negotiations with
any Person with respect to a Company Competing Proposal, (iii) furnish any non-public information regarding the Company or its Subsidiaries, or access to the properties, assets or employees of
the Company or its Subsidiaries, to any Person in connection with or in response to a Company Competing Proposal, (iv) enter into any letter of intent or agreement in principle, or other
agreement or commitment in respect of any proposal or offer that constitutes, or could reasonably be expected to lead to, a Company Competing Proposal (other than a confidentiality agreement in
accordance with Section 6.3(f)(ii)) or (v) resolve, agree or publicly propose to, or permit the Company or any of its Subsidiaries or any
of its or their Representatives to agree or publicly propose to take any of the actions referred to in clauses (i) to (iv).
(c) The
Company shall not release any third party from, or waive, amend or modify any provision of, or grant permission under, any standstill or confidentiality provision
with respect to any such proposal or offer or similar matter in any agreement to which the Company or any of its Subsidiaries is a party; provided that,
if the Company Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be reasonably likely to be
inconsistent with its fiduciary obligations to the Company's shareholders under applicable Law, the Company may waive any such standstill provision solely to the extent necessary to permit a third
party to make a Company Competing Proposal on a confidential basis conditioned upon such person agreeing that the Company shall not be prohibited from providing any information to Parent regarding any
such Company Competing Proposal in accordance with the terms of this Section 6.3. The Company shall promptly (and in any event within two
(2) Business Days of the date of this Agreement) request each Person that has prior to
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the
date of this Agreement executed a confidentiality agreement in connection with its consideration of any Company Competing Proposal to, in accordance with the terms of such agreement, return or
destroy all confidential information furnished prior to the execution of this Agreement to or for the benefit of such Person by or on behalf of the Company or any of its Subsidiaries. The Company
agrees that it shall promptly inform its Affiliates, Subsidiaries and Representatives of the obligations undertaken in this Section 6.3.
(d) Unless
expressly permitted by Section 6.3(f) or Section 6.3(g), the Company shall not (i) fail to include the Company Board Recommendation in the
Joint Proxy Statement,
(ii) withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to Parent, the Company Board Recommendation, (iii) recommend, adopt or approve,
or propose publicly to recommend, adopt or approve, any Company Competing Proposal, (iv) fail to publicly announce, within ten Business Days of any tender or exchange offer relating to any
capital stock of the Company (or, if earlier, at least two (2) Business Days prior to the Company Shareholders Meeting), a statement disclosing that the Company Board recommends rejection of
such tender offer or exchange offer and affirms the Company Board Recommendation or (v) fail to publicly reaffirm the Company Board Recommendation within ten Business Days of Parent's written
request to do so (or, if earlier, at least two (2) Business Days prior to the Company Shareholders Meeting) following the public announcement of any Company Competing Proposal (or any material
amendment to a Company Competing Proposal, including any change to the price or form of consideration) (any action or failure to act in clauses (i)-(v) being referred to as a "Company Change of
Recommendation").
(e) From
and after the date of this Agreement, the Company shall promptly advise (but in each case, not later than two (2) days of such receipt or request) Parent of
the receipt by the Company of any Company Competing Proposal, or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal, made
on or after the date of this Agreement or any request for non-public information or data relating to the Company or any of its Subsidiaries made by any Person in connection with a Company Competing
Proposal, or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal, or any request for discussions or negotiations with the
Company or a Representative of the Company relating to a Company Competing Proposal, or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company
Competing Proposal (but in each case, not later than two (2) days of such receipt or request), and the Company shall provide to Parent (within such two-day time frame) either (i) a copy
of any such Company Competing Proposal, or any such proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal (including all exhibits
and schedules thereto) made in writing provided to the Company or any of its Subsidiaries or (ii) a written summary of the material terms of such Company Competing Proposal, or any such
proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal (including the identity of the Person making such Company Competing
Proposal, or such proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal) if
not made in writing. The Company shall (A) keep Parent reasonably informed on a reasonably prompt basis with respect to the status and material terms of any such Company Competing Proposal, or
such proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal, and any material changes to the status of any such discussions or
negotiations and (B) promptly (and in any event no later than forty-eight (48) hours after receipt by the Company or any of its Subsidiaries) provide to Parent either (x) a copy
of any such material changes to such Company Competing Proposal, or such proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal
(including all exhibits and schedules thereto) made in writing and any material correspondence with respect
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thereto
or (y) a written summary of such material changes to the terms of such Company Competing Proposal, or such proposal, inquiry, offer or indication of interest that would reasonably be
expected to lead to a Company Competing Proposal if not made in writing or any material oral correspondence with respect thereto. Without limiting the foregoing, the Company shall notify Parent if the
Company determines to begin providing information or to engage in discussions or negotiations concerning a Company Competing Proposal in accordance with Section 6.3(f), prior and as a condition to
providing any such information or engaging in any such discussions or negotiations; provided, that all such information (to the extent that such information has not been previously provided or made
available to Parent) is provided or
made available to Parent, as the case may be, substantially concurrently with the time it is provided or made available to such third party.
(f) Notwithstanding
anything in this Agreement to the contrary, the Company, directly or indirectly through one or more of its Representatives, may:
(i) to
the extent applicable, disclose to the Company's shareholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or make
any "stop, look and listen" communication to the Company's shareholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act, or any similar statement in response to any publicly
disclosed Company Competing Proposal; provided, however, that the Company shall not effect any Company
Change of Recommendation other than in accordance with Section 6.3(f)(iii) or Section 6.3(g);
(ii) prior
to the receipt of the Company Shareholder Approval, engage in the activities prohibited by Section 6.3(b)(ii) or Section 6.3(b)(iii) with any
Person who has made a written, bona fide Company Competing Proposal that did not arise from a breach of the obligations set forth in this Section 6.3; provided, however, that
(A) no non-public information that is prohibited from being furnished pursuant to this Section 6.3 may be furnished until the Company
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 the Company that are no less favorable to the Company in the
aggregate than the terms of the Confidentiality Agreement; provided, further, that such confidentiality
agreement does not contain provisions that prohibit the Company from complying with the provisions of this Section 6.3, and (B) prior to
and as a condition to taking any such actions, the Company Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that such Company Competing
Proposal is, or would reasonably be expected to lead to, a Company Superior Proposal;
(iii) prior
to the receipt of the Company Shareholder Approval, in response to a Company Competing Proposal that did not arise from a breach of the obligations set forth in
this Section 6.3, if the Company Board so chooses, cause the Company to effect a Company Change of Recommendation or to terminate this Agreement
pursuant to Section 8.1(d), if prior and as a condition to taking such action (A) the Company Board determines in good faith, after
consultation with its financial advisors and outside legal counsel, that (x) such Company Competing Proposal is a Company Superior Proposal (taking into account any adjustment to the terms and
conditions of the Merger proposed by Parent in response to such Company Competing Proposal) and (y) the failure to take such action would be reasonably likely to be inconsistent with its
fiduciary obligations to the Company's shareholders under applicable Law and (B) the Company shall have given five (5) Business Days' prior notice to Parent that the Company has received
such proposal, specifying the material terms and conditions of such proposal (including the identity of the Person making such proposal), and that the Company intends to take such action, and
(1) after giving such notice and prior to effecting such Company Change of Recommendation or termination, the Company negotiates
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(and
causes its officers, employees, financial advisors and outside legal counsel to negotiate) in good faith with Parent (to the extent Parent wishes to negotiate), which negotiations may be on a
nonexclusive basis with respect to other negotiations or discussions permitted by this Section 6.3, to make such adjustments or revisions to the
terms and conditions of this Agreement such that the Company Competing Proposal would no longer constitute a Company Superior Proposal and (2) at the end of the five (5) Business Day
period, prior to taking action to effect a Company Change of Recommendation or terminate this Agreement pursuant to Section 8.1(d)(1), the
Company Board takes into account any adjustments or revisions to the terms of this Agreement committed to by Parent in writing, and determines in good faith, after consultation with its financial
advisors and outside legal counsel, that (x) the Company Competing Proposal remains a Company Superior Proposal and (y) the failure to take such action would be reasonably likely to be
inconsistent with its fiduciary obligations to the Company's shareholders under applicable Law; provided, that in the event of any change to the
financial terms of, or any other material amendment or material modification to, any Company Superior Proposal, the Company shall be required to deliver a new written notice to Parent and to comply
with the requirements of this Section 6.3(f)(iii) with respect to such new written notice, except
that the advance written notice obligation set forth in this Section 6.3(f)(iii) shall be reduced to two (2) Business Days; and
(g) Notwithstanding
anything in this Agreement to the contrary, prior to the receipt of the Company Shareholder Approval, in response to a Company Intervening Event that
occurs or arises after the date of this Agreement, the Company may, if the Company Board so chooses, effect a Company Change of Recommendation if prior to and as a condition to taking such action
(A) the Company Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be reasonably likely to be
inconsistent with its fiduciary obligations to the Company's shareholders under applicable Law, (B) the Company shall have given five (5) Business Days' prior notice to Parent that the
Company has determined that a Company Intervening Event has occurred or arisen (which notice will reasonably describe such Company Intervening Event) and that the Company intends to effect a Company
Change of Recommendation, and (1) after giving such notice and prior to effecting such Company Change of Recommendation, the Company negotiates (and causes its officers, employees, financial
advisors and outside legal counsel to negotiate) in good faith with Parent (to the extent Parent wishes to negotiate) to make such adjustments or revisions to the terms and conditions of this
Agreement as would permit the Company Board not to effect a Company Change of Recommendation in response thereto; and (2) at the end of the five (5) Business Day period, prior to taking
action to effect a Company Change of Recommendation, the Company Board takes into account any adjustments or revisions to the terms of this Agreement proposed by Parent in writing and any other
information offered by Parent in response to the notice, and determines in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to effect a Company
Change of Recommendation in response to such Company Intervening Event would be reasonably likely to be inconsistent with the fiduciary obligations owed by the Company Board to the Company's
shareholders under applicable Law; provided that, in the event of any material changes regarding any Company Intervening Event, the Company shall be
required to deliver a new written notice to Parent and to comply with the requirements of this Section 6.3(g) with respect to such new written
notice, except that the advance written notice obligation set forth in this Section 6.3(g) shall be reduced to two (2) Business Days.
6.4 No Solicitation by Parent.
(a) Parent
will, and will cause its Affiliates and Subsidiaries, and its and their respective directors, officers and Representatives to, immediately cease, and cause to be
terminated, any
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solicitation,
encouragement, discussion or negotiations that commenced prior to and were ongoing as of the date of this Agreement with any Person with respect to a Parent Competing Proposal.
(b) Except
as otherwise expressly permitted by this Section 6.4, from and after the date of this Agreement until the
Effective Time, or if earlier, the termination of this Agreement in accordance with Article VIII hereof, Parent will not, and will cause its
Affiliates and Subsidiaries, and its and their respective directors, officers and Representatives not to, and will not announce any intention to, directly or indirectly, (i) initiate, solicit
or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a Parent Competing Proposal, (ii) engage in any discussions or negotiations with
any Person with respect to a Parent Competing Proposal, (iii) furnish any non-public information regarding Parent or its Subsidiaries, or access to the properties, assets or employees of Parent
or its Subsidiaries, to any Person in connection with or in response to a Parent Competing Proposal, (iv) enter into any letter of intent or agreement in principle, or other agreement or
commitment in respect of any proposal or offer that constitutes, or could reasonably be expected to lead to, a Parent Competing Proposal (other than a confidentiality agreement in accordance with Section 6.4(f)(ii)
) or (v) resolve, agree or publicly propose to, or permit Parent or any of its Subsidiaries or any of its or their
Representatives to agree or publicly propose to take any of the actions referred to in clauses (i) to (iv).
(c) Parent
shall not release any third party from, or waive, amend or modify any provision of, or grant permission under, any standstill or confidentiality provision with
respect to any such proposal or offer or similar matter in any agreement to which Parent or any of its Subsidiaries is a party; provided, that if the
Parent Board determines in good faith, after consultation with Parent's financial advisor and outside legal counsel, that the failure to take such action would be reasonably likely to be inconsistent
with its fiduciary obligations to Parent's stockholders under applicable Law, Parent may waive any such standstill provision solely to the extent necessary to permit a third party to make a Parent
Competing Proposal on a confidential basis conditioned upon such person agreeing that Parent shall not be prohibited from providing any information to the Company regarding any such Parent Competing
Proposal in accordance with the terms of this Section 6.4. Parent shall promptly (and in any event within two (2) Business Days of the
date of this Agreement) request each Person that has prior to the date of this Agreement executed a confidentiality agreement in connection with its consideration of any Parent Competing Proposal to,
in accordance with the terms of such agreement, return or destroy all confidential information furnished prior to the execution of this Agreement to or for the benefit of such Person by or on behalf
of Parent or any of its Subsidiaries. Parent agrees that it shall promptly inform its Affiliates, Subsidiaries and Representatives of the obligations undertaken in this Section 6.4.
(d) Unless
expressly permitted by Section 6.4(f) or Section 6.4(g), Parent shall not (i) fail to include the Parent Board Recommendation in the Joint
Proxy Statement, (ii) withdraw,
modify or qualify, or propose publicly to withdraw, modify or qualify, in a manner adverse to the Company, the Parent
Board Recommendation, (iii) recommend, adopt or approve, or propose publicly to recommend, adopt or approve, any Parent Competing Proposal, (iv) fail to publicly announce, within ten
Business Days of any tender or exchange offer relating to any capital stock of Parent (or, if earlier, at least two (2) Business Days prior to the Parent Stockholders Meeting), a statement
disclosing that the Parent Board recommends rejection of such tender offer or exchange offer and affirms the Parent Board Recommendation or (v) fail to publicly reaffirm the Parent Board
Recommendation within ten Business Days of Parent's written request to do so (or, if earlier, at least two (2) Business Days prior to the Parent Stockholders Meeting) following the public
announcement of any Parent Competing Proposal (or any material amendment to a Parent Competing Proposal, including any change to the price or form of consideration) (any action or failure to act in
clauses (i)-(v) being referred to as a "Parent Change of Recommendation").
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(e) From
and after the date of this Agreement, Parent shall promptly advise (but in each case, not later than two (2) days of such receipt or request) the Company of
the receipt by Parent of any Parent Competing Proposal, or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Parent Competing Proposal, made on or
after the date of this Agreement or any request for non-public information or data relating to the Parent or any of its Subsidiaries made by any Person in connection with a Parent Competing Proposal,
or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Parent Competing Proposal, or any request for discussions or negotiations with Parent or a
Representative of Parent relating to a Parent Competing Proposal, or any proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Parent Competing Proposal
(but in each case, not later than two (2) days of such receipt or request), and Parent shall provide to the Company (within such two (2) day time frame) either (i) a copy of any
such Parent Competing Proposal, or any such proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal (including all exhibits and
schedules thereto) made in writing provided to Parent or any of its Subsidiaries or (ii) a written summary of the material terms of such Parent Competing Proposal, or any such proposal,
inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal (including the identity of the Person making such Parent Competing Proposal, or such
proposal, inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal) if not made in writing. Parent shall (A) keep the Company
reasonably informed on a reasonably prompt basis with respect to the status and material terms of any such Parent Competing Proposal, or such proposal, inquiry, offer or indication of interest that
would reasonably be expected to
lead to a Company Competing Proposal, and any material changes to the status of any such discussions or negotiations and (B) promptly (and in any event no later than forty-eight
(48) hours after receipt by Parent or any of its Subsidiaries) provide to the Company either (i) a copy of any such material changes to such Parent Competing Proposal, or such proposal,
inquiry, offer or indication of interest that would reasonably be expected to lead to a Company Competing Proposal (including all exhibits and schedules thereto) made in writing and any material
correspondence with respect thereto or (ii) a written summary of such material changes to the terms of such Parent Competing Proposal, or such proposal, inquiry, offer or indication of interest
that would reasonably be expected to lead to a Company Competing Proposal if not made in writing or any material oral correspondence with respect thereto. Without limiting the foregoing, Parent shall
notify the Company if Parent determines to begin providing information or to engage in discussions or negotiations concerning a Parent Competing Proposal in accordance with Section 6.4(f), prior
and as a condition to providing any such information or engaging in any such discussions or negotiations; provided, that
all such information (to the extent that such information has not been previously provided or made available to the Company) is provided or made available to the Company, as the case may be,
substantially concurrently with the time it is provided or made available to such third party.
(f) Notwithstanding
anything in this Agreement to the contrary, Parent, directly or indirectly through one or more of its Representatives, may:
(i) to
the extent applicable, disclose to Parent's stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or make any
"stop, look and listen" communication to Parent's stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act, or any similar statement in response to any publicly disclosed
Parent Competing Proposal; provided, however, that Parent shall not effect any Parent Change of
Recommendation other than in accordance with Section 6.4(f)(iii) or Section 6.4(g);
(ii) prior
to the receipt of the Parent Stockholder Approval, engage in the activities prohibited by Sections 6.4(b)(ii) or 6.4(b)(iii) with any Person who has
made a written, bona
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fide Parent Competing Proposal that did not arise from a breach of the obligations set forth in this Section 6.4; provided, however, that (A) no non-public information that is prohibited from being furnished
pursuant to Section 6.4(b) may be furnished 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 does not
contain provisions that prohibit Parent from complying with the provisions of this Section 6.4, and (B) prior to and as a condition to
taking any such actions, the Parent Board determines in good faith, after consultation with Parent's financial advisor and outside legal counsel, that such Parent Competing Proposal is, or would
reasonably be expected to lead to, a Parent Superior Proposal;
(iii) prior
to the receipt of the Parent Stockholder Approval, in response to a Parent Competing Proposal that did not arise from a breach of the obligations set forth in
this Section 6.4, if the Parent Board so chooses, cause Parent to effect a Parent Change of Recommendation or to terminate this Agreement
pursuant to Section 8.1(c), if prior and as a condition to taking such action (A) the Parent Board determines in good faith, after
consultation with Parent's financial advisor and outside legal counsel, that (x) such Parent Competing Proposal is a Parent Superior Proposal (taking into account any adjustment to the terms
and conditions of the Merger proposed by the Company in response to such Parent Competing Proposal) and (y) the failure to take such action would be reasonably likely to be inconsistent with
its fiduciary obligations to Parent's stockholders under applicable Law and (B) Parent shall have given five (5) Business Days' prior notice to the Company that Parent has
received such proposal, specifying the material terms and conditions of such proposal (including the identity of the Person making such proposal), and, that Parent intends to take such action, and
(1) after giving such notice and prior to effecting such Parent Change of Recommendation or termination, Parent negotiates (and causes its officers, employees, financial advisor and outside
legal counsel to negotiate) in good faith with the Company (to the extent the Company wishes to negotiate), which negotiations may be on a nonexclusive basis with respect to other negotiations or
discussions permitted by this Section 6.4, to make such adjustments or revisions to the terms and conditions of this Agreement such that the
Parent Competing Proposal would no longer constitute a Parent Superior Proposal; and (2) at the end of the five (5) Business Day period, prior to taking action to effect a Parent
Change of Recommendation or terminate this Agreement pursuant to Section 8.1(c), the Parent Board takes into account any adjustments or revisions
to the terms of this Agreement committed to by the Company in writing, and determines in good faith, after consultation with Parent's financial advisor and outside legal counsel, that (x) the
Parent Competing Proposal remains a Parent Superior Proposal and (y) the failure to take such action would be reasonably likely to be inconsistent with its fiduciary obligations to Parent's
stockholders under applicable Law; provided, that in the event of any change to the financial terms of, or any other material amendment or material
modification to, any Parent Superior Proposal, Parent shall be required to deliver a new written notice to the Company and to comply with the requirements of this Section 6.4(f)(iii) with respect
to such new written notice, except that the advance written notice obligation set forth in this Section 6.4(f)(iii) shall be reduced to two (2) Business Days; and
(g) Notwithstanding
anything in this Agreement to the contrary, prior to the receipt of the Parent Stockholder Approval, in response to a Parent Intervening Event that
occurs or arises after the date of this Agreement, Parent may, if the Parent Board so chooses, effect a Parent Change of Recommendation if prior to and as a condition to taking such action
(A) the Parent Board determines in good faith, after consultation with Parent's financial advisor and outside legal
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counsel,
that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary obligations to Parent's stockholders under applicable Law, (B) Parent shall have
given five (5) Business Days' prior notice to 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 that Parent intends to effect a Parent Change of Recommendation, and (1) after giving such notice and prior to effecting such Parent Change of Recommendation,
Parent negotiates (and causes its officers, employees, financial advisor and outside legal counsel to negotiate) in good faith with the Company (to the extent the Company wishes to negotiate) to make
such adjustments or revisions to the terms and conditions of this Agreement as would permit Parent Board not to effect a Parent Change of Recommendation in response thereto; and (2) at the end
of the five (5) Business Day period, prior to taking action to effect a Parent Change of Recommendation, Parent Board takes into account any adjustments or revisions to the terms of this
Agreement proposed by the Company in writing and any other information offered by the Company in response to the notice, and determines in good faith, after consultation with Parent's financial
advisor and outside legal counsel, that the failure to effect a Parent Change of Recommendation in response to such Parent Intervening Event would be reasonably likely to be inconsistent with the
fiduciary obligations owed by Parent Board to Parent's stockholders under applicable Law; provided, that in the event of any material changes regarding
any Parent Intervening Event, Parent shall be required to deliver a new written notice to the Company and to comply with the requirements of this Section 6.4(g) with respect to such new written
notice, except that the advance written notice obligation set forth in this Section 6.4(g) shall be reduced to two (2) Business Days.
