ADAMS RESOURCES & ENERGY, INC. (Form: 10-K, Received: 03/12/2018 17:32:23)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___.

Commission file number: 1-7908

ADAMS RESOURCES & ENERGY, INC.

( Exact name of Registrant as Specified in Its Charter)



DELAWARE		74-1753147
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

	17 SOUTH BRIAR HOLLOW LANE, SUITE 100, HOUSTON, TEXAS 77027
	(Address of Principal Executive Offices) (Zip Code)

	(713) 881-3600
	(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, $0.10 Par Value	NYSE MKT

Securities to be registered pursuant to Section 12(g) of the Act : None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the company’s voting and non-voting common shares held by non-affiliates as of the close of business on June 30, 2017 was $88,123,994 based on the closing price of $41.08 per one share of common stock as reported on the NYSE MKT for such date. There were 4,217,596 shares of Common Stock outstanding at March 1, 2018 .

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2018 are incorporated by reference into Part III of this report.

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ADAMS RESOURCES & ENERGY, INC.

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		Page Number
PART I
Item 1 and 2 .	Business and Properties.	3
Item 1A.	Risk Factors.	9
Item 1B.	Unresolved Staff Comments.	14
Item 3.	Legal Proceedings.	15
Item 4.	Mine Safety Disclosures.	15

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	15
Item 6.	Selected Financial Data.	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	33
Item 8.	Financial Statements and Supplementary Data.	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	70
Item 9A.	Controls and Procedures .	70
Item 9B.	Other Information.	72

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	72
Item 11.	Executive Compensation.	72
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .	72
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	73
Item 14.	Principal Accountant Fees and Services.	73

PART IV
Item 15.	Exhibits, Financial Statement Schedules.	73
Item 16.	Form 10-K Summary.	74

Signatures		75

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This annual report on Form 10-K for the year ended December 31, 2017 (our “annual report”) contains various forward-looking statements and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of this annual report. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this annual report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.

PART I

Items 1 and 2. Business and Properties.

General

Adams Resources & Energy, Inc. (“AE”) is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE MKT LLC (“NYSE MKT”) under the ticker symbol “AE”. We and our subsidiaries are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S. Our headquarters are located in 27,932 square feet of office space located at 17 South Briar Hollow Lane, Suite 100, Houston, Texas 77027, and the telephone number of that address is (713) 881-3600. Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “AE” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.

Historically, we have operated and reported in three business segments: (i) crude oil marketing, transportation and storage, (ii) tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation, and (iii) upstream crude oil and natural gas exploration and production. We exited the upstream crude oil and natural gas exploration and production business during 2017 with the sale of our upstream crude oil and natural gas exploration and production assets.

For detailed financial information regarding our business segments, see Note 8 in the Notes to Consolidated Financial Statements included under Part II, Item 8 of this annual report.

2017 Developments

Subsidiary Bankruptcy, Deconsolidation and Sale

On April 21, 2017, one of our wholly owned subsidiaries, Adams Resources Exploration Corporation (“AREC”), filed a voluntary petition in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”), Case No. 17-10866 (KG). AREC operated its business and managed its properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and order of the Bankruptcy Court. AE was the primary creditor in the Chapter 11 process.

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During the second quarter of 2017, we recorded a non-cash charge of approximately $1.6 million associated with the deconsolidation of AREC, which reflected the excess of the net assets of AREC over its estimated fair value based on an expected sales transaction price of approximately $5.0 million, net of estimated transaction costs. During the third quarter of 2017, Bankruptcy Court approval was obtained on three asset purchase and sales agreements with three unaffiliated parties, and AREC closed on the sales of substantially all of its assets.

In October 2017, AREC submitted its liquidation plan to the Bankruptcy Court for approval. In connection with the sales of these assets and submission of the liquidation plan, we recognized an additional loss of $1.9 million during the third quarter of 2017, which represents the difference between the proceeds we expect to be paid upon settlement of the bankruptcy, net of anticipated remaining closing costs identified as part of the liquidation plan, and the book value of our cost method investment. In December 2017, we received proceeds of approximately $2.8 million from AREC related to the settlement of a portion of the bankruptcy process. We obtained approval of a confirmed plan in December 2017, and we expect the case to be dismissed during the first half of 2018. We anticipate receiving an additional $0.4 million in 2018 when the bankruptcy case is dismissed.