6.5 Preparation of Joint Proxy Statement and Registration Statement.
(a) Parent
and the Company will promptly furnish to the other party such data and information relating to it, its respective Subsidiaries and the holders of its capital
stock, as the Company or Parent, as applicable, may reasonably request for the purpose of including such data and information in the Registration Statement or the Joint Proxy Statement, and, in each
case, any amendments or supplements thereto.
(b) Promptly
following the date hereof, (i) the Company and Parent shall cooperate in preparing, and the Company shall cause to be filed with the SEC as promptly as
practicable, a mutually acceptable Joint Proxy Statement relating to the matters to be submitted to the holders of Company Common Stock at the Company Shareholders Meeting and the holders of Parent
Common Stock at the Parent Stockholders Meeting, and (ii) Parent shall prepare and file with the SEC the Registration Statement (of which the Joint Proxy Statement will be a part). The Company
and Parent shall each use reasonable best efforts to cause the Registration Statement and the Joint Proxy Statement to comply with the rules and regulations promulgated by the SEC and to respond
promptly to any comments of the SEC or its staff. Parent and the Company shall each use its reasonable best efforts to cause the Registration
Statement to become effective under the Securities Act as soon after such filing as reasonably practicable and Parent shall use reasonable best efforts to keep the Registration Statement effective as
long as is necessary to consummate the Merger. Each of the Company and Parent will advise the other promptly after it receives any request by the SEC for amendment of the Joint Proxy Statement or the
Registration Statement or comments thereon and responses thereto or any request by the SEC for additional information, and Parent and the Company shall jointly prepare any response to such comments or
requests, and each of the Company and Parent agrees to permit the other (in each case, to the extent practicable), and their respective outside counsels, to participate in all meetings and conferences
with the SEC. Each of the Company and Parent shall use reasonable best efforts to cause all documents that it is responsible for filing with the SEC in connection with the Transactions to comply as to
form and substance in all material respects with the applicable requirements of the
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Securities
Act and the Exchange Act. Notwithstanding the foregoing, prior to filing the Registration Statement (or any amendment or supplement thereto) or mailing the Joint Proxy Statement (or any
amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, each of the Company and Parent will (A) provide the other with a reasonable opportunity to review
and comment on such document or response (including the proposed final version of such document or response), (B) include in such document or response all comments reasonably and promptly
proposed by the other and (C) not file or mail such document or respond to the SEC prior to receiving the approval of the other, which approval shall not be unreasonably withheld, conditioned
or delayed.
(c) Parent
and the Company shall make all necessary filings with respect to the Merger and the Transactions under the Securities Act and the Exchange Act and applicable blue
sky laws and the rules and regulations thereunder. Each party shall advise the other, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in
any jurisdiction. Each of the Company and Parent will use reasonable best efforts to have any such stop order or suspension lifted, reversed or otherwise terminated.
(d) If
at any time prior to the Effective Time, any information relating to Parent or the Company, or any of their respective Affiliates, officers or directors, should be
discovered by Parent or the Company that should be set forth in an amendment or supplement to the Registration Statement or the Joint 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 which
discovers such information shall promptly notify the other party and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by applicable Law, disseminated to the shareholders of the Company and the stockholders of Parent.
6.6 Company Shareholders Meeting and Parent Stockholders Meeting.
(a) The
Company shall take all action necessary in accordance with applicable Laws and the Organizational Documents of the Company to duly give notice of, convene and hold a
meeting of its shareholders for the purpose of obtaining the Company Shareholder Approval, to be held as promptly as reasonably practicable following the declaration of effectiveness of the
Registration Statement and the clearance of the Joint Proxy Statement by the SEC. Except as expressly permitted by Section 6.3, the Company Board
shall recommend that the shareholders of the Company vote in favor of the approval of this Agreement at the Company Shareholders Meeting and the Company Board shall solicit from shareholders of the
Company proxies in favor of the approval of this Agreement, and the Joint Proxy Statement shall include a statement to the effect that the Company Board has made the Company Board Recommendation.
Notwithstanding anything to the contrary contained in this Agreement, the Company (i) shall be required to adjourn or postpone the Company Shareholders Meeting (A) to the extent
necessary to ensure that any supplement or amendment to the Joint Proxy Statement that is required to be filed and disseminated under applicable Law is provided to the Company's shareholders or
(B) if, as of the time for which the Company Shareholders Meeting is scheduled, there are insufficient shares of Company Common Stock represented (either in person or by proxy) to constitute a
quorum necessary to conduct business at such Company Shareholders Meeting and (ii) may adjourn or postpone the Company Shareholders Meeting if, as of the time for which the Company Shareholders
Meeting is scheduled, the Company reasonably determines in good faith that there are insufficient shares of Company Common Stock represented (either in person or by proxy) to obtain the Company
Shareholder Approval; provided, however, that unless otherwise agreed to by
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the
parties, the Company Shareholders Meeting shall not be adjourned or postponed to a date that is more than thirty (30) days after the date for which the meeting was previously
scheduled (it being understood that such Company Shareholders Meeting shall be adjourned or postponed every time the circumstances described in the foregoing clauses (i)(A) and (i)(B) exist, and such Company Shareholders Meeting may be adjourned or
postponed every time the circumstances described in the foregoing clause (ii) exist); and provided, further, that the Company Shareholders Meeting shall not be adjourned or postponed to a date
on or after two (2) Business Days prior to the End Date. The Company shall promptly provide Parent with all voting tabulation reports relating to the Company Shareholders Meeting that
have been prepared by the Company or the Company's transfer agent, proxy solicitor or other Representative and shall otherwise keep Parent reasonably informed on a reasonably current
basis regarding the status of the solicitation and any material oral or written communications from or to the Company's shareholders with respect thereto.
(b) Parent
shall take all action necessary in accordance with applicable Laws and the Organizational Documents of Parent to duly give notice of, convene and hold a meeting
of its stockholders for the purpose of obtaining the Parent Stockholder Approval, to be held as promptly as reasonably practicable following the declaration of effectiveness of the Registration
Statement and the clearance of the Joint Proxy Statement by the SEC. Except as expressly permitted by Section 6.4, the Parent Board shall
recommend that the stockholders of Parent vote in favor of the Parent Common Stock Issuance at the Parent Stockholder Meeting and the Parent Board shall solicit from stockholders of Parent proxies in
favor of the Parent Common Stock Issuance, and the Joint Proxy Statement shall include a statement to the effect that the Parent Board has made the Parent Board Recommendation. Notwithstanding
anything to the contrary contained in this Agreement, Parent (i) shall be required to adjourn or postpone the Parent Stockholders Meeting (A) to the extent necessary to ensure that any
supplement or amendment to the Joint Proxy Statement that is required to be filed and disseminated under applicable Law is provided to Parent's stockholders or (B) if, as of the time for which
the Parent Stockholders Meeting is scheduled, 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 Parent Stockholders Meeting and (ii) may adjourn or postpone the Parent Stockholders Meeting if, as of the time for which the Parent Stockholders Meeting is scheduled, Parent reasonably
determines in good faith that there are insufficient shares of Parent Common Stock represented (either in person or by proxy) to obtain the Parent Stockholder Approval; provided, however, that unless otherwise agreed to by the parties, the Parent Stockholders Meeting shall
not be adjourned or postponed to a date that is more than thirty (30) days after the date for which the meeting was previously scheduled (it being understood that such Parent
Stockholders Meeting shall be adjourned or postponed every time the circumstances described in the foregoing clauses (i)(A) and (i)(B) exist, and such
Parent Stockholders Meeting may be adjourned or postponed every time the circumstances described in the foregoing clause (ii) exist); and provided,
further, that
the Parent Stockholders Meeting shall not be adjourned or postponed to a date on or after two (2) Business Days prior to the End Date. Parent shall promptly provide the Company with all
voting tabulation reports relating to the Parent Stockholders Meeting that have been prepared by Parent or Parent's transfer agent, proxy solicitor or other Representative and shall otherwise keep the
Company reasonably informed on a reasonably current basis regarding the status of the solicitation and any material oral or written communications from or to Parent's stockholders with respect
thereto.
(c) The
parties shall cooperate and use their reasonable best efforts to hold the Company Shareholders Meeting and the Parent Stockholders Meeting on the same day and at
approximately the same time. Unless there has been a Company Change of Recommendation or a Parent Change of Recommendation, as expressly permitted by Section 6.3 or Section 6.4, respectively, the parties agree to cooperate and use their
reasonable best efforts to defend against any efforts by any of the
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Company's
shareholders, Parent's stockholders or any other Person to prevent the Company Shareholder Approval and Parent Stockholder Approval from being obtained.
(d) Without
limiting the generality of the foregoing, unless this Agreement shall have been terminated pursuant to Article VIII, the Company and Parent agree that (i) their respective obligations to call,
give notice of, convene and hold the Company
Shareholders Meeting and Parent Stockholders Meeting, as applicable, pursuant to this Section 6.6 shall not be affected by the making of a
Company Change of Recommendation or a Parent Change of Recommendation, as applicable, (ii) the Company's obligations pursuant to this Section 6.6 shall not be affected by the commencement,
announcement, disclosure, or communication to the Company of any Company Competing
Proposal or other proposal (including, a Company Superior Proposal) or the occurrence or disclosure of any Company Intervening Event and (iii) Parent's obligations pursuant to this Section 6.6
shall not be affected by the commencement, announcement, disclosure, or communication to Parent of any Parent Competing Proposal or
other proposal (including, a Parent Superior Proposal) or the occurrence or disclosure of any Parent Intervening Event.
6.7 Access to Information.
(a) Subject
to applicable Law and the other provisions of this Section 6.7, the Company and Parent each shall (and
shall cause its Subsidiaries to), upon request by the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers, shareholders/stockholders, as applicable,
and such other matters as may be reasonably necessary or advisable in connection with the Registration Statement, the Joint Proxy Statement or any other statement, filing, notice or application made
by or on behalf of Parent, the Company or any of their respective Subsidiaries to any third party or any Governmental Entity in connection with the Transactions. Each party shall, and shall cause each
of its Subsidiaries to, afford to the other party and its Representatives, during the period prior to the earlier of the Effective Time and the termination of this Agreement pursuant to Article VIII, reasonable access, at reasonable times upon reasonable prior notice, to the officers, key employees, agents, properties, offices
and other facilities of such party and its Subsidiaries and to their books, records, contracts and documents and shall, and shall cause each of its Subsidiaries to, furnish reasonably promptly to the
other party and its Representatives such information concerning its and its Subsidiaries' business, properties, contracts, records and personnel as may be reasonably requested, from time to time, by
or on behalf of the other party. Each party and its Representatives shall conduct any such activities in such a manner as not to interfere unreasonably with the business or operations of the other
party or its Subsidiaries or otherwise cause any unreasonable interference with the prompt and timely discharge by the employees of the other party and its Subsidiaries of their normal duties.
Notwithstanding the foregoing provisions of this Section 6.7(a), neither party shall be required to, or to cause any of its Subsidiaries to,
grant access or furnish information to the other party or any of its
Representatives to the extent that such information is subject to an attorney/client privilege or the attorney work product doctrine or that such access or the furnishing of such information is
prohibited by applicable Law or an existing contract or agreement (provided, however, the Company or
Parent, as applicable, shall inform the other party as to the general nature of what is being withheld and the Company and Parent shall reasonably cooperate to make appropriate substitute arrangements
to permit reasonable disclosure that does not suffer from any of the foregoing impediments). Notwithstanding the foregoing, neither 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 the other party's good faith opinion the disclosure of which could
subject the other party or any of its Subsidiaries to risk of liability. Notwithstanding the foregoing, neither party shall be permitted to conduct any sampling or analysis of any environmental media
or building materials at any facility of the other party or its Subsidiaries without the prior written consent of the other party, which may be granted or withheld in such
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party's sole discretion. Each party agrees that (i) no investigation or information provided pursuant to this Section 6.7 shall
affect or be deemed to modify any representation or warranty made by the Company or Parent herein and (ii) it will not, and will cause its Representatives not to, use any information obtained
pursuant to this Section 6.7 for any purpose unrelated to the evaluation, negotiation or consummation of the Transactions.
(b) The
Nondisclosure Agreement, dated as of July 1, 2019, between Parent and the Company (as amended from time to time, the "Confidentiality
Agreement") shall survive the execution and delivery of this Agreement and shall apply to all information furnished thereunder or hereunder. All information provided to any
party or its Representatives pursuant to or in connection with this Agreement is deemed to be "Confidential Information" as defined under the Confidentiality Agreement.
6.8 Regulatory Approvals; Efforts.
(a) Each
of the parties shall use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the
other party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other Transactions.
(b) Except
for the filings and notifications made pursuant to Antitrust Laws to which Section 6.8(c), Section 6.8(d) and Section 6.8(e), and not this Section 6.8(b), shall apply, promptly following the execution of this Agreement, the parties shall proceed to prepare and file
with the
appropriate Governmental Entities all authorizations, consents, notifications, certifications, registrations, declarations and filings that are necessary in order to consummate the Transactions and
shall diligently and expeditiously prosecute, and shall cooperate fully with each other in the prosecution of, such matters. Neither party nor its Subsidiaries shall agree to any actions, restrictions
or conditions with respect to obtaining any consents, registrations, approvals, permits, expirations of waiting periods or authorizations in connection with the Transactions without the prior written
consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed).
(c) As
promptly as reasonably practicable following the execution of this Agreement, but in no event later than ten (10) Business Days following the date of this
Agreement, the parties shall make any filings required under the HSR Act. Each of Parent and the Company shall, and shall cause their respective Subsidiaries to, cooperate fully with each other and
shall furnish to the other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of any filings under any applicable Antitrust
Laws. Parent and the Company shall each use its reasonable best efforts to ensure the prompt expiration or termination of any applicable waiting period under the HSR Act. Parent and the Company shall
each use its reasonable best efforts to respond to and substantially comply with any request for information or documentary material from any Governmental Entity charged with enforcing, applying,
administering, or investigating any Antitrust Law, including the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, any attorney general of any state of the United
States, or any other competition authority of any other jurisdiction ("Antitrust Authority"). Each of Parent and the Company shall, and shall cause
their respective Subsidiaries to, in connection with the efforts referenced in this Section 6.8, (i) cooperate in all respects with each
other in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) promptly notify the other party of any communication concerning this
Agreement or any of the Transactions to that party from or with any Governmental Entity, or from any other Person alleging that the consent of such person (or another Person) is or may be required in
connection with the Transactions, and consider in good faith the views of the other party and keep the other party reasonably informed of the status of matters related to the Transactions, including
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furnishing
the other party with any written notices or other communications received by such party from, or given by such party to, any Governmental Entity and of any communication received or given
in connection with any proceeding by a private party, in each case regarding any of the Transactions, except that any materials concerning one party's valuation of the other party may be redacted; and
(iii) permit the other party to review in draft any proposed communication to be submitted by it to any Governmental Entity with reasonable time and opportunity to comment, and consult with
each other in advance of any in-person or telephonic meeting or conference with any Governmental Entity or, in
connection with any proceeding by a private party, with any other Person, and, to the extent permitted by the applicable Governmental Entity or Person, not participate in any meeting or discussion
with any Governmental Entity relating to any filings or investigations concerning this Agreement or any of the Transactions unless it consults with the other party and its Representatives in advance
and invites the other party's Representatives to attend in accordance with applicable Laws. The parties shall take reasonable efforts to preserve the attorney-client privilege, work product doctrine,
joint defense privilege or any other privilege with respect to any information shared pursuant to this Section 6.8(c).
(d) Notwithstanding
anything herein to the contrary, Parent shall take any and all action necessary, including, but not limited, to (i) selling or otherwise disposing
of, or holding separate and agreeing to sell or otherwise dispose of, assets, categories of assets or businesses of the Company or Parent or their respective Subsidiaries; (ii) terminating
existing relationships, contractual rights or obligations of the Company or Parent or their respective Subsidiaries; (iii) terminating any venture or other arrangement; (iv) creating any
relationship, contractual rights or obligations of the Company or Parent or their respective Subsidiaries; or (v) effectuating any other change or restructuring of the Company or Parent or
their respective Subsidiaries and, in each case, to enter into agreements or stipulate to the entry of an order or decree or file appropriate applications with any Antitrust Authority in connection
with any of the foregoing and in the case of actions by or with respect to the Company or its Subsidiaries or its or their businesses or assets (each, a "Divestiture
Action") to ensure that no Governmental Entity enters any order, decision, judgment, decree, ruling, injunction (preliminary or permanent), or establishes any Law or other
action preliminarily or permanently restraining, enjoining or prohibiting the consummation of the Merger, or to ensure that no Antitrust Authority with the authority to clear, authorize or otherwise
approve the consummation of the Merger, fails to do so by the End Date; provided, however, that nothing
in this Agreement shall require Parent or any of its Subsidiaries to take or agree to take any Divestiture Action or other action that would reasonably be expected to have, individually or in the
aggregate, an adverse effect on the business, financial conditions or operations of Parent and the Company on a combined basis, taken as a whole, after giving effect to the Merger which effect would
be a material adverse effect relative to a company that is of a size and scope substantially similar to the Company, taken as a whole. The Company shall not take or agree to take any Divestiture
Action unless requested in writing by Parent, provided that the Company shall not be required to take any Divestiture Action reasonably requested by Parent unless such action is only effective after
the Effective Time and conditioned upon the consummation of the Transactions.
(e) In
the event that any action is threatened or instituted challenging the Merger as violative of any Antitrust Law, Parent shall take such action, including any
Divestiture Action, as may be necessary to avoid, resist or resolve such action (provided that in no event shall this Section 6.8(e) require Parent to
make or agree to take any Divestiture Action that would reasonably be expected to have, individually or in the
aggregate, an adverse effect on the business, financial conditions or operations of Parent and the Company on a combined basis, taken as a whole, after giving effect to the Merger which effect would
be a material adverse effect relative to a company that is of a size and scope substantially similar to the Company, taken as a whole). Subject to the terms of this Section 6.8, including the
immediately foregoing sentence, in the event that any permanent or
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preliminary
injunction or other order is entered or becomes reasonably foreseeable to be entered in any Proceeding that would make consummation of the Transactions in accordance with the terms of this
Agreement unlawful or that would restrain, enjoin or otherwise prevent or materially delay the consummation of the Transactions, Parent shall take promptly any and all steps necessary to vacate,
modify or suspend such injunction or order so as to permit such consummation prior to the End Date.
(f) Neither
the Company nor Parent shall take any action that could reasonably be expected to hinder or delay obtaining clearance, or the expiration or termination of the
applicable waiting period, under the HSR Act.
6.9 Employee Matters.
(a) No
later than ten (10) Business Days prior to the Closing Date, Parent will provide the Company a complete list of employees that Parent will be
(i) offering continuing employment with Parent or its Subsidiaries, (ii) offering transitional employment with Parent or its Subsidiaries until the end of a specified transition date or
(iii) informing that their employment will terminate on the Closing Date. As of the Effective Time, the Surviving Corporation shall, or shall cause one of its Subsidiaries to, employ each
employee of the Company and its Subsidiaries who continues to be employed by the Surviving Corporation or its Subsidiaries as of the Effective Time (each employee, a
"Continuing Employee") and to provide to each such Continuing Employee the base salary or wages and annual target cash bonus opportunity or semi-annual
cash bonus opportunity, as applicable, in effect as of immediately prior to the Effective Time. From and after the Effective Time, the Surviving Corporation shall honor all Company Benefit Plans and
all plans, programs, practices, policies, arrangements and agreements referenced on Schedule 3.2(c) of the Company Disclosure Letter, in each
case, in accordance with their terms as in effect immediately prior to the Effective Time. Notwithstanding the foregoing, nothing herein shall, after the Effective Time, prohibit the Surviving
Corporation or any of its Subsidiaries from amending or terminating any such Company Benefit Plan, or compensation arrangement or agreement in accordance with its terms or impose on the Surviving
Corporation or any of its Subsidiaries any obligation to retain any employee for any amount of time. During the period commencing as of the Effective Time and ending on the first anniversary of the
Closing (such period, the "Continuation Period"), the Surviving Corporation shall, and shall cause one of its Subsidiaries to, provide each Continuing
Employee with, during the Continuation Period, severance payments, rights and/or benefits that are no less favorable than the severance payments, rights and/or benefits under the applicable Company
Benefit Plans set forth on Schedule 6.9(a) of the Company Disclosure Letter.
(b) With
respect to any employee benefit plans of Parent or its Subsidiaries in which any Continuing Employees immediately prior to Closing become eligible to participate on
or after the Effective Time (the "New Plans"), the Surviving Corporation shall, or shall cause one of its Subsidiaries to: (i) waive all
pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such employees and their eligible dependents under any New Plans, except
to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous Company Benefit Plan, (ii) provide each such Continuing Employee and his or her spouse
and/or eligible dependents with credit for any eligible expenses incurred by such Continuing Employee or his or her spouse and/or dependent prior to the Effective Time under a Company Benefit Plan (to
the same extent that such credit was given under the analogous Company Benefit Plan prior to the Effective Time) in satisfying any applicable deductible, co-payment or out-of-pocket requirements under
any New Plans, and (iii) recognize all service of such Continuing Employees with the Company and its Subsidiaries for all purposes in any New Plan to the same extent that such service was taken
into account under the analogous Company Benefit Plan prior to the Effective Time; provided that the foregoing service recognition shall not apply to
the extent it would result in duplication of benefits for the same period of services.
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(c) Except
with respect to Parent Assumed PSU Awards pursuant to Section 3.2(c), Parent hereby acknowledges that a
"change in control" (or similar phrase) within the meaning of the Company Benefit Plans will occur at the Effective Time.
(d) Nothing
in this Agreement shall confer upon any employee, director or consultant of the Company or any of its Affiliates any right to continue in the employ or service
of the Surviving Corporation, or any Affiliate thereof, or shall interfere with or restrict in any way the rights of the Surviving Corporation or any Affiliate thereof to discharge or terminate the
services of any employee, director or consultant of the Company or any of its Affiliates at any time for any reason whatsoever, with or without cause, subject to the terms of any employment agreement,
severance agreement, arrangement, plan, policy, program or practice or other similar agreement, arrangement, plan, policy, program or practice. Nothing in this Agreement shall be deemed to
(i) establish, amend, or modify any Company Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the
Surviving Corporation or any of its Affiliates to amend, modify or terminate any particular Company Benefit Plan, New Plan or any other benefit or employment plan, program, agreement or arrangement
after the Effective Time except, during the Continuation Period, Parent shall not amend, modify or terminate in any manner adverse to the relevant employees any severance payments or benefits
contained in the Company Benefit Plans set forth on Schedule 6.9(a) of the Company Disclosure Letter. Without limiting the generality of the
final sentence of Section 9.7, nothing
in this Section 6.9, express or implied, is intended to or shall confer upon any person, including any current or former employee, director or
consultant of the Company or any of its Affiliates, any third party beneficiary or other right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
6.10 Indemnification; Directors' and Officers' Insurance.
(a) Without
limiting any other rights that any Indemnified Person may have pursuant to any employment agreement or indemnification agreement in effect on the date hereof or
otherwise (which shall be assumed by the Surviving Corporation), from the Effective Time and until the six year anniversary of the Effective Time, the Surviving Corporation shall indemnify,
defend and hold harmless each Person who is now, or has been at any time prior to the date of this Agreement or who becomes prior to the Effective Time, a director, officer or employee of the Company
or any of its Subsidiaries or who acts as a fiduciary under any Company Benefit Plan or any of its Subsidiaries or is or was serving at the request of the Company or any of its Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise (the
"Indemnified Persons") against all losses, claims, damages, costs, fines, penalties, expenses (including attorneys' and other professionals' fees and
expenses), liabilities or judgments or amounts that are paid in settlement, of or incurred in connection with any threatened or actual Proceeding to which such Indemnified Person is a party or is
otherwise involved (including as a witness) based, in whole or in part, on or arising, in whole or in part, out of the fact that such Person is or was a director, officer or employee of the Company or
any of its Subsidiaries, a fiduciary under any Company Benefit Plan or any of its Subsidiaries or is or was serving at the request of the Company or any of its Subsidiaries as a director, officer,
employee or agent of another corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise or by reason of anything done or not done by such
Person in any such capacity, whether pertaining to any act or omission occurring or existing prior to, at or after the Effective Time and whether asserted or claimed prior to, at or after the
Effective Time ("Indemnified Liabilities"), including all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to, this Agreement or the Transactions, in each case to the fullest extent permitted under applicable Law (and the Surviving Corporation shall pay expenses incurred in advance of
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final disposition of any such Proceeding to each Indemnified Person to the fullest extent permitted under applicable Law and in accordance with the procedures (if any) set forth in the
Organizational Documents of the Company or any Subsidiary of the Company; provided, that such Indemnified Person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such Indemnified Person is not entitled to indemnification).
(b) The
Surviving Corporation shall not amend, repeal or otherwise modify any provision in the Organizational Documents of the Surviving Corporation or its Subsidiaries in
any manner that would affect (or manage the Surviving Corporation or its Subsidiaries, with the specific intent to) adversely the rights thereunder of any Indemnified Person to indemnification,
exculpation and advancement except to the extent required by applicable Law. The Surviving Corporation shall, and cause its Subsidiaries to, fulfill and honor any indemnification, expense advancement
or exculpation agreements between the Company or any of its Subsidiaries and any of its directors, officers or employees existing immediately prior to the Effective Time.
(c) To
the fullest extent permitted under applicable Law, the Surviving Corporation shall indemnify any Indemnified Person against all reasonable costs and expenses
(including reasonable attorneys' fees and expenses), such amounts to be payable in advance upon request as provided in this Section 6.10,
relating to the enforcement of such Indemnified Person's rights under this Section 6.10 or under any charter, bylaw or contract regardless of
whether such Indemnified Person is ultimately determined to be entitled to indemnification hereunder or thereunder.
(d) Parent
and the Company will cause to be put in place, and Parent shall fully prepay immediately prior to, and conditioned upon the occurrence of, the Effective Time,
"tail" insurance policies with a claims reporting or discovery period of at least six (6) years from the Effective Time from an insurance carrier with the same or better credit rating as
the Company's current insurance carrier with respect to directors' and officers' liability insurance companies with terms and conditions no less favorable than the current directors' and officers'
liability insurance policies maintained by the Company with respect to matters, acts or omissions existing or occurring at or prior to the Effective Time; provided, however, that Parent may elect in its sole discretion to, but shall not be required to, spend
more than three hundred percent (300%) (the "Cap Amount") of the last annual premium paid by the Company prior to the date hereof for the
six (6) years of coverage under such "tail" policy; provided, further, that if the cost of
such insurance exceeds the Cap Amount, and Parent elects not to spend more than the Cap Amount for such purpose, then Parent shall purchase the greatest coverage available for the six-year period for
the Cap Amount.
(e) In
the event that the Surviving Corporation, any Subsidiary of the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving company or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and
assets to any Person, then, in each such case, proper provisions shall be made so that the successors and assigns of the Surviving Corporation or such Subsidiary of the Surviving Corporation, as the
case may be, shall assume the obligations set forth in this Section 6.10. The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by, the parties and each Person entitled to indemnification or
insurance coverage or expense advancement pursuant to this Section 6.10, and his or her heirs and representatives. The rights of the Indemnified
Persons under this Section 6.10 are in addition to any rights such Indemnified Persons may have under the Organizational Documents of the Company
or any of its Subsidiaries, or under any applicable contracts or Law. The Surviving Corporation shall pay all expenses, including attorneys' fees, that may be incurred by any Indemnified Person in
enforcing the indemnity and other obligations provided in this Section 6.10.
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6.11 Transaction Litigation. In the event any Proceeding by any Governmental Entity or other Person
is commenced or, to the knowledge of the Company or Parent, as applicable, threatened, that
questions the validity or legality of the Transactions or seeks damages in connection therewith ("Transaction Litigation"), the parties agree to
promptly (and in any event within two (2) Business Days) notify the other party of such Transaction Litigation and shall keep the other party reasonably informed with respect to the status
thereof and cooperate and use their reasonable best efforts to defend against and respond thereto. Each party shall (a) give the other party a reasonable opportunity to participate in the
defense or settlement of any Transaction Litigation against the first party and (b) shall consider in good faith the other party's advice with respect to such Transaction Litigation and, to the
extent practicable, give the other party and its advisors the right to review and comment on any material filings or responses in connection with such Transaction Litigation by or on behalf of the
first party. Each party shall not cease to defend, consent to the entry of any judgment, settle or offer to settle or take any other material action with respect to any Transaction Litigation against
it without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed).
6.12 Public Announcements. The initial press release with respect to the execution of this Agreement
shall be a joint press release to be reasonably agreed upon by the parties. The parties
will not, and each of the foregoing will cause its Representatives not to, issue any public announcements or make other public disclosures regarding this Agreement or the Transactions, without the
prior written approval of the parties, except as may be required by Law or by the rules of any stock exchange upon which such party's or any of its Subsidiaries' capital stock is traded (in which
event such party shall endeavor, on a basis reasonable under the circumstances, to provide an opportunity to the other party to review and comment upon such public announcement or statement in advance
and shall give due consideration to all reasonable changes suggested thereto); provided that each party may issue public announcements or make other
public disclosures regarding this Agreement or the Transactions that consist solely of information previously disclosed in press releases or announcements previously approved by either party or made
by either party in compliance with this Section 6.12; provided, further, that neither party shall be
(a) restricted from making internal communications with its employees which are not made public or
(b) required by any provision of this Agreement to consult with or obtain any approval from any other party with respect to a public announcement or press release issued in connection with the
receipt and existence of a Company Competing Proposal and matters related thereto or a Company Change of Recommendation or Parent Change of Recommendation other than as set forth in Section 6.3 or
Section 6.4, as applicable.
6.13 Advice of Certain Matters; No Control of Business. Subject to compliance with applicable Law,
the Company and Parent, as the case may be, shall confer on a regular basis with each other, report on operational
matters and shall promptly advise each other orally and in writing of any change or event having, or which would be reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect or Parent Material Adverse Effect, as the case may be. Except with respect to Antitrust Laws as provided in Section 6.8, the
Company and Parent shall promptly provide each other (or their respective counsel) copies of all filings made by such party or its Subsidiaries with the SEC or any other Governmental Entity in
connection with this Agreement and the Transactions. Without limiting in any way any party's rights or obligations under this Agreement, nothing contained in this Agreement shall give any party,
directly or indirectly, the right to control or direct the other party and their respective Subsidiaries' operations prior to the Effective Time. Prior to the Effective Time, each of the parties shall
exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries' respective operations.
6.14 Section 16 Matters. Prior to the Effective Time, Parent and the Company shall take all such
steps as may be required to cause any dispositions or acquisitions of equity securities of
the Company (including derivative securities) or acquisitions or dispositions of equity securities of Parent (including
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derivative
securities) in connection with this Agreement by each officer or director who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the
Company, or any officer or director who will become subject to such reporting requirements with respect to Parent, to be exempt pursuant to Rule 16b-3 under the Exchange Act.
6.15 Stock Exchange Listing and Delisting Application. Prior to the Closing, Parent shall take all
action necessary to cause the Merger Consideration to be approved for listing on the NASDAQ prior to the Closing Date,
subject to official notice of issuance. Prior to the Closing, the Company shall cooperate with Parent and use reasonable best efforts to take, or cause to be taken, all actions and do or cause to be
done all things, reasonably necessary, proper or advisable on its part under applicable Laws and rules and policies of the NYSE to enable the delisting by the Surviving Corporation of the Company
Common Stock from the NYSE and the deregistration of the Company Common Stock under the Exchange Act as promptly as practicable after the Effective Time, and in any event, no more than 10 calendar
days after the Closing Date.
6.16 Tax Matters. Each of Parent and the Company will (and will cause its respective Subsidiaries to)
use its reasonable best efforts to cause the Merger to qualify, and will not
take or knowingly fail to take (and will cause its Subsidiaries not to take or knowingly fail to take) any action that would, or would reasonably be expected to, prevent or impede the Merger from
qualifying, as a "reorganization" within the meaning of Section 368(a) of the Code. Each of Parent and the Company will use its reasonable best efforts and will cooperate in good faith with one
another to obtain the opinions of counsel referred to in Section 7.2(e) and Section 7.3(e). In connection therewith, (a) Parent shall
deliver to Wachtell, Lipton, Rosen & Katz (or another nationally
recognized tax counsel reasonably acceptable to Parent) ("Parent Tax Counsel") and Akin Gump Strauss Hauer & Feld LLP (or another
nationally recognized tax counsel reasonably acceptable to the Company) ("Company Tax Counsel") a duly executed certificate containing such
representations, warranties and covenants as shall be reasonably necessary or appropriate to enable such counsel to render the opinions described in Section 7.2(e) and Section 7.3(e) (the "Parent Tax
Certificate") and (b) the Company shall deliver to Parent Tax Counsel and Company Tax Counsel a duly executed certificate containing such representations, warranties and
covenants as shall be reasonably necessary or appropriate to enable such counsel to render the opinions described in Section 7.2(e) and Section 7.3(e) (the "Company 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), and Parent and the Company shall each provide such other information as reasonably requested
by each of Parent Tax Counsel and Company Tax Counsel for purposes of rendering the opinions described in Section 7.2(e) and Section 7.3(e), as
applicable.
6.17 Takeover Laws. None of the parties will take any action that would cause the Transactions to be
subject to requirements imposed by any Takeover Laws, and each of them will take
all steps within its control to exempt (or ensure the continued exemption of) the Transactions from the Takeover Laws of any state that purport to apply to this Agreement or the Transactions.
6.18 Financing.
(a) Parent
shall use commercially reasonable efforts to take, or cause to be taken, all actions, and use commercially reasonable efforts to do, or cause to be done, all
things necessary, proper or advisable to obtain funds sufficient to pay the Transaction Amounts. Parent's obligations pursuant to this Section 6.18(a) shall include using commercially reasonable
efforts to (i) timely (and in any event by the Effective Time) negotiate and
enter into definitive agreements with respect to (X) amendments to the Parent Credit Agreement or new facilities, as applicable, and in each case as contemplated by the Debt Commitment Letter
on the terms and conditions set forth therein (or on terms and conditions that do not (a) impose new or additional conditions not set forth in, or otherwise expand, amend, modify or waive any
conditions set forth in, the Debt Commitment
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or (b) make the timely funding to Parent of funds sufficient to satisfy the Transaction Amounts or the satisfaction of the conditions to obtaining such funds materially less likely to
occur by the Effective Time) or (Y) replacement financing of the financing contemplated by the Debt Commitment Letter on terms and conditions that do not make the timely funding to Parent of
funds sufficient to satisfy the Transaction Amounts or the satisfaction of the conditions to obtaining such funds materially less likely to occur by the Effective Time as compared to the Debt
Commitment Letters and (ii) satisfy or cause to be waived on a timely basis (and in any event by the Effective Time) all conditions to funding applicable to Parent set forth in the Debt
Commitment Letter or such definitive agreements, including definitive agreements with respect to any replacement financing of the financing contemplated by the Debt Commitment Letters, that are within
its (or any Affiliate's) control.. Parent shall keep the Company reasonably informed on a timely basis of the status of Parent's efforts to obtain the Financing (as defined below) and to satisfy the
conditions thereof and shall give the Company prompt notice of any fact, change, event or circumstance that is reasonably likely to have, individually or in the aggregate, a material adverse impact on
Parent's ability to pay any Transaction Amounts due on the Effective Date.
(b) Following
the date of this Agreement until the Effective Time, upon the written request of Parent, the Company agrees to use commercially reasonable efforts to provide,
cause its Subsidiaries to provide and cause its Representatives to provide, all such cooperation reasonably requested by Parent in connection with Parent's financing arrangements to fund the
Transaction Amounts (any such financing arrangement, the "Financing"), including:
(i) furnishing
to Parent and any of its financing sources who are subject to customary confidentiality arrangements:
(A) unaudited
consolidated balance sheets and related statements of operations, cash flows and changes in shareholders' equity for the Company for each fiscal quarter (other
than the fourth fiscal quarter in any fiscal year) ended after the close of its most recent fiscal year and at least 40 days prior to the Closing Date; and
(B) such
financial information, including historical financial information relating to the Company or its Subsidiaries and other information reasonably requested by Parent
relating to the Company or its Subsidiaries that is customary or reasonably required in connection with the Financing; and
(ii) using
commercially reasonable efforts to assist Parent with the timely preparation of customary rating agency presentations, bank information memoranda, lender
presentations, offering memoranda, prospectuses and similar documents required in connection with the Financing;
(iii) using
commercially reasonable efforts to execute and deliver as of the Closing pledge and security documents, supplemental indentures, guarantees, currency or interest
hedging arrangements, other definitive financing documents, or other certificates, instruments or documents as may be reasonably requested by Parent and otherwise reasonably facilitate the pledging of
collateral and the granting of security interests in respect of the Financing, it being understood that none of such documents, such pledges or grants will take effect until the Effective Time;
(iv) using
commercially reasonable efforts , upon reasonable request of Parent, to provide such cooperation reasonably requested in connection with a borrowing base
redetermination under the Parent Credit Agreement, including delivery of certificates, reports, data and supplemental information;
(v) using
commercially reasonable efforts to take all reasonable and customary actions reasonably requested by Parent to (A) permit any of Parent's financing sources
who are
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subject
to customary confidentiality arrangements to evaluate the Company and its Subsidiaries' reserves, assets, cash management and accounting systems, policies and procedures relating thereto for
the purposes of establishing collateral arrangements as of the Closing and to assist with other collateral audits and due diligence examinations, and (B) permit Parent to establish bank and
other accounts and blocked account agreements and lock-box arrangements to the extent necessary in connection with the Financing (not to be effective prior to the Closing unless the Company otherwise
agrees in writing);
(vi) providing
at least 4 Business Days prior to the Closing Date all documentation and other information relating to the Company and its Subsidiaries that is reasonably
requested by Parent at least 9 Business Days prior to the Closing Date required by bank regulatory authorities under applicable "know-your-customer" and anti-money laundering rules and regulations,
including the PATRIOT Act;
(vii) using
commercially reasonable efforts to provide customary authorization letters authorizing the distribution of information regarding the Company and its Subsidiaries
to prospective lenders who are
subject to customary confidentiality arrangements in connection with the Financing containing such customary representations as have been approved by the Company;
(viii) using
commercially reasonable efforts to cause the taking of any corporate, limited liability company or partnership actions, as applicable, by the Company or its
Subsidiaries reasonably necessary to permit the completion of such Financing, subject to the occurrence of the Closing; and
(ix) using
commercially reasonable efforts to cooperate in connection with any offering of notes, including by:
(A) using
commercially reasonable efforts to cause its Representatives to participate in due diligence sessions, provide customary consents and customary comfort letters;
and
(B) using
commercially reasonable efforts to cause management teams of the Company or its Subsidiaries, with appropriate seniority and expertise, to provide customary
cooperation; and
(C) using
commercially reasonable efforts to cooperate with due diligence relating to such offerings, to the extent customary and reasonable.