In connection with the bankruptcy filing, AREC entered into a Debtor in Possession Credit and Security Agreement (“DIP Credit Agreement”) with AE dated as of April 25, 2017, in an aggregate amount of up to $1.25 million. AREC borrowed approximately $0.4 million under the DIP Credit Agreement, and the amount was repaid during the third quarter of 2017 with proceeds from the sales of the assets. See Note 3 in the Notes to Consolidated Financial Statements for further information.

Voluntary Early Retirement Program

In August 2017, we implemented a voluntary early retirement program for certain employees, which resulted in an increase in personnel expenses of approximately $1.4 million. Of this amount, approximately $1.0 million was included in general and administrative expenses and $0.4 million was included in operating expenses.

Impairment of Investment in Unconsolidated Affiliate

During the third quarter of 2017, we completed a review of our investment in VestaCare, Inc. (“VestaCare”) and determined that there was an other than temporary impairment as the current projected operating results of VestaCare did not support the carrying value of our investment. As such, we recognized a pre-tax impairment charge of $2.5 million during the third quarter of 2017 related to our investment in VestaCare. See Note 7 in the Notes to Consolidated Financial Statements for further information.

Business Segments

Marketing

Our marketing segment consists of the operations of our wholly owned subsidiary, Gulfmark Energy, Inc. (“Gulfmark”). Our crude oil marketing activities generate revenue from the sale and delivery of crude oil purchased either directly from producers or from others on the open market. We purchase crude oil and arrange sales and deliveries to refiners and other customers, primarily onshore in Texas, Oklahoma, North Dakota, Michigan and Louisiana. Our marketing activities includes a fleet of approximately 144 tractor-trailer rigs, the majority of which we own and operate, used to transport crude oil. We also maintain over 164 pipeline inventory locations or injection stations. We have the ability to barge crude oil from four crude oil storage facilities along the Intercoastal Waterway of Texas and Louisiana, and we maintain approximately 425,000 barrels of storage capacity at the dock facilities in order to access waterborne markets for our products.

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The following table shows the age of our owned and leased tractors and trailers within our marketing segment at December 31, 2017:



	Tractors ⁽¹⁾	Trailers

Model Year:
2018	16	—
2017	4	—
2015	19	3
2014	39	23
2013	59	41
2012	7	14
2011	—	75
2008 and earlier	—	45
Total	144	201

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(1)	Includes 15 tractors that we lease from a third party under a capital lease agreement. See Note 13 in the Notes to Consolidated Financial Statements for further information.

We purchase crude oil at the field (wellhead) level. Volume and price information were as follows for the periods indicated:



	Year Ended December 31,
	2017	2016	2015
Field level purchase volumes – per day ⁽¹⁾
Crude oil – barrels	67,447	72,900	106,400

Average purchase price
Crude oil – per barrel	$49.88	$39.30	$45.41

____________________


(1)	Reflects the volume purchased from third parties at the field level of operations.

Field level purchase volumes depict our day-to-day operations of acquiring crude oil at the wellhead, transporting crude oil, and delivering it to market sales points. We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):



	December 31,
	2017		2016		2015
		Average		Average		Average
	Barrels	Price	Barrels	Price	Barrels	Price

Crude oil inventory	198,011	$61.57	255,146	$51.22	261,718	$29.31

We deliver physical supplies to refinery customers or enter into commodity exchange transactions from time to time to protect from a decline in inventory valuation. During the year ended December 31, 2017, we had sales to four customers that comprised 22.8 percent, 17.1 percent, 10.8 percent and 10.7 percent, respectively, of total consolidated revenues. We believe alternative market outlets for our commodity sales are readily available and a loss of any of these customers would not have a material adverse effect on our operations. See Note 14 in the Notes to Consolidated Financial Statements for further information regarding credit risk.

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Operating results for our marketing segment are sensitive to a number of factors. These factors include commodity location, grades of product, individual customer demand for grades or location of product, localized market price structures, availability of transportation facilities, actual delivery volumes that vary from expected quantities, and the timing and costs to deliver the commodity to the customer.

Transportation

Our transportation segment consists of the operations of our wholly owned subsidiary, Service Transport Company (“STC”). STC transports liquid chemicals and, to a lesser extent, dry bulk on a “for hire” basis throughout the continental U.S., Canada and into Mexico. STC also provides ISO tank container storage and transportation for customers. Transportation services are provided to customers under multiple load contracts in addition to loads covered under STC’s standard price list.