(c) The
Company shall, and shall cause its Subsidiaries to, following (and not prior to) the written request from Parent to do so, use commercially reasonable efforts to
(x) deliver a prepayment and commitment termination notice under and (y) otherwise facilitate the termination at the Closing of all commitments in respect of the Company Credit
Agreement, the repayment in full on the Closing Date of all obligations in respect of the Indebtedness under the Company Credit Agreement (subject to clause (c) below), the release on the Closing
Date of any Encumbrances securing such Indebtedness and guarantees in connection therewith, and,
with respect to any letters of credit outstanding thereunder, the cash collateralization by Parent thereof or the making of any alternate arrangements with respect thereto that are reasonably
requested by Parent, including using commercially reasonable efforts to deliver to Parent a fully executed, customary payoff letter with respect to the Company Credit Agreement (the
"Payoff Letter"), and shall request that such Payoff Letter together with any related release documentation shall, among other things, include the
payoff amount and provide that Encumbrances (and guarantees), if any, granted in connection with the Company Credit Agreement or any other Indebtedness under the Company Credit Agreement of the
Company or its Subsidiaries to be paid off, discharged and terminated on the Closing Date relating to the assets, rights and properties of the Company and its Subsidiaries securing or relating to
Indebtedness under the Company Credit Agreement shall,
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upon
the payment of the amount set forth in the Payoff Letter at or prior to the Effective Time, be released and terminated.
(d) To
the extent Parent has requested the termination of the commitments under the Company Credit Agreement, Parent shall deposit, or cause to be deposited, funds with the
administrative agent no later than the Closing Date in an amount sufficient for such repayment (the "Company Credit Agreement Amounts").
(e) The
Company shall, and shall cause its Subsidiaries to, following (and not prior to) the request from Parent to do so, use commercially reasonable efforts to provide all
reasonable cooperation requested by Parent to facilitate the Parent's assumption of the Company Notes, effective as of the Closing Date (including delivering any notices, requests, orders or
certificates reasonably required to be delivered in connection therewith).
(f) Notwithstanding
anything to the contrary in this Section 6.18, in connection with the Committed Financing, the
Financing or any other cooperation contemplated by this Section 6.18, no action shall be required of the Company or its Subsidiaries pursuant to
this Section 6.18 if any such action shall, or would reasonably be expected to:
(i) cause
any representation or warranty or covenant contained in this Agreement to be breached (unless waived by Parent);
(ii) involve
the entry by the Company or any Subsidiary into any agreement or instrument prior to the occurrence of the Closing (other than those certain officer notices or
certificates delivered in connection with a borrowing base redetermination under the Parent Credit Agreement or such agreements or instruments delivered in advance of Closing of which the
effectiveness is conditioned thereon);
(iii) require
the Company or any of its Subsidiaries or any of its or their Representatives to provide (or to have provided on its behalf) any certificates (other than
(i) those delivered in connection with a borrowing base redetermination under the Parent Credit Agreement and (ii) a certificate, in form reasonably satisfactory to the trustee under the
Company Notes Indenture, to the effect that immediately prior to the Effective Time no Default (as defined in the Company Notes Indenture) or
Event of Default (as defined in the Company Notes Indenture) exists under the Company Notes Indenture) or legal opinions;
(iv) cause
any director, officer or employee or shareholder of the Company or any of its Subsidiaries to incur any personal liability;
(v) conflict
with the Organizational Documents of the Company or its Subsidiaries or any Laws;
(vi) result
in a material violation or breach of, or a default (with or without notice, lapse of time, or both) under, any contract to which the Company or any of its
Subsidiaries is a party;
(vii) require
the Company or any of its Subsidiaries to provide access to or disclose information that the Company or any of its Subsidiaries determines would jeopardize any
attorney-client privilege of the Company or any of its Subsidiaries;
(viii) require
the Company or any of its Subsidiaries to prepare any financial statements or information that are not available to it and prepared in the ordinary course of
its financial reporting practice;
(ix) prepare
any projections or pro forma financial statements, which shall be the sole responsibility of Parent;
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(x) unreasonably
interfere with the ongoing business or operations of the Company and/or its Subsidiaries; or
(xi) require
the Company or any Subsidiary to pay any commitment or other fee or incur any other expense, liability or obligation prior to the Closing Date that would not be
reimbursed or indemnified under Section 6.18(g) or Section 6.18(h);
(xii) cause
any director, officer, or employee of the Company or any of its Subsidiaries to execute any agreement or certificate in his or her individual, rather than
official, capacity; or
(xiii) require
the Company or any of its Subsidiaries or any of its or their Representatives to prepare or provide any environmental assessment.
(g) Promptly
upon the Company's request and in any event within 5 Business Days of such request, all reasonable and documented out-of-pocket fees and expenses incurred by
the Company and its Subsidiaries in connection with cooperation or assistance with financing arrangements, debt repayments, or any other matters contemplated by this Section 6.18 shall be paid or
reimbursed by Parent whether or not the Merger is consummated or this Agreement is terminated.
(h) Parent
shall indemnify and hold harmless the Company and each of its Subsidiaries and their respective Representatives from and against any and all liabilities, losses,
damages, claims, costs, expenses (including reasonable attorney's fees), interest, awards, judgments and penalties suffered or incurred in connection with Parent's financing arrangements, debt
repayments, or any assistance or cooperation contemplated by this Section 6.18 (other than arising out of gross negligence, willful misconduct or
bad faith by the Company or its Subsidiaries or their respective Representatives).
(i) The
Company hereby consents to the use of its and its Subsidiaries' logos in connection with the Financing solely to the extent requested under the Commitment Letter and
only 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 its Subsidiaries or the
reputation or goodwill of the Company or any of its Subsidiaries.
6.19 Company Benefit Plans. Prior to the Closing Date, unless Parent provides the Company with written
notice at least ten (10) days prior to Closing electing not to enforce this Section 6.19, the Company shall take all actions necessary or appropriate to: (a) adopt resolutions to
terminate each Company Benefit Plan
that includes a "qualified cash or deferred arrangement" as defined in Section 401(k)(2) of the Code (a "Company 401(k) Plan") effective no later
than the day immediately preceding the Closing Date (b) provide evidence that each Company 401(k) Plan has been terminated by providing a copy of the action of the Company Board in form and
substance satisfactory to Parent, and (c) take such other actions reasonably necessary or appropriate in furtherance of terminating each Company 401(k) Plan as Parent may reasonably require.
Each participant in the Company 401(k) Plan who is employed by the Surviving Corporation after the Effective Time shall be immediately eligible, as of the Effective Time, to commence participation in
a tax-qualified defined contribution plan of Parent or one of its Affiliates (the "Parent 401(k) Plan") and be given the opportunity to elect to "roll
over" the account balance (including any outstanding loans) under the Company 401(k) Plan to the Parent 401(k) Plan.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Consummate the Merger. The respective obligation of each party
to consummate the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived jointly by the parties, in whole or in part, to the extent permitted by applicable Law:
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(a) Company Shareholder Approval and Parent Stockholder Approval. The Company Shareholder Approval and the
Parent Stockholder Approval shall have been obtained.
(b) HSR Clearance. Any waiting period applicable to the Transactions under the HSR Act shall have been
terminated or shall have expired.
(c) No Injunctions or Restraints. No Governmental Entity of the United States or any state thereof having
jurisdiction over any party shall have issued any order, decree, ruling, injunction or other action that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or otherwise
prohibiting the consummation of the Merger, and no Law shall have been adopted after the date of this Agreement that makes consummation of the Merger illegal or otherwise prohibited.
(d) Registration Statement. The Registration Statement shall have been declared effective by the SEC under the
Securities Act and shall not be the subject of any stop order or Proceedings seeking a stop order.
(e) NASDAQ Listing. The shares of Parent Common Stock issuable to the Company's shareholders pursuant to this
Agreement shall have been authorized for listing on the NASDAQ, upon official notice of issuance.
7.2 Additional Conditions to Obligations of Parent. The obligations of Parent to consummate the Merger
are subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of
which may be waived exclusively by Parent, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties of the Company. (i) The representations and warranties of the Company set
forth in Section 4.2(a), Section 4.2(b), Section 4.6(a) and Section 4.23, shall be true and correct (except, with respect to Section 4.2(a) and Section 4.2(b) for any
de
minimis inaccuracies) at and as of the date of this Agreement and at and as of the Closing Date as though made on and as of the Closing Date (except that representations and
warranties made as of a specified date or period of time need be true and correct only as of such date or period of time), (ii) the representations and warranties of the Company set forth in
the first sentence of Section 4.1, Section 4.3(a), and Section 4.22 shall be true and correct
in all material respects (without regard to qualification or exceptions contained therein as to
"materiality" or "Company Material Adverse Effect") at and as of the date of this Agreement and at and as of the Closing Date as though made on and as of the Closing Date (except that representations
and warranties made of a specified date or period of time need be true and correct only as of such date or period of time) and (iii) all other representations and warranties of the Company set
forth in Article IV of this Agreement shall be true and correct at and as of the date of this Agreement and at and as of the Closing Date as
though made on and as of the Closing Date (except that representations and warranties made as of a specified date or period of time need be true and correct only as of such date or period of time),
except, with respect to this clause (iii), where the failure of such representations and warranties to be so true and correct (without regard to
qualification or exceptions contained therein as to "materiality" or "Company Material Adverse Effect") have not had and would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Performance of Obligations of the Company. The Company shall have performed, or complied with, in all
material respects all agreements and covenants required to be performed or complied with by it under this Agreement at or prior to the Effective Time.
(c) No Company Material Adverse Effect. Since the date of this Agreement, there has not been any Effect that has
had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.
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(d) Compliance Certificate. Parent shall have received a certificate of the Company signed by an executive
officer of the Company, dated the Closing Date, confirming that the conditions in Sections 7.2(a) through (c) have been satisfied.
(e) Tax Opinion. Parent shall have received a written opinion from Parent Tax Counsel, in form and substance
reasonably satisfactory to Parent, 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 Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the Code. In rendering the opinion described in this Section 7.2(e), Parent Tax Counsel shall be entitled to rely
upon the Parent Tax Certificate and the Company Tax Certificate and such other
information as Parent Tax Counsel reasonably deems relevant.
7.3 Additional Conditions to Obligations of the Company. The obligation of the Company to consummate
the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of
which may be waived exclusively by the Company, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties of Parent. (i) The representations and warranties of Parent set forth in Section 5.2(a), Section 5.2(b) and Section 5.6(a) shall be true and correct (except, with respect to Section 5.2(a)
and Section 5.2(b) for any de minimis inaccuracies) at and as of the date of this Agreement and at
and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties made as of a specified date or period of time need be true and correct only as of
such date or period of time), (ii) the representations and warranties of the Company set forth in the first sentence of Section 5.1, Section 5.3(a), Section 5.21 and Section 5.22 shall be true and correct in all material respects (without regard to qualification or exceptions
contained therein as to
"materiality" or "Parent Material Adverse Effect") at and as of the date of this Agreement and at and as of the Closing Date as though made on and as of the Closing Date (except that representations
and warranties made of a specified date or period of time need be true and correct only as of such date or period of time) and (iii) all other representations and warranties of Parent set forth
in Article V of this Agreement shall be true and correct at and as of the date of this Agreement and at and as of the Closing Date as though made
on and as of the Closing Date (except that representations and warranties made as of a specified date or period of time need be true and correct only as of such date or period of time), except, with
respect to this clause (iii), where the failure of such representations and warranties to be so true and correct (without regard to qualification
or exceptions contained therein as to "materiality" or "Parent Material Adverse Effect") have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect.
(b) Performance of Obligations of Parent. Parent shall have performed, or complied with, in all material
respects all agreements and covenants required to be performed or complied with by it under this Agreement at or prior to the Effective Time.
(c) No Parent Material Adverse Effect. Since the date of this Agreement, there has not been any Effect that has
had or would reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.
(d) Compliance Certificate. The Company shall have received a certificate of Parent signed by an executive
officer of Parent, dated the Closing Date, confirming that the conditions in Sections 7.3(a) through (c) have been satisfied.
(e) Tax Opinion. The Company shall have received a written opinion from 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 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(e), Company Tax Counsel shall be entitled
to rely upon the Parent Tax Certificate and the Company Tax Certificate and such other
information as Company Tax Counsel reasonably deems relevant.
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7.4 Frustration of Closing Conditions. None of the parties may rely, either as a
basis for not consummating the Merger or for terminating this Agreement, on the failure of any condition set forth in
Section 7.1, Section 7.2 or Section 7.3, as the case may be, to be satisfied if such failure
was primarily caused by such party's breach in any material respect of any
covenant of this Agreement.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and the Merger and the other Transactions may be abandoned
at any time prior to the Effective Time, whether before or after the
Company Shareholder Approval or the Parent Stockholder Approval has been obtained (except as expressly set forth below):
(a) by
mutual written consent of the Company and Parent;
(b) by
either the Company or Parent:
(i) if
any Governmental Entity of the United States or any state thereof having jurisdiction over any party shall have issued any order, decree, ruling or injunction or
taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the Merger and such order, decree, ruling or injunction or other action shall have become final
and nonappealable, or if there shall be adopted after the date of this Agreement any Law that permanently makes consummation of the Merger illegal or otherwise permanently prohibited;
(ii) if
the Merger shall not have been consummated on or before 5:00 p.m. Mountain time, on February 25, 2020; provided that if on such date the condition to closing set forth in Section 7.1(b) or Section 7.1(c) (if the failure of such condition to be then satisfied is due to an Antitrust Law) shall not have been satisfied but all
other
conditions to Closing shall have been satisfied (or in the case of conditions that by their terms are to be satisfied at the Closing, shall be capable of being satisfied or waived by all parties
entitled to the benefit of such conditions), such date may be extended by Parent or the Company from time to time by written notice to the other party up to a date that is no later than May 25,
2020 (the "End Date Extension," and such date, as it may be extended by the End Date Extension, 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 violation or breach of any material covenant or agreement under this Agreement has
been the primary cause of or resulted in the failure of the Merger to occur on or before such date;
(iii) in
the event of a breach by the other party of any representation, warranty, covenant or other agreement contained in this Agreement which (A) would give rise
to the failure of a condition set forth in Section 7.2(a) or 7.2(b) or Section 7.3(a) or
7.3(b), as applicable, if it was continuing as of the Closing Date and
(B) cannot be or has not been cured by the earlier of (i) forty-five (45) days after the giving of written notice to the breaching party of such breach and the basis for such
notice, and (ii) two (2) Business Days prior to the End Date (a "Terminable Breach"); provided that the terminating party is not then in
Terminable Breach of any representation, warranty, covenant or other agreement contained in this
Agreement; or
(iv) if
(A) the Company Shareholder Approval shall not have been obtained upon a vote held at a duly held Company Shareholders Meeting, or at any adjournment or
postponement thereof or (B) the Parent
Stockholder Approval shall not have been obtained upon a vote held at a duly held Parent Stockholders Meeting, or at any adjournment or postponement thereof;
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(c) by
Parent, if (1) prior to the time the Parent Stockholder Approval is obtained in order to enter into a definitive agreement with respect to a Parent Superior
Proposal; provided, however, that Parent shall have contemporaneously with such termination paid or
caused to be paid to the Company the Parent Termination Fee pursuant to Section 8.3(c) and Parent shall have complied with Section 6.4 in respect
of such Parent Superior Proposal or (2) prior to the time the Company Shareholder Approval is obtained, the Company
Board shall have effected a Company Change of Recommendation;
(d) by
the Company, if (1) prior to the time the Company Shareholder Approval is obtained in order to enter into a definitive agreement with respect to a Company
Superior Proposal; provided, however, that the Company shall have contemporaneously with such
termination paid or caused to be paid to Parent the Company Termination Fee pursuant to Section 8.3(b) and the Company shall have complied with Section 6.3 in respect of such Company Superior Proposal or (2) prior to the time the Parent Stockholder Approval is obtained, the Parent
Board shall have effected a Parent Change of Recommendation.
8.2 Notice of Termination; Effect of Termination.
(a) A
terminating party shall provide written notice of termination to the other party specifying with particularity the reason for such termination, and any termination
shall be effective immediately upon delivery of such written notice to the other party (provided, that the terminating party has complied with the other
notice requirements set forth in Section 8.1(b)(iii) or paid the fee required by Section 8.1(c)(1) or Section 8.1(d)
(1) to the extent applicable).
(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 with respect to this Section 8.2, Section 6.7(b), Section 6.18(g), Section 6.18(h), Section 8.3 and
Article I and Article IX; provided, however, that notwithstanding anything to the contrary herein,
no such termination shall relieve any party from liability for any damages for a Willful
and Material Breach of any covenant, agreement or obligation hereunder or intentional and knowing fraud.
8.3 Expenses and Termination Fees.
(a) Except
as otherwise provided in this Agreement, 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 Merger shall be consummated.
(b) If
(i) Parent terminates this Agreement pursuant to Section 8.1(c)(2) (Company Change of Recommendation),
or (ii) the Company terminates this Agreement pursuant to Section 8.1(d)(1) (Company Superior Proposal), then the Company shall pay or
cause to be paid to Parent the Company Termination Fee in cash by wire transfer of immediately available funds to an account designated by Parent. If the fee shall be payable pursuant to clause (i)
of the immediately preceding sentence, the fee shall be paid no later than three (3) Business Days after notice of termination
of this Agreement, and if the fee shall be payable pursuant to clause (ii) of the immediately preceding sentence, the fee shall be paid
contemporaneously with such termination of this Agreement.
(c) If
(i) the Company terminates this Agreement pursuant to Section 8.1(d)(2) (Parent Change of
Recommendation) or (ii) Parent terminates this Agreement pursuant to Section 8.1(c)(1) (Parent Superior Proposal) then Parent shall pay or
cause to be paid to Company the Parent Termination Fee in cash by wire transfer of immediately available funds to an account designated by the Company. If the fee shall be payable pursuant to clause (i) of the immediately preceding sentence, the fee shall be paid no later than three (3) Business Days after notice of termination
of this Agreement, and if the fee shall be payable pursuant to clause (ii) of the
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immediately
preceding sentence, the fee shall be paid contemporaneously with such termination of this Agreement.
(d) If
(i) (A) Parent or the Company terminates this Agreement pursuant to Section 8.1(b)(iv)(A) (Failure to
Obtain Company Shareholder Approval) or (B) Parent or the Company terminates this Agreement pursuant to Section 8.1(b)(ii) (End Date) or
(C) Parent terminates this Agreement pursuant to Section 8.1(b)(iii) (Company Terminable Breach) and (ii) on or before the date of
any such termination a Company Competing Proposal shall have been publicly announced or disclosed or otherwise
communicated to the Company Board prior to the Company Shareholders Meeting and (iii) within twelve (12) months after the date of such termination, the Company enters into a definitive
agreement with respect to a Company Competing Proposal or consummates any transaction meeting the parameters of a Company Competing Proposal, then the Company shall pay or cause to be paid to Parent
the Company Termination Fee (less any amounts previously paid by the Company to Parent in accordance with Section 8.3(f)), in cash by wire
transfer of immediately available funds to an account designated by Parent, on the earliest date of when such definitive agreement is executed or such transaction is consummated. For purposes of this Section 8.3(d)
, any reference in the definition of Company Competing Proposal to "twenty percent (20%)" shall be deemed to be a reference to
"more than sixty percent (60%)."
(e) If
(i) (A) Parent or the Company terminates this Agreement pursuant to Section 8.1(b)(iv)(B) (Failure to
Obtain Parent Stockholder Approval) or (B) Parent or the Company terminates this Agreement pursuant to Section 8.1(b)(ii) (End Date) or
(C) the Company terminates this Agreement pursuant to Section 8.1(b)(iii) (Parent Terminable Breach) and (ii) on or before the date
of any such termination a Parent Competing Proposal shall have been publicly announced or disclosed or otherwise communicated to the Parent Board prior to the Parent Stockholders Meeting and
(iii) within twelve (12) months after the date of such termination, Parent enters into a definitive agreement with respect to a Parent Competing Proposal or consummates any transaction
meeting the parameters of a Parent Competing Proposal, then Parent shall pay or cause to be paid to the Company the Parent Termination Fee (less any amounts previously paid by Parent to the Company in
accordance with Section 8.3(g)), in cash by wire transfer of immediately available funds to an account designated by the Company, on the earliest
date of when such definitive agreement is executed or such transaction is consummated. For purposes of this Section 8.3(e), any reference in the
definition of Parent Competing Proposal to "twenty percent (20%)" shall be deemed to be a reference to "more than sixty percent (60%)."
(f) Without
limiting any obligation of the Company to pay the Company Termination Fee if and when it becomes due and payable pursuant to Section 8.3(d), if Parent or the Company terminates this Agreement
pursuant to Section 8.1(b)(iv)(A) (Failure to Obtain Company Shareholder Approval), then the Company shall pay or cause to be paid to Parent the amount of
the Parent Expenses, in cash by wire transfer of immediately available funds to an account designated by Parent within two (2) Business Days of such termination.
(g) Without
limiting any obligation of Parent to pay the Parent Termination Fee if and when it becomes due and payable pursuant to Section 8.3(e), if Parent or the Company terminates this Agreement pursuant to
Section 8.1(b)(iv)(B) (Failure to Obtain Parent Stockholder Approval), then Parent shall pay or cause to be paid to the Company the amount of the
Company Expenses, in cash by wire transfer of immediately available funds to an account designated by the Company within two (2) Business Days of such termination.
(h) In
the event that a terminating party has the right to terminate pursuant to multiple provisions of Section 8.1,
such terminating party may elect which provision pursuant to which it is terminating this Agreement. The parties agree that the agreements contained in this Section 8.3
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are
an integral part of the Transactions, and that, without these agreements, the parties would not enter into this Agreement. If a party fails to promptly pay the amount due by it pursuant to this Section 8.3, interest shall accrue on such amount from the date such payment was required to be paid pursuant to the terms of this Agreement
until the date of payment at the prime rate set forth in The Wall Street Journal in effect on the date such payment was required to be made. If, in
order to obtain such payment, the other party commences a Proceeding that results in judgment for such party for such amount, the defaulting party shall pay the other party its reasonable
out-of-pocket costs and expenses (including reasonable attorneys' fees and expenses) incurred in connection with such Proceeding. The parties agree that the monetary remedies set forth in Section 8.1(d) and this Section 8.3 and the specific performance remedies set forth in Section 9.11 shall be the sole and exclusive remedies of
(i) the Company and its Subsidiaries against Parent and its Subsidiaries and any
of their respective former, current or future directors, officers, stockholders, Representatives or Affiliates for any loss suffered as a result of the failure of the Merger to be consummated except
in the case of intentional and knowing fraud or a Willful and Material Breach of any covenant, agreement or obligation (in which case only Parent shall be liable for damages for such intentional and
knowing fraud or Willful and Material Breach), and upon payment of such amount, none of Parent and its Subsidiaries or any of their respective former, current or future directors, officers, general or
limited partners, stockholders, managers, members, Representatives or Affiliates shall have any further liability or obligation relating to or arising out of this Agreement or the Transactions, except
for the liability of Parent in the case of intentional and knowing fraud or a Willful and Material Breach of any covenant, agreement or obligation; and (ii) Parent and its Subsidiaries against
the Company and its Subsidiaries and any of their respective former, current or future directors, officers, shareholders, Representatives or Affiliates for any loss suffered as a result of the failure
of the Merger to be consummated except in the case of intentional and knowing fraud or a Willful and Material Breach of any covenant, agreement or obligation (in which case only the Company shall be
liable for damages for such intentional and knowing fraud or Willful and Material Breach), and upon payment of such amount, none of the Company and its Subsidiaries or any of their respective former,
current or future directors, officers, general or limited partners, shareholders, managers, members, Representatives or Affiliates shall have any further liability or obligation relating to or arising
out of this Agreement or the Transactions, except for the liability of the Company in the case of intentional and knowing fraud or a Willful and Material Breach of any covenant, agreement or
obligation.
ARTICLE IX
GENERAL PROVISIONS
9.1 Schedule Definitions. All capitalized terms in the Company Disclosure Letter and the Parent Disclosure
Letter shall have the meanings ascribed to them herein (including in Annex A), except as otherwise defined therein.
9.2 Survival. Except as otherwise provided in this Agreement, none of the representations, warranties,
agreements and covenants contained in this Agreement will survive the
Closing; provided, however, the agreements of the parties in Articles I (and the provisions that
substantively define any related defined terms not substantively defined in Article I), II, III and IX, Section 4.25
(No Additional Representations), Section 5.25 (No Additional Representations), Section 6.7(b) (Confidential Information),
Section 6.9
(Employee Matters), Section 6.10 (Indemnification), Section 6.16 (Tax Matters), Section 6.18
(g) (Financing Expenses) and Section 6.18(h) (Financing Indemnity) and those other covenants and agreements contained herein that by their terms apply, or that are to be
performed in whole or in part, after the Closing,
will survive the Closing. The Confidentiality Agreement shall survive termination of this Agreement pursuant to Article VIII.
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9.3 Notices. All notices, requests and other communications to any party under, or otherwise in
connection with, this Agreement shall be in writing and shall be deemed to have
been duly given (a) if delivered in person, upon delivery; (b) if transmitted by electronic mail ("e-mail"), upon confirmation of receipt
of such e-mail; or (c) if transmitted by national overnight courier, upon delivery, in each case as addressed as follows:
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Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
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Attention:
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Igor Kirman
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Elina Tetelbaum
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E-mail:
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IKirman@wlrk.com
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Etetelbaum@wlrk.com
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(ii) if
to the Company, to:
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SRC Energy Inc. 1675 Broadway, Suite 2600,
Denver, Colorado 80202
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Attention:
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Cathleen Osborn
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E-mail:
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COsborn@srcenergy.com
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Akin Gump Strauss Hauer & Feld LLP
1111 Louisiana Street, 44th
Houston, Texas 77002
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Attention:
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Christine B. LaFollette
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E-mail:
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clafollette@akingump.com
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Akin Gump Strauss Hauer & Feld LLP
One Bryant Park, Bank of America Tower
New York, New York 10036
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Attention:
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Jeffrey Kochian
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E-mail:
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jkochian@akingump.com
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9.4 Rules of Construction.
(a) Each
of the parties acknowledges that it has been represented by counsel of its choice throughout all negotiations that have preceded the execution of this Agreement and
that it has executed the same with the advice of said 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 exchanged between the parties shall be deemed the work product of the parties and may not be construed against any party by reason of its preparation.
Accordingly, any rule of law or any legal decision that would require interpretation of any ambiguities in this Agreement against any party that drafted it is of no application and is hereby expressly
waived.
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(b) The
inclusion of any information in the Company Disclosure Letter or Parent Disclosure Letter shall not be deemed an admission or acknowledgment, in and of itself and
solely by virtue of the inclusion of such information in the Company Disclosure Letter or Parent Disclosure Letter, as applicable, that such information is required to be listed in the Company
Disclosure Letter or Parent Disclosure Letter, as applicable, that such items are material to the Company and its Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a whole, as
the case may be, or that such items have resulted in a Company Material Adverse Effect or a Parent Material Adverse Effect. The headings, if any, of the individual sections of each of the Parent
Disclosure Letter and Company Disclosure Letter are inserted for convenience only and shall not be deemed to constitute a part thereof or a part of this Agreement. The Company Disclosure Letter and
Parent Disclosure Letter are arranged in sections corresponding to the Sections of this Agreement merely for convenience, and the disclosure of an item in one section of the Company Disclosure Letter
or Parent Disclosure Letter, as applicable, as an exception to a particular representation or warranty shall be deemed adequately disclosed as an exception with respect to all other representations or
warranties to the extent that the relevance of such item to such representations or warranties is reasonably apparent on the face of such disclosure, notwithstanding the presence or absence of an
appropriate section of the Company Disclosure Letter or Parent Disclosure Letter with respect to such other representations or warranties or an appropriate cross reference thereto, and (i) for
purposes of Schedule 6.1 of the Company Disclosure Letter, any item disclosed in response to any subclause of Schedule 6.1 shall be deemed to be
disclosed in response to each other subclause of Schedule 6.1 to the extent that the relevance of such item to such subclause is reasonably apparent and (ii) for purposes of Schedule 6.2 of the Parent Disclosure Letter, any item disclosed in response to any subclause of
Schedule 6.2 shall be deemed to be disclosed in response to each other subclause of Schedule 6.2 to the extent that the relevance of such item to
such subclause is reasonably apparent.
(c) The
specification of any dollar amount in the representations and warranties or otherwise in this Agreement or in the Company Disclosure Letter or Parent Disclosure
Letter is not intended and shall not be deemed to be an admission or acknowledgment of the materiality of such amounts or items, nor shall the same be used in any dispute or controversy between the
parties to determine whether any obligation, item or matter (whether or not described herein or included in any schedule) is or is not material for purposes of this Agreement.
(d) All
references in this Agreement to Annexes, Exhibits, Schedules, Articles, Sections, subsections or other subdivisions, to the extent applicable, refer to the
corresponding Annexes, Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any
Articles, Sections, subsections or other subdivisions of this Agreement are for convenience only, do not constitute any part of such Articles, Sections, subsections or other subdivisions, and shall be
disregarded in construing the language contained therein. The words "this Agreement," "herein," "hereby," "hereunder" and "hereof" and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "this Section," "this subsection" and words of similar import, refer only to the Sections or subsections hereof in which such
words occur. The word "including" (in its various forms)
means "including, without limitation." Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender and words, terms and titles (including terms defined
herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise expressly requires. Unless the context otherwise requires, all defined terms
contained herein shall include the singular and plural and the conjunctive and disjunctive forms of such defined terms. Unless the context otherwise requires, all references to a specific time shall
refer to Mountain time. 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." The term "dollars"
and the symbol
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"$"
mean United States Dollars. 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.
(e) In
this Agreement, except as the context may otherwise require, references to: (i) any agreement (including this Agreement), contract, statute or regulation are
to the agreement, contract, statute or regulation as amended, modified, supplemented, restated or replaced from time to time (in the case of an agreement or contract, to the extent permitted by the
terms thereof and, if applicable, by the terms of this Agreement); (ii) any Governmental Entity includes any successor to that Governmental Entity; (iii) any applicable Law refers to
such applicable Law as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under such statute) and references to
any section of any applicable Law or other law include any successor to such section; (iv) "days" mean calendar days; and (v) when calculating the period of time within which, or
following which, any act is to be done or step taken pursuant to this Agreement, the date that is the reference day in calculating such period shall be excluded (e.g., if an act must be
completed within two (2) days of an event, if such event occurs on a Tuesday, then such act must be completed by the end of the day on Thursday) and if the last day of the period is a
non-Business Day, the period in question shall end on the next Business Day or if any action must be taken hereunder on or by a day that is not a Business Day, then such action may be validly taken on
or by the next day that is a Business Day.
9.5 Financing Parties. Notwithstanding anything in this Agreement to the contrary, but without in any
way limiting the rights and claims of Parent under and pursuant to any commitment
letter or any definitive agreement entered into by Parent with respect to any debt financing arrangements in connection with the Merger, including the Debt Commitment Letter (the
"Financing Documents"), the Company, on behalf of itself, its Subsidiaries and its controlled affiliates, hereby:
(a) agrees
that any Proceeding, whether in law or in equity, whether in contract or in tort or otherwise, involving the Financing Parties, in any way arising out of or
relating to this Agreement, the Financing Documents or any of the transactions contemplated hereby or thereby or the performance of any services thereunder shall be subject to the exclusive
jurisdiction of, and shall be brought and heard and determined exclusively in, any Federal court of the United States of America sitting in the Borough of Manhattan or, if that court does not have
subject matter jurisdiction, in any state court located in the City and County of New York, and any appellate court thereof and each party hereto irrevocably submits itself and its property with
respect to any such Proceeding to the exclusive jurisdiction of such court;
(b) agrees
that any such Proceeding shall be governed by the laws of the State of New York (without giving effect to any conflicts of law principles that would result in the
application of the laws of another state), except as otherwise expressly provided in the Financing Documents;
(c) agrees
not to bring or support or permit any of its affiliates to bring or support any Proceeding of any kind or description, whether in law or in equity, whether in
contract or in tort or otherwise, against any Financing Party in any way arising out of or relating to this Agreement, the Financing Documents or any of the transactions contemplated hereby or thereby
or the performance of any services thereunder in any forum other than any Federal court of the United States of America sitting in the Borough of Manhattan or, if that court does not have subject
matter jurisdiction, in any state court located in the City and County of New York;
(d) agrees
that service of process upon the Company, its Subsidiaries or its controlled affiliates in any such Proceeding shall be effective if notice is given in accordance
with Section 9.3;
(e) irrevocably
waives, to the fullest extent that it may effectively do so, the defense of an inconvenient forum to the maintenance of such Proceeding in any such court;
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(f) knowingly,
intentionally and voluntarily waives to the fullest extent permitted by applicable law trial by jury in any Proceeding brought against the Financing Parties
in any way arising out of or relating to, this Agreement, the Financing Documents or any of the transactions contemplated hereby or thereby or the performance of any services thereunder;
(g) agrees
that none of the Financing Parties will have any liability to the Company or any of its Subsidiaries or any of their respective affiliates or Representatives (in
each case, other than Parent or its Subsidiaries) in any way relating to or arising out of this Agreement, the Financing Documents or any of the transactions contemplated hereby or thereby or the
performance of any services thereunder, whether in law or in equity, whether in contract or in tort or otherwise, and waives any and all claims and causes of action against the Financing Parties in
any way relating to or arising out of the foregoing;
(h) agrees
not to commence (and if commenced agrees to dismiss or otherwise terminate, and not to assist) any Proceeding against, or otherwise make or seek to enforce any
claims against or seek to recover any monetary damages from, any Financing Party under or in connection with this Agreement, the Financing Documents or the transactions contemplated hereby or thereby;
(i) agrees
that the Financing Parties are express third party beneficiaries of, and may enforce, this Section 9.5 and
any of the provisions in this Agreement reflecting the agreements in this Section 9.5; and
(j) agrees
that the provisions in this Section 9.5 and the definitions of "Financing Parties" and "Financing Entities"
(and any other provisions of this Agreement to the extent a modification thereof would affect the substance of any of the foregoing) shall not be amended, waived or otherwise modified, in each case,
in any way adverse to the Financing Parties without the prior written consent of the Financing Entities.
9.6 Counterparts. This Agreement may be executed in two or more counterparts, including via
electronic means (such as Docusign, Adobe Sign, photocopy or scan of an original
signature, or otherwise), all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign the same counterpart.
9.7 Entire Agreement; Third-Party Beneficiaries. This Agreement (together with the Company Disclosure
Letter and the Parent Disclosure Letter), the Confidentiality Agreement and any other documents and
instruments executed pursuant hereto constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter
hereof. Except for the provisions of Article III (including, for the avoidance of doubt, the rights of the former holders of Company Common Stock
or Company Equity Awards to receive the Merger Consideration), Section 6.10 (which from and after the Effective Time are intended for the benefit
of, and shall be enforceable by, the Persons referred to therein and by their respective heirs and representatives), nothing in this Agreement, express or implied, is intended to or shall confer upon
any Person other than the parties any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
9.8 Governing Law; Venue; Waiver of Jury Trial.
(a) THIS
AGREEMENT, AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT OR TORT) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT, OR THE NEGOTIATION,
EXECUTION OR PERFORMANCE OF THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. NOTWITHSTANDING THE FOREGOING, ALL MATTERS RELATING TO THE FIDUCIARY OBLIGATIONS OF THE
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COMPANY
BOARD AND THE INTERNAL AFFAIRS OF THE COMPANY OR THE COMPANY BOARD (INCLUDING, WITHOUT LIMITATION, THE INTERPRETATION OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS) SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF COLORADO WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF TO THE EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER
JURISDICTION.
(b) THE
PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURT OF CHANCERY OF THE STATE OF DELAWARE OR, IF THE COURT OF CHANCERY OF THE STATE OF DELAWARE OR THE
DELAWARE SUPREME COURT DETERMINES THAT, NOTWITHSTANDING SECTION 111 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, THE COURT OF CHANCERY DOES NOT HAVE OR SHOULD NOT EXERCISE SUBJECT
MATTER JURISDICTION OVER SUCH MATTER, THE SUPERIOR COURT OF THE STATE OF DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF DELAWARE SOLELY IN CONNECTION WITH ANY
DISPUTE THAT ARISES IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND THE DOCUMENTS REFERRED TO IN THIS AGREEMENT OR IN RESPECT OF THE TRANSACTIONS, AND HEREBY
WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR INTERPRETATION OR ENFORCEMENT HEREOF OR 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 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 WITH RESPECT TO SUCH ACTION,
SUIT OR PROCEEDING SHALL BE HEARD AND DETERMINED EXCLUSIVELY BY 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 OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 9.3 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 WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY 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) SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THE FOREGOING WAIVER; (III) SUCH
PARTY MAKES THE FOREGOING WAIVER VOLUNTARILY AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.8.
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9.9 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If a final judgment of a
court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the
power to limit such term or provision, to delete specific words or phrases or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as so modified. In the event such court does not exercise the power
granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid or unenforceable term or provision.
9.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties (whether by operation of law or
otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns. Any purported assignment in violation of this Section 9.10 shall be void.
9.11 Specific Performance. The parties agree that irreparable damage, for which monetary damages
would not be an adequate remedy, would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached by the parties. Prior to the termination of this Agreement pursuant to Article VIII, it is
accordingly agreed that the parties shall be entitled to an injunction or injunctions, or any other appropriate form of
specific performance or equitable relief, to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, in each case in
accordance with this Section 9.11, this being in addition to any other remedy to which they are entitled under the terms of this Agreement at law
or in equity. Each party accordingly agrees (a) the non-breaching party will be entitled to injunctive and other equitable relief, without proof of actual damages; (b) the breaching
party will not raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches or threatened breaches of, or to enforce compliance with, the
covenants and obligations of such party under this Agreement and will not plead in defense thereto that there would be an adequate remedy at Law; and (c) the breaching party agrees to waive any
requirement that the non-breaching party 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 9.11, all in
accordance with the terms of this Section 9.11. If prior to the End
Date, any party hereto brings an action to enforce specifically the performance of the terms and provisions hereof by any other party, the End Date shall automatically be extended by such other time
period established by the court presiding over such action.
9.12 Amendment. Subject to applicable Law, this Agreement may only be amended, modified or
supplemented by an instrument in writing signed on behalf of each of the parties.
9.13 Extension; Waiver. At any time prior to the Effective Time, the Company and Parent may, to the
extent legally permitted: (a) extend the time for the performance of any of the
obligations or acts of the other party hereunder; (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant
hereto; or (c) waive compliance with any of the agreements or conditions of the other party contained herein. Notwithstanding the foregoing, no failure or delay by the Company or Parent 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 other right hereunder. No agreement on
the part of a party to any such extension or waiver shall be valid unless set forth in an instrument in writing signed on behalf of such party.
[Signature Pages Follow]
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed by its respective officer thereunto duly authorized, all as of the date first written
above.
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PDC ENERGY, INC.
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By:
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/s/ BARTON R. BROOKMAN, JR.
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Name:
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Barton R. Brookman, Jr.
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Title:
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President and Chief Executive Officer
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SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
Table of Contents
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SRC ENERGY INC.
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By:
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/s/ LYNN A. PETERSON
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Name:
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Lynn A. Peterson
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Title:
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President and Chief Executive Officer
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SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
Table of Contents
ANNEX A
Certain Definitions
"2011 ISO Plan" means the SRC Energy Inc. Corporation Incentive Stock Option Plan, as
amended.
"2011 NQSO Plan" means the SRC Energy Inc. Corporation Non-Qualified Stock Option Plan, as amended.
"2011 Stock Bonus Plan" means the SRC Energy Inc. Corporation Stock Bonus Plan, as amended.
"2011 Company Equity Plans" means, collectively, the 2011 ISO Plan, the 2011 NQSO Plan and the 2011 Stock Bonus Plan and each, a
"2011 Company Equity Plan".
"2015 Company Equity Plan" means the SRC Energy Inc. 2015 Equity Incentive Plan, as it may be amended from time to time.
"Affiliate" means, with respect to any Person, any other Person directly or indirectly, controlling, controlled by, or under common
control with, such Person, through one or more intermediaries or otherwise.
"Agreement" shall have the meaning ascribed to it in the Preamble.