The following table shows the age of our owned and leased tractors and trailers within our transportation segment at December 31, 2017:



	Tractors ⁽¹⁾	Trailers

Model Year:
2016	30	52
2015	38	30
2014	1	35
2013	102	—
2012	70	30
2011	3	—
2008 and earlier	—	384
Total	244	531

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(1)	Excludes 35 independent contractor tractors.

Miles traveled was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017	2016	2015

Mileage	21,835	22,611	25,205

STC also operates truck terminals in Houston, Corpus Christi, and Nederland, Texas, and Baton Rouge (St. Gabriel), Louisiana, St. Rose, Louisiana and Mobile (Saraland), Alabama. Transportation operations are headquartered at a terminal facility situated on 26.5 acres that we own in Houston, Texas. This property includes maintenance facilities, an office building, tank wash rack facilities and a water treatment system. The St. Gabriel, Louisiana terminal is situated on 11.5 acres that we own and includes an office building, maintenance bays and tank cleaning facilities. Pursuant to regulatory requirements, STC holds a Hazardous Materials Certificate of Registration issued by the U.S. Department of Transportation (“DOT”).

STC is a recognized certified partner with the American Chemistry Council’s Responsible Care Management System (“RCMS”); the scope of this RCMS certification covers the carriage of bulk liquids throughout STC’s area of operations as well as the tank trailer cleaning facilities and equipment maintenance. STC’s quality management process is one of its major assets. The practice of using statistical process control covering safety, on-time performance and customer satisfaction aids continuous improvement in all areas of quality service. The American Chemistry Responsible Care Partners serve the chemical industry and implement and monitor the seven Codes of Management Practices. The seven codes address compliance and continuing improvement in (1) Community Awareness and Emergency Response, (2) Pollution Prevention, (3) Process Safety, (4) Distribution, (5) Employee Health and Safety, (6) Product Stewardship, and (7) Security.

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Investments in Unconsolidated Affiliates

We own an approximate 15 percent equity interest (less than 3 percent voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), through Adams Resources Medical Management, Inc. (“ARMM”), a wholly owned subsidiary. We acquired our interest in VestaCare in April 2016 for a $2.5 million cash payment, which we impaired during the third quarter of 2017. VestaCare provides an array of software as a service (SaaS) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™. VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients. We do not currently have any plans to pursue additional medical-related investments. See Note 7 in the Notes to Consolidated Financial Statements for further information.

Competition

In all phases of our operations, we encounter strong competition from a number of entities. Many of these competitors possess financial resources substantially in excess of ours. We face competition principally in establishing trade credit, pricing of available materials and quality of service. Our marketing division competes with major crude oil companies and other large industrial concerns that own or control significant refining, midstream and marketing facilities. These major crude oil companies may offer their products to others on more favorable terms than those available to us.

Seasonality

In the trucking industry, revenue has historically followed a seasonal pattern for various commodities and customer businesses. Peak freight demand has historically occurred in the months of September, October and November. After the December holiday season and during the remaining winter months, freight volumes are typically lower as many customers reduce shipment levels. Operating expenses have historically been higher in the winter months primarily due to decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment, and increased insurance claim costs attributable to adverse winter weather conditions. Revenue can also be impacted by weather, holidays and the number of business days that occur during a given period, as revenue is directly related to the available working days of shippers.

Although our marketing business is not materially affected by seasonality, certain aspects of our operations are impacted by seasonal changes, such as tropical weather conditions, energy demand in connection with heating and cooling requirements and the summer driving season.

Regulatory Matters

We are subject to an extensive variety of evolving federal, state and local laws, rules and regulations governing the storage, transportation, manufacture, use, discharge, release and disposal of product and contaminants into the environment, or otherwise relating to the protection of the environment. Below is a non-exclusive listing of the environmental laws that potentially impact our activities.


•	The Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended.


•	The Clean Water Act of 1972, as amended.


•	The Clean Air Act of 1970, as amended.


•	The Toxic Substances Control Act of 1976, as amended.


•	The Emergency Planning and Community Right-to-Know Act.


•	The Occupational Safety and Health Act of 1970, as amended.


•	Texas Clean Air Act.


•	Texas Solid Waste Disposal Act.


•	Texas Water Code.


•	Texas Oil Spill Prevention and Response Act of 1991, as amended.