"Antitrust Authority" shall have the meaning ascribed to it in Section 6.8(c).
"Antitrust Laws" mean any applicable supranational, national, federal, state, county, local or foreign 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, including the HSR Act, the Sherman Act, the Clayton Act, and the Federal Trade Commission Act, in each case, as amended, and other similar antitrust, competition or trade regulation laws
of any state or any jurisdiction other than the United States.
"beneficial ownership," including the correlative term "beneficially owning," has the
meaning ascribed to such term in Section 13(d) of the Exchange Act.
"Book-Entry Shares" shall have the meaning ascribed to it in Section 3.3(b)(i).
"Business Day" means a day other than a day on which banks in the State of Colorado are authorized or obligated to be closed.
"Cancelled Shares" shall have the meaning ascribed to it in Section 3.1(a)(iii).
"Cap Amount" shall have the meaning ascribed to it in Section 6.10(d).
"CBCA" shall mean the Colorado Business Corporation Act, as amended.
"Certificate of Merger" shall have the meaning ascribed to it in Section 2.2(b).
"Certificates" shall have the meaning ascribed to it in Section 3.3(b)(i).
"Closing" shall have the meaning ascribed to it in Section 2.2(a).
"Closing Date" shall have the meaning ascribed to it in Section 2.2(a).
"Code" shall have the meaning ascribed to it in Recitals.
"Company" shall have the meaning ascribed to it in the Preamble.
"Company 401(k) Plan" shall have the meaning ascribed to it in Section 6.19.
"Company Approvals" shall have the meaning ascribed to it in Section 4.4.
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"Company Benefit Plans" shall have the meaning ascribed to it in Section 4.10(a).
"Company Board" shall have the meaning ascribed to it in Recitals.
"Company Board Recommendation" shall have the meaning ascribed to it in Section 4.3(a).
"Company Capital Stock" shall have the meaning ascribed to it in Section 4.2(a)
"Company Change of Recommendation" shall have the meaning ascribed to it in Section 6.3(d).
"Company Common Stock" shall have the meaning ascribed to it in the Recitals.
"Company Competing Proposal" means any contract, proposal, inquiry, offer or indication of interest relating to any transaction or series
of related transactions (other than transactions with Parent or any of its Subsidiaries) 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 the Company or any of its Subsidiaries (including capital stock of the Subsidiaries of the Company) that account for twenty percent (20%)
(based on the fair market value) or more of the consolidated assets of the Company and its Subsidiaries (including capital stock of the Subsidiaries of the Company), taken as a whole, or from which
20% or more of the consolidated revenues or earnings of the Company and its Subsidiaries are derived, (b) any direct or indirect acquisition of beneficial ownership by any Person or group of
twenty percent (20%) or more of the voting power of the Company or any tender or exchange offer that if consummated would result in any Person or group beneficially owning twenty percent (20%) or more
of the voting power of the Company, (c) merger, consolidation, share exchange, joint venture, business combination, recapitalization, liquidation, dissolution or similar transaction involving
the Company which is structured to permit any Person or group to acquire beneficial ownership of at least twenty percent (20%) of the Company's and its Subsidiaries' assets or equity
interests.
"Company Contracts" shall have the meaning ascribed to it in Section 4.19(b).
"Company Credit Agreement" means that certain Second Amended and Restated Credit Agreement dated as of April 2, 2018 among the
Company, as borrower, SunTrust Bank, as administrative agent and the other parties from time to time party thereto, as amended, restated, supplemented or otherwise modified from time to time.
"Company Credit Agreement Amounts" shall have the meaning ascribed to it in Section 6.18.
"Company Disclosure Letter" shall have the meaning ascribed to it in Article IV.
"Company Equity Awards" means, collectively, the Company Options, the Company PSU Awards, the Company RSU Awards, the Company Stock Bonus
Awards and the New Company PSU Awards.
"Company Equity Plans" means, collectively, the 2011 Company Equity Plans and the 2015 Company Equity Plan.
"Company Expenses" means a cash amount of the Company's actual costs and expenses in connection with the negotiation, execution and
performance of this Agreement and Transactions, not to exceed $10,000,000.
"Company Independent Petroleum Engineers" shall have the meaning ascribed to it in Section 4.17(a).
"Company Intellectual Property" shall have the meaning ascribed to it in Section 4.14(a).
"Company Intervening Event" means any material Effect that occurs or arises after the date of this Agreement that was not known or
reasonably foreseeable by the Company Board as of the date of this Agreement (or, if known or reasonably foreseeable, the magnitude or material consequences of which were not known or reasonably
foreseeable by the Company Board as of the date of this Agreement); provided, however, that in no event
shall (i) the receipt, existence or terms of an actual or possible
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Company
Competing Proposal, (ii) any Effect relating to Parent or any of its Subsidiaries that does not amount to a Parent Material Adverse Effect, (iii) any change, in and of itself, in
the price or trading volume of shares of Company Common Stock or Parent Common Stock (it being understood that the underlying facts giving rise or contributing to such change may be taken into account
in determining whether there has been a Company Intervening Event, to the extent otherwise permitted by this definition), (iv) the fact that the Company or Parent or any of their respective
Subsidiaries exceeds (or fails to meet) internal or published projections or guidance or any matter relating thereto or of consequence thereof (it being understood that the underlying facts giving
rise or contributing to such change may be taken into account in determining whether there has been a Company Intervening Event, to the extent otherwise permitted by this definition) or
(v) conditions (or changes in such conditions) in the oil and gas exploration and production industry (including changes in commodity prices, general market prices and regulatory changes
affecting the industry), constitute a Company Intervening Event.
"Company IT Systems" means the software, hardware, computer systems, telecommunications equipment and systems, and Internet and intranet
sites that are used or relied on by the Company and its Subsidiaries in the conduct of their business.
"Company Leased Real Property" shall have the meaning ascribed to it in Section 4.15.
"Company Material Adverse Effect" shall have the meaning ascribed to it in Section 4.1.
"Company Notes" means the 6.250% Senior Notes Due 2025 issued under the Company Notes Indenture.
"Company Notes Indenture" means that certain senior notes indenture dated November 29, 2017 between the Company and U.S. Bank
National Association, as amended, supplemented or otherwise modified from time to time.
"Company Oil and Gas Leases" shall have the meaning ascribed to it in Section 4.17(c).
"Company Oil and Gas Properties" shall have the meaning ascribed to it in Section 4.17(a).
"Company Option" means each option to purchase shares of Company Common Stock granted pursuant to a 2011 Company Equity Plan or the 2015
Company Equity Plan.
"Company Owned Real Property" shall have the meaning ascribed to it in Section 4.15.
"Company Permits" shall have the meaning ascribed to it in Section 4.9.
"Company Preferred Stock" shall have the meaning ascribed to it in Section 4.2(a)
"Company PSU Award" means each award of restricted stock units which would, if the relevant performance and other vesting conditions are
met, result in the issuance of shares of Company Common Stock to the holder of such restricted stock unit award granted under the 2015 Company Equity Plan.
"Company Qualified Plan" shall have the meaning ascribed to it in Section 4.10(d).
"Company Real Property Lease" shall have the meaning ascribed to it in Section 4.15.
"Company Reserve Report" shall have the meaning ascribed to it in Section 4.17(a).
"Company RSU Award" means each award of restricted stock units relating to shares of Company Common Stock that vests based on continued
service to the Company granted pursuant to the 2015 Company Equity Plan, and including for the avoidance of doubt those awards granted on July 1, 2019 to the Company's non-employee the
directors as set forth on Attachment 4.2(d) of the Company Disclosure Letter awarded by the Company Board.
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"Company SEC Documents" shall have the meaning ascribed to it in Section 4.5(a).
"Company Shareholder Approval" means the approval of this Agreement by the shareholders of the Company in accordance with the CBCA and the
Organizational Documents of the Company.
"Company Shareholders Meeting" shall have the meaning ascribed to it in Section 4.4.
"Company Stock Bonus Award" means each award of bonus share units relating to shares of Company Common Stock that vests based on continued
service to the Company granted pursuant to the 2011 Stock Bonus Plan.
"Company Superior Proposal" means any bona fide, written Company Competing Proposal (with
references to twenty percent (20%) being deemed to be replaced with references to eighty percent (80%)) by a third party, that in the good faith determination of the Company Board ,
after consultation with its financial advisors and outside legal counsel and after taking into account relevant legal, financial, regulatory, estimated timing of consummation and other aspects of such
proposal and the Person or group making such proposal, taking into account financing requirements of the purchaser, would result in a transaction more favorable to the Company's shareholders from a
financial point of view than the Merger (taking into account any proposal by Parent to amend the terms of this Agreement).
"Company Tax Certificate" shall have the meaning ascribed to it in Section 6.16.
"Company Tax Counsel" shall have the meaning ascribed to it in Section 6.16.
"Company Termination Fee" means a cash amount equal to $35,000,000.
"Confidentiality Agreement" shall have the meaning ascribed to it in Section 6.7(b).
"Consent" means any approval, consent, ratification, permission, waiver, or authorization.
"Continuation Period" shall have the meaning ascribed to it in Section 6.9(a).
"Continuing Employee" shall have the meaning ascribed to it in Section 6.9(a).
"control" and its correlative terms, 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.
"Controlled Group Liability" shall have the meaning ascribed to it in Section 4.10(e).
"Converted Shares" shall have the meaning ascribed to it in Section 3.1(a)(iii).
"Creditors' Rights" shall have the meaning ascribed to it in Section 4.3(a).
"Derivative Transaction" means any currently outstanding 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 put, call or other 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.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Divestiture Action" shall have the meaning ascribed to it in Section 6.8(d)
"e-mail" shall have the meaning ascribed to it in Section 9.3.
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"Effect" shall have the meaning ascribed to it in the definition of "Material Adverse Effect."
"Effective Time" shall have the meaning ascribed to it in Section 2.2(b).
"Encumbrances" means liens, pledges, charges, encumbrances, claims, hypothecation, mortgages, deeds of trust, security interests,
restrictions, rights of first refusal, defects in title, or other burdens, options or encumbrances of any kind or any agreement, option, right or privilege (whether by Law, contract or otherwise)
capable of becoming any of the foregoing.
"End Date" shall have the meaning ascribed to it in Section 8.1(b)(ii).
"End Date Extension" shall have the meaning ascribed to it in Section 8.1(b)(ii).
"Environmental Laws" means any and all Laws related or pertaining to public health and safety, worker/occupational health and safety (to
the extent related to exposure to Hazardous Substances), pollution, protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata, plant and
animal life or any other natural resources), or conservation of natural resources (including threatened or endangered species), including those related to the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, or Release of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" shall have the meaning ascribed to it in Section 4.10(e).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning ascribed to it in Section 3.3(a).
"Exchange Fund" shall have the meaning ascribed to it in Section 3.3(a).
"Exchange Ratio" shall have the meaning ascribed to it in Section 3.1(a)(i).
"Financing Entities" shall have the meaning set forth in the definition of "Financing Parties".
"Financing Parties" shall mean (a) JPMorgan Chase Bank, N.A., (b) any other person that becomes a Commitment Party under,
and as defined in, that certain commitment letter dated the date hereof between Parent and JPMorgan Chase Bank, N.A. (in the form delivered to the Company on the date hereof or as amended in
accordance with Section 6.18(a), the "Commitment Letter"), (c) any other person that shall
have committed to provide or arrange any financing, or any amendment or other modification of any financing, in each case, pursuant to or in connection with the Financing Documents, or (d) any
other person that is otherwise acting as an arranger, bookrunner, underwriter, initial purchaser, placement agent, administrative or collateral agent, trustee or a similar representative in respect
of, any such financing or amendment ((a), (b), (c) and (d), collectively, the "Financing Entities"), and their respective affiliates and their
and their respective affiliates' officers, directors, employees, agents and representatives and their respective successors and assigns.
"GAAP" shall have the meaning ascribed to it in Section 4.5(b).
"Governmental Entity" means any court, governmental, arbitral, regulatory, self-regulatory or administrative agency or commission,
department, board, bureau or other governmental authority or instrumentality, domestic or foreign.
"group" has the meaning ascribed to such term in Section 13(d) of the Exchange Act.
"Hazardous Substance" means any substance, material or waste that is regulated because of its effect or potential effect on public health
or the environment, including any substance, material or waste that is defined, designated or classified as a hazardous waste, hazardous substance, hazardous
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material,
solid waste, pollutant, contaminant or toxic substance under any Environmental Law, and including any petroleum or any fraction thereof, petroleum products, natural gas, natural gas liquids,
asbestos and asbestos-containing materials, radioactive materials (including naturally occurring radioactive materials), radon, per- or polyfluoroalkyl substances and polychlorinated biphenyls.
"HSR Act" shall have the meaning ascribed to it in Section 4.4.
"Hydrocarbons" means any hydrocarbon-containing substance, crude oil, natural gas, condensate, drip gas and natural gas liquids, coalbed
gas, ethane, propane, iso-butane, nor-butane, gasoline, scrubber liquids and other liquids or gaseous hydrocarbons or other substances (including minerals or gases), or any combination thereof,
produced or associated therewith.
"In-the-Money Company Option" means each Company Option that, as of immediately prior to the Effective Time, has a per share exercise
price that is less than the Per Share Cash Equivalent Consideration.
"Indebtedness" of any Person means, without duplication: (a) indebtedness of such Person for borrowed money; (b) obligations
of such Person to pay the deferred purchase or acquisition price for any property of such Person; (c) reimbursement obligations of such Person in respect of drawn letters of credit or similar
instruments issued or accepted by banks and other financial institutions for the account of such Person; (d) obligations of such Person under a lease to the extent such obligations are or would
be required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP as GAAP is in effect of the date hereof; (e) indebtedness of others as described
in clauses (a)-(d) above guaranteed by such Person; provided that Indebtedness does not include
accounts payable to trade creditors, or accrued expenses arising in the ordinary course of business
consistent with past practice, in each case, that are not yet due and payable, or are being disputed in good faith, and the endorsement of negotiable instruments for collection in the ordinary course
of business.
"Indemnified Liabilities" shall have the meaning ascribed to it in Section 6.10(a).
"Indemnified Persons" shall have the meaning ascribed to it in Section 6.10(a).
"Intellectual Property" means any and all proprietary, industrial and intellectual property rights, under the applicable Law of any
jurisdiction or rights under international treaties, both statutory and common law rights, including: (a) utility models, supplementary protection certificates, invention disclosures,
registrations, patents and applications for same, and extensions, divisions, continuations, continuations-in-part, reexaminations, revisions, renewals, substitutes, and reissues thereof;
(b) trademarks, service marks, certification marks, collective marks, brand names, d/b/a's, trade names, slogans, domain names, symbols, logos, trade dress and other identifiers of source, and
registrations and applications for registrations thereof and renewals of the same (including all common law rights and goodwill associated with the foregoing and symbolized thereby);
(c) published and unpublished works of authorship, whether copyrightable or not, copyrights therein and thereto, together with all common law and moral rights therein, database rights, and
registrations and applications for registration of the foregoing, and all renewals, extensions, restorations and reversions thereof; (d) trade secrets, know-how, and other rights in
information, including designs, formulations, concepts, compilations of information, methods, techniques, procedures, and processes, whether or not patentable; (e) Internet domain names and
URLs; and (f) all other intellectual property, industrial or proprietary rights.
"Joint Proxy Statement" shall have the meaning ascribed to it in Section 4.4.
"knowledge" means the actual knowledge (following reasonable due inquiry) of (a) in the case of the Company, the individuals listed
in Schedule 1.1 of the Company Disclosure Letter and (b) in the case of Parent, the individuals listed in Schedule 1.1 of the Parent
Disclosure Letter.
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"Law" means any law, constitution, statute, rule, regulation, ordinance, code, judgment, order, decree, treaty, convention, governmental
directive, executive order or other legally enforceable requirement, U.S. or non-U.S., of any Governmental Entity, including common law.
"Letter of Transmittal" shall have the meaning ascribed to it in Section 3.3(b)(i).
"Material Adverse Effect" means, when used with respect to any Person, any fact, occurrence, effect, change, circumstance, event or
development ("Effect") that, individually or in the aggregate, (a) has had or would reasonably be expected to be materially adverse to the
business, properties, assets, liabilities, operations or results of operations or the condition (financial or otherwise) of such Person and its Subsidiaries, taken as a whole, or (b) would
prevent, materially delay or materially impair the consummation of the Transactions by such Person; provided, however, that solely in the case of
clause (a) above, no Effect (by itself or when aggregated or
taken together with any and all other Effects) to the extent resulting from, arising out of, attributable to, or related to any of the following shall be deemed to be or constitute a "Material Adverse
Effect," or taken into account when determining whether a "Material Adverse Effect" has occurred or may, would or could occur: (i) general economic conditions (or changes in such conditions) or
conditions in the global economy generally; (ii) conditions (or changes in such conditions) in the securities markets, credit markets, currency markets or other financial markets, including
(A) changes in interest rates and changes in exchange rates for the currencies of any countries and (B) any suspension of trading in securities generally on any securities exchange or
over-the-counter market; (iii) conditions (or changes in such conditions) in the oil and gas exploration and production industry (including changes in commodity prices, general market prices
and regulatory changes affecting the industry); (iv) political conditions (or changes in such conditions) or acts of war, sabotage or terrorism (including any escalation or general worsening of
any such acts of war, sabotage or terrorism); (v) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions; (vi) the
announcement of this Agreement or the pendency or consummation of the Transactions (other than with respect to any representation or warranty that is intended to address the consequences of the
execution or delivery of this Agreement or the announcement or consummation of the Transactions); (vii) compliance with the terms of, or the taking of any action expressly required by this
Agreement; (viii) the failure to take any action expressly prohibited by this Agreement; (ix) changes in Law or other legal or regulatory conditions, or the interpretation thereof, or
changes in GAAP or other accounting standards (or the interpretation thereof); (x) any changes in such Person's stock price or the trading volume of such Person's stock or any change in the
ratings or ratings outlook for such Person or any of its Subsidiaries (it being understood that the facts or occurrences giving rise to or contributing to such changes, to the extent not otherwise
excluded by this proviso, may constitute, or be taken into account in determining whether there has been or would reasonably expected to be, a Material Adverse Effect); (xi) any failure by such
Person to meet any analysts' estimates or expectations of such Person's revenue, earnings or other financial performance or results of operations for any period, or any failure by such Person or any
of its Subsidiaries to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that the facts or
occurrences giving rise to or contributing to such changes or failures, to the extent not otherwise excluded by this proviso, may constitute, or be taken into account in determining whether there has
been or would reasonably expected to be, a Material Adverse Effect); and (xii)) Effects, including impacts on relationships with customers, suppliers, employees, labor organizations or Governmental
Entities, in each case, attributable solely to the identity of Parent or its Affiliates; except, in the cases of foregoing clauses (i) through (v) and clause (ix), to the extent such Effects disproportionately adversely affect such
Person and its Subsidiaries, taken as a whole, as compared to similarly situated participants operating in the oil and gas exploration, development or production industry (in which case, such adverse
effects (if any) may be taken into account when determining whether a "Material Adverse Effect" has occurred or may, would or could occur solely to the extent of any such disproportionality).
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"Material Company Insurance Policies" shall have the meaning ascribed to it in Section 4.21.
"Material Parent Insurance Policies" shall have the meaning ascribed to it in Section 5.20.
"Merger" shall have the meaning ascribed to it in Section 2.1.
"Merger Consideration" shall have the meaning ascribed to it in Section 3.1(a)(i).
"Multiemployer Plan" shall have the meaning ascribed to it in Section 4.10(f).
"Multiple Employer Plan" shall have the meaning ascribed to it in Section 4.10(f).
"NASDAQ" means the NASDAQ Stock Market.
"Net Option Share" means, with respect to a Company Option, a number of shares of Company Common Stock equal to ("N" multiplied by ("P" minus "E")) divided by "P," where:
"N"
equals the number of shares of Company Common Stock covered by such Company Option immediately prior to the Effective Time;
"P"
equals the Per Share Cash Equivalent Consideration; and
"E"
equals the per share exercise price for such Company Option.
"New Company PSU Awards" shall have the meaning ascribed to it in Schedule 3.2(c)
of the Company Disclosure Letter.
"New Plans" shall have the meaning ascribed to it in Section 6.9(b).
"NYSE" means the New York Stock Exchange.