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Railroad Commission of Texas (“RRC”)

The RRC regulates, among other things, the drilling and operation of crude oil and natural gas wells, the operation of crude oil and natural gas pipelines, the disposal of crude oil and natural gas production wastes, and certain storage of crude oil and natural gas. RRC regulations govern the generation, management and disposal of waste from these crude oil and natural gas operations and provide for the cleanup of contamination from crude oil and natural gas operations.

Louisiana Office of Conservation

The Louisiana Office of Conservation has primary statutory responsibility for regulation and conservation of crude oil, natural gas, and other natural resources in the State of Louisiana. Their objectives are to (i) regulate the exploration and production of crude oil, natural gas and other hydrocarbons, (ii) control and allocate energy supplies and distribution thereof, and (iii) protect public safety and the environment from oilfield waste, including the regulation of underground injection and disposal practices.

State and Local Government Regulation

Many states are authorized by the U.S. Environmental Protection Agency (“EPA”) to enforce regulations promulgated under various federal statutes. In addition, there are numerous other state and local authorities that regulate the environment, some of which impose more stringent environmental standards than federal laws and regulations. The penalties for violations of state law vary, but typically include injunctive relief and recovery of damages for injury to air, water or property as well as fines for non-compliance.

Trucking Activities

Our marketing and transportation businesses operate truck fleets pursuant to the authority of the DOT and various state authorities. Trucking operations must be conducted in accordance with various laws relating to pollution and environmental control as well as safety requirements prescribed by states and by the DOT. Matters such as weight and dimension of equipment are also subject to federal and state regulations. These regulations also require mandatory drug testing of drivers and require certain tests for alcohol levels in drivers and other safety personnel. The trucking industry is subject to possible regulatory and legislative changes, such as increasingly stringent environmental requirements or limits on vehicle weight and size. Regulatory change may affect the economics of the industry by requiring changes in operating practices or by changing the demand for private and common or contract carrier services or the cost of providing truckload services. In addition, our tank wash facilities are subject to increasingly stringent local, state and federal environmental regulations.

We have implemented security procedures for drivers and terminal facilities. Satellite tracking transponders installed in the power units are used to communicate emergencies to us and to maintain constant information as to the unit’s location. If necessary, our terminal personnel will notify local law enforcement agencies. In addition, we are able to advise a customer of the status and location of their loads. Remote cameras and enhanced lighting coverage in the staging and parking areas have augmented terminal security. We have a focus on safety in the communities in which we operate, including leveraging camera technology to enhance driver behavior and awareness.

Regulatory Status and Potential Environmental Liability

Our operations and facilities are subject to numerous federal, state and local environmental laws and regulations including those described above, as well as associated permitting and licensing requirements. We regard compliance with applicable environmental regulations as a critical component of our overall operation, and devote significant attention to providing quality service and products to our customers, protecting the health and safety of our employees, and protecting our facilities from damage. We believe we have obtained or applied for all permits and approvals required under existing environmental laws and regulations to operate our current business. We are not subject to any pending or threatened environmental litigation or enforcement actions which could materially and adversely affect our business.

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We have, where appropriate, implemented operating procedures at each of our facilities designed to assure compliance with environmental laws and regulation. However, given the nature of our business, we are subject to environmental risks, and the possibility remains that our ownership of our facilities and our operations and activities could result in civil or criminal enforcement and public as well as private actions against us, which may necessitate or generate mandatory cleanup activities, revocation of required permits or licenses, denial of application for future permits, and/or significant fines, penalties or damages, any and all of which could have a material adverse effect on us. See “Item 1A. Risk Factors ” for further discussion. At December 31, 2017, we are not aware of any unresolved environmental issues for which additional accounting accruals are necessary.

Employees

At December 31, 2017, we employed 575 persons. None of our employees are represented by a union. We believe our employee relations are satisfactory.

Federal and State Taxation

We are subject to the provisions of the Internal Revenue Code of 1986, as amended (the “Code”). In accordance with the Code, we computed our income tax provision based on a 35 percent tax rate for the year ended December 31, 2017. On December 22, 2017, the Tax Cut and Jobs Act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018. We conduct a significant amount of business within the State of Texas. Texas operations are subject to a one-half percent state tax on its revenues net of cost of goods sold as defined by the state. We believe we are currently in compliance with all federal and state tax regulations.

Available Information

We electronically file certain documents with the U.S. Securities and Exchange Commission (“SEC”). We file annual reports on Form 10-K; quarterly reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments and supplements thereto. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information regarding the Public Reference Room by calling the SEC at (800) SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.

We also make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, simultaneously with or as soon as reasonably practicable after filing such materials with, or furnishing such materials to, the SEC, and on our website www.adamsresources.com . The information on our website, or information about us on any other website, is not incorporated by reference into this report.

Item 1A. Risk Factors .

An investment in our common stock involves certain risks. If any of the following key risks were to occur, it could have a material adverse effect on our financial position, results of operations and cash flows. In any such circumstance and others described below, the trading price of our securities could decline and you could lose part or all of your investment.

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Economic developments could damage our operations and materially reduce our profitability and cash flows.

Potential disruptions in the credit markets and concerns about global economic growth could have a significant adverse impact on global financial markets and commodity prices. These factors could contribute to a decline in our stock price and corresponding market capitalization. If commodity prices experience a period of rapid decline, or a prolonged period of low commodity prices, our future earnings will be reduced. We currently do not have bank debt obligations. If the capital and credit markets experience volatility and the availability of funds become limited, our customers and suppliers may incur increased costs associated with issuing commercial paper and/or other debt instruments and this, in turn, could adversely affect our ability to secure supply and make profitable sales.

General economic conditions could reduce demand for chemical based trucking services.

Customer demand for our products and services is substantially dependent upon the general economic conditions for the U.S., which are cyclical in nature. In particular, demand for liquid chemical truck transportation services is dependent on activity within the petrochemical sector of the U.S. economy. Chemical sector demand typically varies with the housing and auto markets as well as the relative strength of the U.S. dollar to foreign currencies. A relatively strong U.S. dollar exchange rate may be adverse to our transportation operation since it tends to suppress export demand for petrochemicals. Conversely, a weak U.S. dollar exchange rate tends to stimulate export demand for petrochemicals.

Our business is dependent on the ability to obtain trade and other credit .

Our future development and growth depends, in part, on our ability to successfully obtain credit from suppliers and other parties. Trade credit arrangements are relied upon as a significant source of liquidity for capital requirements not satisfied by operating cash flow. If global financial markets and economic conditions disrupt and reduce stability in general, and the solvency of creditors specifically, the availability of funding from credit markets, would be reduced as many lenders and institutional investors would enact tighter lending standards, refuse to refinance existing debt on terms similar to current debt or, in some cases, cease to provide funding to borrowers. These issues coupled with weak economic conditions would make it more difficult for us, our suppliers and our customers to obtain funding. If we are unable to obtain trade or other forms of credit on reasonable and competitive terms, the ability to continue our marketing businesses, pursue improvements, and continue future growth will be limited. We cannot assure you that we will be able to maintain future credit arrangements on commercially reasonable terms.

Fluctuations in crude oil and natural gas prices could have an adverse effect on us .

Our future financial condition, revenues, results of operations and future rate of growth are materially affected by crude oil and natural gas prices that historically have been volatile and are likely to continue to be volatile in the future. Crude oil and natural gas prices depend on factors outside of our control. These factors include:


•	supply and demand for crude oil and natural gas and expectations regarding supply and demand;


•	political conditions in other crude oil-producing countries, including the possibility of insurgency or war in such areas;


•	economic conditions in the U.S. and worldwide;


•	governmental regulations and taxation;


•	impact of energy conservation efforts;


•	the price and availability of alternative fuel sources;


•	weather conditions;


•	availability of local, interstate and intrastate transportation systems; and


•	market uncertainty.

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The financial soundness of customers could affect our business and operating results.

Constraints in the financial markets and other macro-economic challenges that might affect the economy of the U.S. and other parts of the world could cause our customers to experience cash flow concerns. As a result, if our customers’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, customers would not be able to pay, or may delay payment of, accounts receivable owed to us. Any inability of current and/or potential customers to pay for services may adversely affect our financial condition and results of operations.

Counterparty credit default could have an adverse effect on us.

Our revenues are generated under contracts with various counterparties, and our results of operations could be adversely affected by non-performance under the various contracts. A counterparty’s default or non-performance could be caused by factors beyond our control. A default could occur as a result of circumstances relating directly to the counterparty, or due to circumstances caused by other market participants having a direct or indirect relationship with the counterparty. We seek to mitigate the risk of default by evaluating the financial strength of potential counterparties; however, despite mitigation efforts, contractual defaults may occur from time to time.