"Oil and Gas Leases" means all leases, subleases, licenses or other occupancy or similar agreements under which a Person leases, subleases
or licenses or otherwise acquires or obtains operating rights in and to Hydrocarbons or any other real property, in each case which is material to the operation of such Person's business.
"Oil and Gas Properties" means all interests in and rights with respect to (a) material oil, gas, mineral, and similar properties
of any kind and nature, including working, leasehold and mineral interests and operating rights and royalties, overriding royalties, production payments, net profit interests and other non-working
interests and non-operating interests (including all Oil and Gas Leases, operating agreements, unitization and pooling agreements and orders, division orders, transfer orders, mineral deeds, royalty
deeds, and in each case, interests thereunder), surface interests, fee interests,
reversionary interests, reservations and concessions and (b) all Wells located on or producing from such leases and properties.
"Organizational Documents" means (a) with respect to a corporation, the charter, articles or certificate of incorporation, as
applicable, and bylaws thereof, (b) with respect to a limited liability company, the certificate of formation or organization, as applicable, and the operating or limited liability company
agreement thereof, (c) with respect to a partnership, the certificate of formation and the partnership agreement, and (d) with respect to any other Person the organizational, constituent
and/or governing documents and/or instruments of such Person.
"Out-of-the-Money Company Option" means each Company Option that, as of immediately prior to the Effective Time, has a per share exercise
price that is greater than or equal to the Per Share Cash Equivalent Consideration.
"Parent" shall have the meaning ascribed to it in the Preamble.
"Parent 401(k) Plan" shall have the meaning ascribed to it in Section 6.19.
"Parent Approvals" shall have the meaning ascribed to it in Section 5.4.
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"Parent Assumed PSU Award" shall have the meaning ascribed to it in Section 3.2(c).
"Parent Benefit Plans" shall have the meaning ascribed to it in Section 5.10(a).
"Parent Board" shall have the meaning ascribed to it in Recitals.
"Parent Board Recommendation" shall have the meaning ascribed to it in Section 5.3(a).
"Parent Capital Stock" shall have the meaning ascribed to it in Section 5.2(a).
"Parent Change of Recommendation" shall have the meaning ascribed to it in Section 6.4.
"Parent Common Stock" shall have the meaning ascribed to it in the Recitals.
"Parent Common Stock Issuance" shall have the meaning ascribed to it in the Recitals.
"Parent Competing Proposal" means any contract, proposal, inquiry, offer or indication of interest relating to any transaction or series
of related transactions (other than transactions with Parent or any of its Subsidiaries) 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 of its Subsidiaries (including capital stock of the Subsidiaries of Parent) that account for twenty percent (20%) (based on
the fair market value) or more of the consolidated assets of Parent and its Subsidiaries (including capital stock of the Subsidiaries of Parent), taken as a whole, or from which 20% or more of the
consolidated revenues or earnings of Parent and its Subsidiaries are derived, (b) any direct or indirect acquisition of beneficial ownership by any Person or group of twenty percent (20%) or
more of the voting power of Parent or any tender or exchange offer that if consummated would result in any Person or group beneficially owning twenty percent (20%) or more of the voting power of
Parent or (c) merger, consolidation, share exchange, joint venture, business combination, recapitalization, liquidation, dissolution or similar transaction involving Parent which is structured
to permit any Person or group to acquire beneficial ownership of at least twenty percent (20%) of Parent's and its Subsidiaries' assets or equity interests.
"Parent Credit Agreement" means that certain Fourth Amended and Restated Credit agreement dated as of May 23, 2018 among Parent, as
borrower, JPMorgan Chase Bank, N.A., as administrative agent and the other parties from time to time party thereto, as amended, restated, supplemented or otherwise modified from time to time.
"Parent Disclosure Letter" shall have the meaning ascribed to it in Article V.
"Parent Equity Awards" means, collectively, each stock appreciation right or option to purchase Parent Common Stock, and each restricted
stock unit (including each which would, if the relevant performance and other vesting conditions are met, result in the issuance of one share of Parent Common Stock to the holder of such restricted
stock unit) relating to shares of Parent Common Stock that vests based on continued service to Parent.
"Parent Equity Plan" means the PDC Energy, Inc. 2018 Equity Incentive Plan.
"Parent Expenses" means a cash amount of Parent's actual costs and expenses in connection with the negotiation, execution and performance
of this Agreement and Transactions, not to exceed $10,000,000.
"Parent Independent Petroleum Engineers" shall have the meaning ascribed to it in Section 5.17(a).
"Parent Intellectual Property" shall have the meaning ascribed to it in Section 5.14.
"Parent Intervening Event" means any material Effect that occurs or arises after the date of this Agreement that was not known or
reasonably foreseeable by the Parent Board as of the date of this Agreement (or, if known or reasonably foreseeable, the magnitude or material consequences of which were not known or reasonably
foreseeable by the Parent Board as of the date of this Agreement);
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provided, however, that in no event shall (i) the receipt, existence or terms of an actual or possible Parent Competing
Proposal, (ii) any Effect relating to Company or any of its Subsidiaries 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 Company Common Stock or Parent Common Stock (it being understood that the underlying facts giving rise or contributing to such 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 fact that the Company or Parent or any of their respective
Subsidiaries exceeds (or fails to meet) internal or published projections or guidance or any matter relating thereto or of consequence thereof (it being understood that the underlying facts giving
rise or contributing to such change may be taken into account in determining whether there has been a Parent Intervening Event, to the extent otherwise permitted by this definition) or
(v) conditions (or changes in such conditions) in the oil and gas exploration and production industry (including changes in commodity prices, general market prices and regulatory changes
affecting the industry), constitute a Parent Intervening Event.
"Parent IT Systems" means the software, hardware, computer systems, telecommunications equipment and systems, and Internet and intranet
sites that are used or relied on by Parent and its Subsidiaries in the conduct of their business.
"Parent Leased Real Property" shall have the meaning ascribed to it in Section 5.15.
"Parent Material Adverse Effect" shall have the meaning ascribed to it in Section 5.1.
"Parent Real Property Lease" shall have the meaning ascribed to it in Section 5.15.
"Parent Oil and Gas Leases" shall have the meaning ascribed to it in Section 5.17(c).
"Parent Oil and Gas Properties" shall have the meaning ascribed to it in Section 5.17(a).
"Parent Owned Real Property" shall have the meaning ascribed to it in Section 5.15.
"Parent Permits" shall have the meaning ascribed to it in Section 5.9.
"Parent Preferred Stock" shall have the meaning ascribed to it in Section 5.2(a)
"Parent Qualified Plans" shall have the meaning ascribed to it in Section 5.10(c).
"Parent Reserve Reports" shall have the meaning ascribed to it in Section 5.17(a).
"Parent SEC Documents" shall have the meaning ascribed to it in Section 5.5(a).
"Parent Stockholder Approval" means the approval of this Agreement and the Transactions, including the Merger and the Parent Common Stock
Issuance in accordance with the DGCL, the rules and regulations of the NASDAQ and the Organizational Documents of Parent.
"Parent Stockholders Meeting" shall have the meaning ascribed to it in Section 4.4.
"Parent Superior Proposal" means any bona fide, written Parent Competing Proposal (with
references to twenty percent (20%) being deemed to be replaced with references to eighty percent (80%)) by a third party, that in the good faith determination of the Parent Board, after
consultation with Parent's
financial advisor and outside legal counsel and after taking into account relevant legal, financial, regulatory, estimated timing of consummation and other aspects of such proposal and the Person or
group making such proposal, taking into account financing requirements of the purchaser, would result in a transaction more favorable to Parent's stockholders than the Transactions (taking into
account any proposal by the Company to the amend the terms of this Agreement).
"Parent Tax Certificate" shall have the meaning ascribed to it in Section 6.16.
"Parent Tax Counsel" shall have the meaning ascribed to it in Section 6.16.
"Parent Termination Fee" means a cash amount equal to $55,000,000.
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"party" or "parties" means a party or the parties to this Agreement, except as the context
may otherwise require.
"Payoff Letter" shall have the meaning ascribed to it in Section 6.18.
"Per Share Cash Equivalent Consideration" means the product (rounded to the nearest cent) obtained by multiplying (a) the Exchange
Ratio by (b) the volume weighted average price of a share of Parent Common Stock for the five (5) consecutive trading days ending on the date that is two (2) Business Days prior
to the Closing Date as reported by Bloomberg L.P.
"Permitted Encumbrances" means:
(a) to
the extent not applicable to the Transactions or otherwise waived prior to the Effective Time, preferential purchase rights, rights of first refusal, purchase options
and similar rights granted pursuant to any contracts, including joint operating agreements, joint ownership agreements, stockholders agreements, shareholders agreements, organic documents and other
similar agreements and documents;
(b) contractual
or statutory mechanic's, materialmen's, warehouseman's, journeyman's and carrier's liens and other similar Encumbrances arising in the ordinary course of
business for amounts not yet delinquent and Encumbrances for Taxes or assessments or other governmental charges that are not yet delinquent or, in all instances, if delinquent, that are being
contested in good faith in the ordinary course of business and for which adequate reserves in accordance with GAAP have been established by the party responsible for payment thereof;
(c) Production
Burdens payable to third parties that are deducted in the calculation of discounted present value in the Company Reserve Report or the Parent Reserve Reports,
as applicable, and any Production Burdens payable to third parties affecting any Oil and Gas Property that was acquired subsequent to the date of the Company Reserve Report or Parent Reserve Reports,
as applicable;
(d) Encumbrances
arising in the ordinary course of business under operating agreements, joint venture agreements, partnership agreements, Oil and Gas Leases, farm-out
agreements, division orders, contracts for the sale, purchase, transportation, processing or exchange of oil, gas or other Hydrocarbons, unitization and pooling declarations and agreements, area of
mutual interest agreements, development agreements, joint ownership arrangements and other agreements that are customary in the oil and gas business; provided, however, that, in each case, such Encumbrance (i) secures obligations that are not
Indebtedness or a deferred purchase price and are not delinquent and (ii) would not be reasonably expected to have a Material Adverse Effect on the value, use or operation of the property
encumbered thereby;
(e) such
Encumbrances as the Company (in the case of Encumbrances with respect to properties or assets of Parent or its Subsidiaries) or the Parent (in the case of
Encumbrances with respect to properties or assets of the Company or its Subsidiaries), as applicable, may have expressly waived in writing;
(f) all
easements, zoning restrictions, rights-of-way, servitudes, permits, surface leases and other similar rights in respect of surface operations, and easements for
pipelines, streets, alleys, highways, telephone lines, power lines, railways and other easements and rights-of-way, on, over or in respect of any of the properties of the Company or Parent, as
applicable, or any of their respective Subsidiaries, that are customarily granted in the oil and gas industry and do not materially interfere with the operation, value or use of the property or asset
affected;
(g) any
Encumbrances discharged at or prior to the Effective Time (including Encumbrances securing any Indebtedness that will be paid off in connection with the Closing);
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(h) Encumbrances
imposed or promulgated by applicable Law or any Governmental Entity with respect to real property, including zoning, building or similar restrictions;
(i) Encumbrances,
exceptions, defects or irregularities in title, easements, imperfections of title, claims, charges, security interests, rights-of-way, covenants,
restrictions and other similar matters that would be accepted by a reasonably prudent purchaser of oil and gas interests, that would not reduce the net revenue interest share of the Company or Parent,
as applicable, or such party's Subsidiaries, in any Oil and Gas Lease below the net revenue interest share shown in the Company Reserve Report or Parent Reserve Reports, as applicable, with respect to
such lease, or increase the working interest of the Company or Parent, as applicable, or of such party's Subsidiaries, in any Oil and Gas Lease above the working interest shown on the Company Reserve
Report or Parent Reserve Reports, as applicable, with respect to such lease and, in each case, that have not and would not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect or Parent Material Adverse Effect, as applicable; or
(j) with
respect to the Company and its Subsidiaries, Encumbrances arising under or related to the Company Credit Agreement and with respect to Parent and its Subsidiaries,
Encumbrances arising under or related to the Parent Credit Agreement.
"Person" means any individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture,
Governmental Entity, association or unincorporated organization, or any other form of business or professional entity.
"Personal Information" means such term or like terms set forth in any privacy Law that describes, covers or defines data that identifies
or can be used to identify individuals either alone or in combination with other information which is in the possession of, or is likely to come into the possession of a party, including a combination
of an individual's name, address or phone number with any such individual's username and password, social security number or other government-issued number, financial account number, date of birth,
email address or other personally identifiable information.
"Proceeding" means any actual or threatened claim (including a claim of a violation of applicable Law), cause of action, action, audit,
demand, litigation, suit, proceeding, investigation, grievance, notice of violation, citation, summons, subpoena, inquiry, hearing, complaint, petition, originating application to a tribunal,
arbitration or other proceeding at Law or in equity or order or ruling, in each case whether civil, criminal, administrative, investigative or otherwise, whether in contract, in tort or otherwise, and
whether or not such claim, cause of action, action, audit, demand, litigation, suit, proceeding, investigation grievance, citation, summons, subpoena, inquiry, hearing, originating application to a
tribunal, arbitration or other proceeding or order or ruling results in a formal civil or criminal litigation or regulatory action.
"Production Burdens" means any royalties (including lessor's royalties), overriding royalties, production payments, net profit interests
or other burdens upon, measured by or payable out of oil, gas or mineral production.
"Registration Statement" shall have the meaning ascribed to it in Section 4.8.
"Release" means any releasing, depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying,
discharging, migrating, injecting, escaping, leaching, dumping, or disposing.
"Representatives" means, with respect to any Person, the officers, directors, employees, accountants, consultants, agents, legal counsel,
financial advisors and other representatives of such Person.
"Rights-of-Way" shall have the meaning ascribed to it in Section 4.16.
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"Sanctioned Person" means at any time any person: (a) listed on any Sanctions-related list of designated or blocked persons;
(b) resident in or organized under the laws of a country or territory that is the subject of comprehensive restrictive Sanctions from time to time (as of the date of this Agreement Cuba, Iran,
North Korea, Syria, and the Crimea region); or (c) majority owned or controlled by any of the foregoing.
"Sanctions" means those trade, economic and financial sanctions laws, regulations, embargoes, and restrictive measures (in each case
having the force of law) administered, enacted or enforced from time to time by the United States government (including without limitation the Department of Treasury, Office of Foreign Assets
Control).
"Sarbanes-Oxley Act" shall have the meaning ascribed to it in Section 4.5(a).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Statement of Merger" shall have the meaning ascribed to it in Section 2.2(b).
"Subsidiary" means, with respect to a Person, any Person, whether incorporated or unincorporated, of which (a) at least
fifty percent (50%) of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar
functions, (b) a general partner interest or (c) a managing member interest, is directly or indirectly owned or controlled by the subject Person or by one or more of its respective
Subsidiaries.
"Surviving Corporation" shall have the meaning ascribed to it in Section 2.1.
"Takeover Law" means any "fair price," "moratorium," "control share acquisition," "business combination" or any other anti-takeover
statute or similar statute enacted under applicable Law.
"Tax Returns" means any return, report, statement, information return or other document (including any related or supporting information)
filed or required to be filed with any Taxing Authority in connection with the determination, assessment, collection or administration of any Taxes, including any schedule or attachment thereto and
any amendment thereof.
"Taxes" means any and all taxes, duties, levies or other similar governmental assessments of any kind, including income, estimated,
business, occupation, corporate, gross receipts, transfer, stamp, employment, occupancy, license, severance, capital, impact fee, production, ad valorem, excise, property, sales, use, turnover, value
added and franchise taxes, deductions, withholdings and custom duties, imposed by any Governmental Entity, including interest, penalties and additions to tax imposed with respect thereto.
"Taxing Authority" means any Governmental Entity having jurisdiction in matters relating to Tax matters.
"Terminable Breach" shall have the meaning ascribed to it in Section 8.1(b)(iii).
"Transaction Amounts" shall have the meaning ascribed to it in Section 5.24(a).
"Transaction Litigation" shall have the meaning ascribed to it in Section 6.11.
"Transactions" means the Merger and the other transactions (including the Parent Common Stock Issuance) contemplated by this Agreement.
"Treasury Regulations" shall have the meaning ascribed to it in the Recitals.
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"Voting Debt" of a Person means bonds, debentures, notes or other Indebtedness having the right to vote (or convertible or exchangeable
into or exercisable for securities having the right to vote) on any matters on which shareholders or stockholders (as applicable) of such Person may vote.
"Wells" means all oil or gas wells, whether producing, operating, shut-in or temporarily abandoned, located on an Oil and Gas Lease or any
pooled, communitized or unitized acreage that includes all or a part of such Oil and Gas Lease or otherwise associated with an Oil and Gas Property of the applicable Person or any of its Subsidiaries,
together with all oil, gas and mineral production from such well.
"Willful and Material Breach" means a material breach that is a consequence of an act or failure to take an act by the breaching party
with the knowledge that the taking of such act (or the failure to take such act) would constitute a material breach of this Agreement.
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ANNEX B
August 25,
2019
The
Board of Directors
PDC Energy, Inc.
1775 Sherman Street, Suite 3000
Denver, Colorado 80203
Members
of the Board of Directors:
You
have requested our opinion as to the fairness, from a financial point of view, to PDC Energy, Inc. (the "Company") of the Exchange Ratio (as defined below) in the proposed
merger (the "Transaction") of the Company with SRC Energy Inc. (the "Merger Partner"). Pursuant to the Agreement and Plan of Merger, dated as of August 25, 2019 (the "Agreement"),
between the Company and the Merger Partner, the Merger Partner will merge into the Company, and each outstanding share of common stock, par value $0.001 per share, of the Merger Partner (the "Merger
Partner Common Stock"), other than shares of Merger Partner Common Stock held in treasury or owned by the Company, will be converted into the right to receive 0.158 shares (the "Exchange Ratio") of
the Company's common stock, par value $0.01 per share (the "Company Common Stock").
In
connection with preparing our opinion, we have (i) reviewed the Agreement; (ii) reviewed certain publicly available business and financial information concerning the
Merger Partner and the Company and the industries in which they operate; (iii) compared the financial and operating performance of the Merger Partner and the Company with publicly available
information concerning certain other companies we deemed relevant and reviewed the current and historical market prices of the Merger Partner Common Stock and the Company Common Stock and certain
publicly traded securities of such other companies; (iv) reviewed certain internal financial analyses and forecasts prepared by the managements of the Merger Partner and the Company relating to
their respective businesses, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the Transaction (the "Synergies"); and
(v) performed such other financial studies and analyses and considered such other information as we deemed appropriate for the purposes of this opinion.
In
addition, we have held discussions with certain members of the management of the Merger Partner and the Company with respect to certain aspects of the Transaction, and the past and
current business operations of the Merger Partner and the Company, the financial condition and future prospects and operations of the Merger Partner and the Company, the effects of the Transaction on
the financial
condition and future prospects of the Company, and certain other matters we believed necessary or appropriate to our inquiry.
In
giving our opinion, we have relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with us by the Merger
Partner and the Company or otherwise reviewed by or for us. We have not independently verified any such information or its accuracy or completeness and, pursuant to our engagement letter with the
Company, we did not assume any obligation to undertake any such independent verification. We have not conducted or been provided with any valuation or appraisal of any assets or liabilities, nor have
we evaluated the solvency of the Merger Partner or the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts
provided to us or derived therefrom, including the Synergies, we have assumed that they have been reasonably prepared based on assumptions reflecting the best currently available estimates and
judgments by
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management
as to the expected future results of operations and financial condition of the Merger Partner and the Company to which such analyses or forecasts relate. We express no view as to such
analyses or forecasts (including the Synergies) or the assumptions on which they were based. We have also assumed that the Transaction and the other transactions contemplated by the Agreement will
qualify as a tax-free reorganization for United States federal income tax purposes, and will be consummated as described in the Agreement. We have also assumed that the representations and warranties
made by the Company and the Merger Partner in the Agreement and the related agreements are and will be true and correct in all respects material to our analysis. We are not legal, regulatory or tax
experts and have relied on the assessments made by advisors to the Company with respect to such issues. We have further assumed that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the Merger Partner or the Company or on the contemplated benefits of the Transaction.