Potentially escalating diesel fuel prices could have an adverse effect on us.

As an integral part of our marketing and transportation businesses, we operate approximately 390 truck-tractors, and diesel fuel costs are a significant component of our operating expenses. These costs generally fluctuate with increasing and decreasing world crude oil prices. During periods of high prices, we attempt to recoup rising diesel fuel costs through the pricing of our services; however to the extent these costs escalate, our operating earnings will generally be adversely affected.

Revenues are generated under contracts that must be renegotiated periodically.

Substantially all of our revenues are generated under contracts which expire periodically or which must be frequently renegotiated, extended or replaced. Whether these contracts are renegotiated, extended or replaced is often subject to factors beyond our control. These factors include sudden fluctuations in crude oil and natural gas prices, counterparty ability to pay for or accept the contracted volumes and, most importantly, an extremely competitive marketplace for the services we offer. We cannot assure you that the costs and pricing of our services can remain competitive in the marketplace or that we will be successful in renegotiating our contracts.

Anticipated or scheduled volumes will differ from actual or delivered volumes.

Our crude oil marketing business purchases initial production of crude oil at the wellhead under contracts requiring us to accept the actual volume produced. The resale of this production is generally under contracts requiring a fixed volume to be delivered. We estimate our anticipated supply and match that supply estimate for both volume and pricing formulas with committed sales volumes. Since actual wellhead volumes produced will never equal anticipated supply, our marketing margins may be adversely impacted. In many instances, any losses resulting from the difference between actual supply volumes compared to committed sales volumes must be absorbed by us.

Environmental liabilities and environmental regulations may have an adverse effect on us.

Our business is subject to environmental hazards such as spills, leaks or any discharges of petroleum products and hazardous substances. These environmental hazards could expose us to material liabilities for property damage, personal injuries, and/or environmental harms, including the costs of investigating and rectifying contaminated properties.

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Environmental laws and regulations govern many aspects of our business, such as drilling and exploration, production, transportation and waste management. Compliance with environmental laws and regulations can require significant costs or may require a decrease in production. Moreover, noncompliance with these laws and regulations could subject us to significant administrative, civil, and/or criminal fines and/or penalties, as well as potential injunctive relief. See discussion under Item 1 and 2. Business and Properties — Regulatory Matters , and in the sections that follow, for additional detail.

Our operations could result in liabilities that may not be fully covered by insurance .

Transportation of hazardous materials involves certain operating hazards such as automobile accidents, explosions, fires and pollution. Any of these operating hazards could cause serious injuries, fatalities or property damage, which could expose us to liability. The payment of any of these liabilities could reduce, or even eliminate, the funds available for other areas.

Consistent with the industry standard, our insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage provided for sudden and accidental occurrences. Insurance might be inadequate to cover all liabilities. Obtaining insurance for our line of business can become difficult and costly. Typically, when insurance cost escalates, we may reduce our level of coverage, and more risk may be retained to offset cost increases. If substantial liability is incurred and damages are not covered by insurance or exceed policy limits, our operation and financial condition could be materially adversely affected.

We could be adversely affected by changes in tax laws or regulations .

The Internal Revenue Service, the U.S. Treasury Department, Congress and the states frequently review federal or state income tax legislation. We cannot predict whether, when, or to what extent new federal or state tax laws, regulations, interpretations or rulings will be adopted. Any such legislative action may prospectively or retroactively modify tax treatment and, therefore, may adversely affect taxation of us.

The Tax Cuts and Jobs Act, signed into law on December 22, 2017, is expected to have a favorable impact on our effective tax rate and net income as reported under generally accepted accounting principles in the U.S. both in the first fiscal quarter of 2018 and subsequent reporting periods to which the Tax Cuts and Jobs Act is effective. However, given the many changes resulting from the Tax Cuts and Jobs Act, we are assessing the impact of the Tax Cuts and Jobs Act, and there can be no assurances that it will have a favorable impact. You should consult with your tax advisors with respect to the effect of the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals and the potential effect on your investment in AE.

Our business is subject to changing government regulations .

Federal, state or local government agencies may impose environmental, labor or other regulations that increase costs and/or terminate or suspend operations. Our business is subject to federal, state and local laws and regulations. These regulations relate to, among other things, transportation of crude oil and natural gas. Existing laws and regulations could be changed, and any changes could increase costs of compliance and costs of operations.

Security issues exist relating to drivers, equipment and terminal facilities.

We transport liquid combustible materials including petrochemicals, and these materials may be a target for terrorist attacks. While we employ a variety of security measures to mitigate risks, we cannot assure you that such events will not occur.

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Current and future litigation could have an adverse effect on us.

We are currently involved in certain administrative and civil legal proceedings as part of the ordinary course of our business. Moreover, as incidental to operations, we sometimes become involved in various lawsuits and/or disputes. Lawsuits and other legal proceedings can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. Although we maintain insurance to mitigate these costs, we cannot assure you that costs associated with lawsuits or other legal proceedings will not exceed the limits of insurance policies. Our results of operations could be adversely affected if a judgment, penalty or fine is not fully covered by insurance.

Climate change legislation or regulations restricting emissions of “greenhouse gases” (“GHGs”) could result in increased operating costs and reduced demand for the crude oil and natural gas we produce, market and transport.

More stringent laws and regulations relating to climate change and GHGs may be adopted and could cause us to incur material expenses to comply with such laws and regulations. In the absence of comprehensive federal legislation on GHG emission control, the EPA attempted to require the permitting of GHG emissions; although the Supreme Court struck down the permitting requirements, it upheld the EPA’s authority to control GHG emissions when a permit is required due to emissions of other pollutants. The EPA also requires the reporting of GHG emissions from specified large GHG emission sources including onshore and offshore crude oil and natural gas production facilities and onshore crude oil and natural gas processing, transmission, storage and distribution facilities. Reporting of GHG emissions from such large facilities is required on an annual basis. We do not presently operate any such large GHG emission sources but, if we were to do so in the future, we would incur costs associated with evaluating and meeting this reporting obligation.

In May 2016, the EPA finalized rules to reduce methane emissions from new, modified or reconstructed sources in the crude oil and natural gas sector, although the rules are currently the subject of litigation and in June 2017, the EPA proposed a 2-year stay of the rules. The EPA announced in March 2016 that it also intends to reduce methane emissions for existing sources, but the EPA announced in March 2017 that it no longer intends to pursue regulation of methane emissions from existing sources. In November 2016, the Bureau of Land Management issued final rules to reduce methane emissions from venting, flaring, and leaks during crude oil and natural gas operations on public lands, although the present administration is proposing to delay the implementation dates applicable to requirements under these rules. Several states, are pursuing similar measures to regulate emissions of methane from new and existing sources within the crude oil and natural gas source category.

In addition, the U.S. Congress has considered legislation to reduce emissions of GHGs, and many states and regions have already taken legal measures to reduce or measure GHG emission levels, often involving the planned development of GHG emission inventories and/or regional cap and trade programs. Most of these cap and trade programs require major sources of emissions or major producers of fuels to acquire and surrender emission allowances. The number of allowances available for purchase is reduced each year in an effort to reduce overall GHG emissions, and the cost of these allowances could escalate significantly over time. In the markets in which we currently operate, our operations are not affected by such GHG cap and trade programs. On an international level, almost 200 nations agreed in December 2015 to an international climate change agreement in Paris, France that calls for countries to set their own GHG emissions targets and be transparent about the measures each country will use to achieve its GHG emissions targets. Although the present administration has announced its intention to withdraw from the Paris accord, several states and local governments remain committed to its principles in their effectuation of policy and regulations. It is not possible at this time to predict how or when the U.S. might impose restrictions on GHGs as a result of the international climate change agreement. The adoption and implementation of any legislation or regulatory programs imposing GHG reporting obligations on, or limiting emissions of GHGs from, our equipment and operations could require us to incur costs to reduce emissions of GHGs associated with our operations including costs to operate and maintain our facilities, install new emission controls on our facilities, acquire allowances to authorize our GHG emissions, pay any taxes related to GHG emissions, administer and manage a GHG emissions program. Such programs also could adversely affect demand for the crude oil and natural gas that we market and transport.

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We are subject to risks associated with climate change.

In an interpretative guidance on climate change disclosures, the SEC indicates that climate change could have an effect on the severity of weather (including hurricanes and floods), sea levels, the arability of farmland, and water availability and quality. If such effects were to occur, our operations have the potential to be adversely affected. Potential adverse effects could include disruption of our marketing and transportation activities, including, for example, damages to our facilities from powerful winds or floods, or increases in our costs of operation or reductions in the efficiency of our operations, as well as potentially increased costs for insurance coverages in the aftermath of such effects. Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process related services provided by companies or suppliers with whom we have a business relationship. In addition, the demand for and consumption of our products and services (due to change in both costs and weather patterns), and the economic health of the regions in which we operate, could have a material adverse effect on our business, financial condition, results of operations and cash flows. We may not be able to recover through insurance some or any of the damages, losses or costs that may result from potential physical effects of climate change.