Our
opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. Our opinion is limited to the fairness, from a financial point of
view, to the Company of the Exchange Ratio in the proposed Transaction and we express no opinion as to the fairness of the Exchange Ratio to the holders of any class of securities, creditors or other
constituencies of the Company or as to the underlying decision by the Company to engage in the Transaction. Furthermore, we express no opinion with respect to the amount or nature of any compensation
to any officers, directors, or employees of any party to the Transaction, or any class of such persons relative to the Exchange Ratio in the Transaction or with respect to the fairness of any such
compensation. We are expressing no opinion herein as to the price at which the Merger Partner Common Stock or the Company Common Stock will trade at any future time.
We
have acted as financial advisor to the Company with respect to the proposed Transaction and will receive a fee from the Company for our services, a substantial portion of which will
become payable only if the proposed Transaction is consummated. In addition, the Company has agreed to indemnify us for certain liabilities arising out of our engagement. During the two years
preceding the date of this letter, we and our affiliates have had commercial or investment banking relationships with the Company and the Merger Partner for which we and such affiliates have received
customary compensation. Such services during such period have included acting as joint lead arranger and joint bookrunner on the Company's revolving credit facility which closed in May 2018, joint
bookrunner on the Company's offering of debt securities which closed in November 2017, financial advisor to the Company in connection with the Company's strategic defense, joint lead arranger and
joint bookrunner on the Merger Partner's revolving credit facility which closed in April 2018 and joint bookrunner on the Merger Partner's offerings of debt securities and equity securities which
closed in November 2017. In addition, our commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of the Company, for which it receives customary compensation or
other financial benefits. We anticipate that we and our affiliates will arrange and/or provide financing to the Company related to the Transaction for customary compensation. In addition, we and our
affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of each of the Company and the Merger Partner. In the ordinary course of our businesses, we and our affiliates may
actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of the Company or the Merger Partner for our own account or for the
accounts of customers and, accordingly, we may at any time hold long or short positions in such securities or other financial instruments.
On
the basis of and subject to the foregoing, it is our opinion as of the date hereof that the Exchange Ratio in the proposed Transaction is fair, from a financial point of view, to the
Company.
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The
issuance of this opinion has been approved by a fairness opinion committee of J.P. Morgan Securities LLC. This letter is provided to the Board of Directors of the Company (in
its capacity as such) in connection with and for the purposes of its evaluation of the Transaction. This opinion does not constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote with respect to the Transaction or any other matter. This opinion may not be disclosed, referred to, or communicated (in whole or in part) to any third party for any purpose
whatsoever except with our prior written approval. This opinion may be reproduced in full in any proxy or information statement mailed to shareholders of the Company but may not otherwise be disclosed
publicly in any manner without our prior written approval.
Very
truly yours,
J.P.
MORGAN SECURITIES LLC
J.P.
Morgan Securities LLC
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ANNEX C
August 25,
2019
The Board of Directors
SRC Energy, Inc.
1675 Broadway, Suite 2600
Denver, Colorado 80202
Board
of Directors:
You
have requested our opinion as to the fairness, from a financial point of view, to the holders (other than PDC Energy (as defined below) and its affiliates) of the common stock of SRC
Energy, Inc. "SRC Energy" of the Exchange Ratio (as defined below) provided for pursuant to the terms and subject to the conditions set forth in an Agreement and Plan of Merger (the
"Agreement") to be entered into by and between PDC Energy, Inc. a Delaware corporation ("PDC Energy") and SRC Energy. As more fully described in the Agreement or as otherwise described to us,
SRC Energy will be merged with and into PDC Energy (the "Merger") with PDC Energy as the surviving corporation and (ii) each outstanding share of the common stock, par value $0.001 per share
(excluding any Cancelled Shares and any Converted Shares (each as defined in the Agreement)), of SRC Energy ("SRC Energy Common Stock") will be converted into the right to receive 0.158 (the "Exchange
Ratio") of a share of the common stock, par value $0.01 per share, of PDC Energy ("PDC Energy Common Stock"). The terms and conditions of the Merger are more fully set forth in the Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement.
In
arriving at our opinion, we reviewed a draft, dated August 25, 2019 of the Agreement and held discussions with certain senior officers, directors and other representatives of
SRC Energy and certain senior officers and other representatives of PDC Energy concerning the businesses, operations and prospects of SRC Energy and PDC Energy. We reviewed certain publicly available
business and financial information relating to SRC Energy and PDC Energy, as well as certain financial forecasts and other information and data relating to SRC Energy and PDC Energy provided to and/or
discussed with us by the managements of SRC Energy and PDC Energy, including certain internal financial forecasts and other information and data relating to SRC Energy prepared by the management of
SRC Energy, and certain internal financial forecasts and other information and data relating to PDC Energy prepared by the management of PDC Energy as reviewed and approved by the management of SRC
Energy, and certain publicly available future commodity price estimates and assumptions reviewed and discussed with the management of SRC Energy. We also were provided with certain information and
data relating to the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by the managements of SRC Energy and
PDC Energy to result from the Merger. We reviewed the financial terms of the Merger as set forth in the Agreement in relation to, among other things: current and historical market prices of SRC Energy
Common Stock and PDC Energy Common Stock; the financial condition and certain historical and projected financial and operating data of SRC Energy and PDC Energy; and the capitalization of SRC Energy
and PDC Energy. We analyzed certain financial, stock market and other publicly available information relating to the businesses of certain other companies whose operations we considered relevant in
evaluating those of SRC Energy and PDC Energy. We also reviewed certain potential pro forma financial effects of the Merger on PDC Energy utilizing the financial forecasts and other information and
data relating to SRC Energy and PDC Energy and the potential strategic implications and financial and operational benefits referred to above. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other information and financial, economic
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and
market criteria as we deemed appropriate in arriving at our opinion. The issuance of our opinion has been authorized by our fairness opinion committee.
In
rendering our opinion, we have assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly
available or provided to or otherwise reviewed by or discussed with us and upon the assurances of the managements and representatives of SRC Energy and PDC Energy that they are not aware of any
relevant information that has been omitted or that remains undisclosed to us. With respect to the financial forecasts and other information and data that we have been directed to utilize in our
analyses, we have been advised by the management of SRC Energy and we have assumed, with your consent, that such forecasts and other information and data were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the managements of SRC Energy and PDC Energy, as applicable, as to the future financial performance of SRC Energy and PDC Energy, the potential
strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by the managements of SRC Energy and PDC Energy to result from, and
the potential pro forma financial effects of, the Merger and the other matters covered thereby. With respect to the future commodity price estimates and assumptions that we have been directed to
utilize in our analyses, we have assumed, with your consent, and at your direction, that they are a reasonable basis upon which to evaluate the matters covered thereby. We have assumed, with your
consent, that the financial results, including with respect to the potential strategic implications and financial and operational benefits anticipated to result from the Merger, reflected in such
financial forecasts and other information and data will be realized in the amounts and at the times projected. We have relied, at your direction, upon the assessments of the managements of SRC Energy
and PDC Energy as to, among other things, (i) the oil, natural gas liquids and natural gas reserves, and drilling, completion and development plans and exploration projects of SRC Energy and
PDC Energy and related capital requirements and expenditures, (ii) the potential impact on SRC Energy and PDC Energy of market, competitive, seasonal, cyclical and other trends and developments
in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the oil,
natural gas liquids and natural gas industry, including with respect to the geographical regions and basins in which SRC Energy and PDC Energy operate, environmental regulations and commodity pricing
and supply and demand for oil, natural gas liquids and natural gas, which are subject to significant volatility and which, if different than as assumed, could have a material impact on our analyses or
opinion, (iii) existing and future contracts and relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, customers, service providers,
derivatives counterparties and other commercial relationships of SRC Energy and PDC Energy and (iv) the ability to integrate the operations of SRC Energy and PDC Energy. We have assumed, with
your consent, that there will be no developments with respect to any such matters that would have an adverse effect on SRC Energy, PDC Energy or the Merger (including the contemplated benefits
thereof) or that otherwise would be meaningful in any respect to our analyses or opinion.
We
have not made or, except for certain reserve reports relating to SRC Energy and PDC Energy, been provided with an independent evaluation or appraisal of the assets or liabilities
(contingent, accrued, derivative, off-balance sheet or otherwise) of SRC Energy, PDC Energy or any other entity nor have we made any physical inspection of the properties or assets of SRC Energy, PDC
Energy or any other entity. We do not conduct or provide geological, environmental or other technical assessments and are not experts in the evaluation of oil, natural gas liquids or natural gas
reserves or properties and we express no view or opinion as to reserve quantities, or the exploration, development or production (including, without limitation, as to the feasibility or timing
thereof), of any properties of SRC Energy, PDC Energy or any other entity. We have not evaluated the solvency or fair value of SRC Energy, PDC Energy or any other entity under any state, federal or
other laws relating to bankruptcy, insolvency or similar matters. We express no view or opinion as to the potential impact on SRC Energy, PDC Energy or any other entity of any pending or potential
litigation, claims or governmental,
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regulatory
or other proceedings, orders, audits or investigations. We have assumed, with your consent, that the Merger will be consummated in accordance with its terms and in compliance with all
applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that there will not be any delays, limitations,
restrictions, conditions or other actions, including any divestitures, amendments or modifications, in the course of obtaining the necessary governmental, regulatory or third party approvals,
consents, releases, waivers and agreements for the Merger or otherwise that would be meaningful in any respect to our analyses or opinion. We also have assumed, with your consent, that the Merger will
qualify for the intended tax treatment contemplated by the Agreement. Representatives of SRC Energy have advised us, and we have assumed, that the final terms of the Agreement will not vary materially
from those set forth in the draft reviewed by us. Our opinion, as set forth herein, relates to the relative values of SRC Energy and PDC Energy. We are not expressing any view or opinion as to the
actual value of PDC Energy Common Stock when issued in connection with the Merger or the prices at which SRC Energy Common Stock, PDC Energy Common Stock or any other securities will trade or
otherwise be transferable at any time, including following the announcement or consummation of the Merger. We also express no view or opinion with respect to accounting, tax, regulatory, legal or
similar matters, including, without limitation, the tax consequences resulting from the Merger or otherwise to holders of shares of SRC Energy Common Stock, and we have relied, with your consent, upon
the assessments of representatives of SRC Energy as to such matters.
Our
opinion addresses only the fairness, from a financial point of view and as of the date hereof, of the Exchange Ratio (to the extent expressly specified herein) without regard to
individual circumstances of specific holders of, or any rights, preferences, restrictions or limitations that may be attributable to, shares of SRC Energy Common Stock or other securities of SRC
Energy and does not address proportionate allocation or relative fairness among holders of SRC Energy Common Stock. Our opinion does not address any other terms, aspects or implications of the Merger,
including, without limitation, the form or structure of the Merger or any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the Merger or
otherwise. In connection with our engagement, we were not requested to, and we did not, undertake a third-party solicitation process on behalf of SRC Energy with respect to the acquisition of all or a
part of SRC Energy. We express no view as to, and our opinion does not address, the underlying business decision of SRC Energy to effect or enter into the Merger, the relative merits of the Merger as
compared to any alternative business strategies that might exist for SRC Energy or the effect of any other transaction in which SRC Energy might engage or consider. We also express no view as to, and
our opinion does not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of
any parties to the Merger, or any class of such persons, relative to the Exchange Ratio or otherwise. Our opinion is necessarily based upon information available, and financial, stock market and other
conditions and circumstances existing and disclosed, to us as of the date hereof. Although subsequent developments may affect our opinion, we have no obligation to update, revise or reaffirm our
opinion. As you are aware, the credit, financial and stock markets, and the industry in which SRC Energy and PDC Energy operate, have experienced and continue to experience volatility and we express
no opinion or view as to any potential effects of such volatility on SRC Energy, PDC Energy, or the Merger (including the contemplated benefits thereof).
Citigroup
Global Markets Inc. has acted as financial advisor to SRC Energy in connection with the proposed Merger and will receive a fee for such services, the principal portion
of which is contingent upon consummation of the Merger. We also will receive a fee in connection with the delivery of this opinion. In addition, SRC Energy has agreed to reimburse our expenses and to
indemnify us against certain liabilities arising out of our engagement. As you also are aware, we and our affiliates in the past have provided, currently are providing and in the future may provide
investment banking, commercial banking and other similar financial services to SRC Energy and certain of its affiliates unrelated to the
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proposed
Merger, for which services we and our affiliates have received and expect to receive compensation, including, during the past two years, having acted or acting as (i) joint
book-running manager on a public equity offering of SRC Energy and (ii) co-manager on a private debt offering of SRC Energy. Although we and our affiliates have not provided investment banking,
commercial banking or other similar financial services to PDC Energy or its affiliates in the past two years for which we and our affiliates received compensation, we and our affiliates in the future
may provide such services to PDC Energy and/or its affiliates for which services we and our affiliates would expect to receive compensation. In the ordinary course of business, we and our affiliates
may actively trade or hold the securities of SRC Energy, PDC Energy and their respective affiliates for our own account or for the account of our customers and, accordingly, may at any time hold a
long or short position in
such securities. In addition, we and our affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with SRC Energy, PDC Energy and their respective affiliates.
Our
advisory services and the opinion expressed herein are provided for the information of the Board of Directors of SRC Energy (in its capacity as such) in its evaluation of the
proposed Merger. Our opinion is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the
proposed Merger or otherwise.
Based
upon and subject to the foregoing, our experience as investment bankers, our work as described above and other factors we deemed relevant, we are of the opinion that, as of the
date hereof, the Exchange Ratio provided for pursuant to the Agreement is fair, from a financial point of view, to holders (other than PDC Energy and its affiliates) of SRC Energy Common Stock.
Very
truly yours,
/s/ CITIGROUP GLOBAL MARKETS INC.
CITIGROUP GLOBAL MARKETS INC.
C-4
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ANNEX D
PERSONAL AND CONFIDENTIAL
August 25,
2019
Board
of Directors
SRC Energy Inc.
1675 Broadway, Suite 2600
Denver CO, 80202
Lady
and Gentlemen:
You
have requested our opinion as to the fairness from a financial point of view to the holders (other than PDC Energy, Inc. ("PDC Energy") and its affiliates) of the outstanding
shares of common stock, par value $0.001 per share (the "Shares"), of SRC Energy Inc. (the "Company") of the exchange ratio of 0.158 shares of common stock, par value $0.01 per share (the "PDC
Energy Common Stock"), of PDC Energy to be paid for each Share (the "Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of August 25, 2019 (the "Agreement"), by and between
PDC Energy and the Company.
Goldman
Sachs & Co. LLC and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment
management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs & Co. LLC and its affiliates and employees, and funds or
other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments
in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, PDC Energy, any of their respective affiliates and third parties, or
any currency or commodity that may be involved in the transaction contemplated by the Agreement (the "Transaction"). We have acted as financial advisor to the Company in connection with, and have
participated in certain of the negotiations leading to, the Transaction. We expect to receive fees for our services in connection with the Transaction, the principal portion of which is contingent
upon consummation of the Transaction, and the Company has agreed to reimburse certain of our expenses arising, and indemnify us against certain liabilities that may arise, out of our engagement. We
have provided certain financial advisory and/or underwriting services to PDC Energy and/or its affiliates from time to time for which our Investment Banking Division has received, and may receive,
compensation, including having acted as co-manager with respect to PDC Energy's offering of 5.75% senior unsecured notes due 2026 (aggregate principal amount $600,000,000) in November 2017. We may
also in the future provide financial advisory and/or underwriting services to the Company, PDC Energy and their respective affiliates for which our Investment Banking Division may receive
compensation.
In
connection with this opinion, we have reviewed, among other things, the Agreement; annual reports to stockholders and Annual Reports on Form 10-K of the Company and PDC Energy
for the five years
ended December 31, 2018; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and PDC Energy; certain other communications from the Company and PDC
Energy to their respective stockholders; certain publicly available research analyst reports for the Company and PDC Energy; and certain internal financial analyses and forecasts for the Company
prepared by its management and for PDC Energy stand alone prepared by its management, and certain financial analyses and forecasts for PDC Energy pro forma for the Transaction prepared by the
management of PDC Energy, in each case, as approved for our use by the Company (the "Forecasts"), including certain operating synergies projected by the management of PDC Energy to result from the
Transaction, as approved for our use by the Company (the "Synergies"). We have also held discussions with members of the senior managements of the Company and PDC Energy regarding their assessment
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of
the strategic rationale for, and the potential benefits of, the Transaction and the past and current business operations, financial condition and future prospects of the Company and PDC Energy;
reviewed the reported price and trading activity for the Shares and the shares of PDC Energy Common Stock; compared certain financial and stock market information for the Company and PDC Energy 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 and performed such other studies and analyses, and considered such other factors, as we deemed appropriate.
For
purposes of rendering this opinion, we have, with your consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and
other information provided to, discussed with or reviewed by, us, without assuming any responsibility for independent verification thereof. In that regard, we have assumed with your consent that the
Forecasts, including the Synergies, have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. We have not made an
independent evaluation, appraisal or geological or technical assessment of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the
Company or PDC Energy or any of their respective subsidiaries and we have not been furnished with any such evaluation or appraisal. We have assumed that all governmental, regulatory or other consents
and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the Company or PDC Energy or on the expected benefits of the Transaction in any way
meaningful to our analysis. We have assumed that the Transaction will be consummated on the terms set forth in the Agreement, without the waiver or modification of any term or condition the effect of
which would be in any way meaningful to our analysis.
Our
opinion does not address the underlying business decision of the Company to engage in the Transaction, or the relative merits of the Transaction as compared to any strategic
alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. We were not requested to solicit, and did not solicit, interest from other
parties with respect to an acquisition of, or other business combination with, the Company or any other alternative transaction. This opinion addresses only the fairness from a financial point of view
to the holders (other than PDC
Energy and its affiliates) of Shares, as of the date hereof, of the Exchange Ratio 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 Transaction or any term or aspect of any other agreement or instrument contemplated by the Agreement or entered into or amended in connection with the Transaction, including, the
fairness of the Transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; 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 class of such persons, in connection with the Transaction,
whether relative to the Exchange Ratio pursuant to the Agreement or otherwise. We are not expressing any opinion as to the prices at which shares of PDC Energy Common Stock will trade at any time or
as to the impact of the Transaction on the solvency or viability of the Company or PDC Energy or the ability of the Company or PDC Energy to pay their respective obligations when they come due. 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 and we assume no responsibility for
updating, revising or reaffirming this opinion based on circumstances, developments or events occurring after the date hereof. Our advisory services and the opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in connection with its consideration of the Transaction and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such Transaction or any other matter. This opinion has been approved by a fairness committee of Goldman Sachs & Co. LLC
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Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio pursuant to the Agreement is fair from a financial point of view to the holders
(other than PDC Energy and its affiliates) of Shares.
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Very truly yours,
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/s/ Goldman Sachs & Co. LLC
Goldman Sachs & Co. LLC
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D-3
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. SRC ENERGY INC. 1675 BROADWAY, SUITE 2600 DENVER, CO 80202 ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR proposals 1, 2 and 3. For 0 Against 0 Abstain 0 1 To adopt and approve the Agreement and Plan of Merger, dated August 25, 2019 by and among PDC Energy, Inc. ("PDC") and SRC Energy Inc. ("SRC") (the "merger agreement") and the merger of PDC and SRC pursuant to the merger agreement (the "merger"). 0 0 0 2 To approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to SRC's named executive officers that is based on or otherwise relates to the merger contemplated by the merger agreement. 0 0 0 3 To approve the adjournment of the SRC special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve proposal 1 at the time of the SRC special meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 0000433346_1 R1.0.1.18
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice & Proxy Statement is available at www.proxyvote.com SRC ENERGY INC. Special Meeting of Shareholders January 13, 2020 at 8:00 A.M. This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) Lynn A. Peterson and Cathleen M. Osborn, or either of them, as proxies, each with the power to appoint his/her substitute, and hereby authorize(s) either of them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of SRC ENERGY INC. that the shareholder(s) is/are entitled to vote at the Special Meeting of Shareholders to be held at 8:00 A.M., MDT on January 13, 2020, at the Denver Energy Center, Tower 2, 1625 Broadway, Denver, CO 80202 and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations with respect to proposals 1, 2 and 3 and in the discretion of the proxy holders with respect to any other matters properly brought before the meeting. Continued and to be signed on reverse side 0000433346_2 R1.0.1.18