Cyber-attacks or other disruptions to our information technology systems could lead to reduced revenue, increased costs, liability claims, fines or harm to our competitive position.

We are subject to cybersecurity risks and may incur increasing costs in connection with our efforts to enhance and ensure security and in response to actual or attempted cybersecurity attacks. Substantial aspects of our business depend on the secure operation of our computer systems and websites. Security breaches could expose us to a risk of loss, misuse, or interruption of sensitive and critical information and functions, including our own proprietary information and that of our customers, suppliers and employees. Such breaches could result in operational impacts, reputational harm, competitive disadvantage, litigation, regulatory enforcement actions, and liability. While we devote substantial resources to maintaining adequate levels of cybersecurity, we cannot assure you that we will be able to prevent all of the rapidly evolving types of cyberattacks. Actual or anticipated attacks and risks may cause us to incur increasing costs for technology, personnel and services to enhance security or to respond to occurrences.

We have programs, processes and technologies in place to attempt to prevent, detect, contain, respond to and mitigate security-related threats and potential incidents. We undertake ongoing improvements to our systems, connected devices and information-sharing products in order to minimize vulnerabilities, in accordance with industry and regulatory standards; however, because the techniques used to obtain unauthorized access change frequently and can be difficult to detect and anticipating, identifying or preventing these intrusions or mitigating them if and when they occur is challenging and makes us more vulnerable to cyber-attacks than other companies not similarly situated.

If our security measures are circumvented, proprietary information may be misappropriated, our operations may be disrupted, and our computers or those of our customers or other third parties may be damaged. Compromises of our security may result in an interruption of operations, violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures.

Item 1B. Unresolved Staff Comments .

None.

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Item 3. Legal Proceedings .

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, workers’ compensation claims and other items of general liability as would be typical for the industry. We are currently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.

See Note 13 in the Notes to Consolidated Financial Statements for further discussion.

Item 4. Mine Safety Disclosures .

Not applicable.

PART II


Item 5.	Market for Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Our common stock is traded on the NYSE MKT under the ticker symbol “AE”. As of February 28, 2018, there were approximately 140 shareholders of record of our common shares. The following table presents high and low sales prices for our common stock for the periods presented as reported by the NYSE MKT and the amount, record date and payment date of the quarterly cash dividends we paid on each of our common shares with respect to such periods.



			Cash Dividend History
	Price Ranges		Per	Record	Payment
	High	Low	Share	Date	Date
2015
1st Quarter	$73.28	$47.31	$0.22	6/3/2015	6/17/2015
2nd Quarter	$70.00	$39.00	$0.22	9/3/2015	9/17/2015
3rd Quarter	$48.60	$38.88	$0.22	12/2/2015	12/16/2015
4th Quarter	$46.86	$33.55	$0.22	3/11/2016	3/23/2016

2016
1st Quarter	$43.00	$30.00	$0.22	6/3/2016	6/17/2016
2nd Quarter	$44.27	$35.25	$0.22	9/6/2016	9/19/2016
3rd Quarter	$39.47	$29.64	$0.22	12/5/2016	12/19/2016
4th Quarter	$44.00	$35.17	$0.22	3/10/2017	3/24/2017

2017
1st Quarter	$41.99	$34.23	$0.22	6/2/2017	6/16/2017
2nd Quarter	$43.80	$35.64	$0.22	9/6/2017	9/20/2017
3rd Quarter	$42.77	$32.80	$0.22	12/5/2017	12/19/2017
4th Quarter	$50.59	$40.36	$0.22	3/9/2018	3/23/2018

Issuer Purchases of Equity Securities

None.

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Performance Graph

The following graph compares the total shareholder return performance of our common stock with the performance of: (i) the Standard & Poor’s 500 Stock Index (“S&P 500”) and (ii) the S&P 500 Integrated Oil and Gas Index. The graph assumes that $100 was invested in our common stock and each comparison index beginning on December 31, 2012 and that all dividends were reinvested on a quarterly basis on the ex-dividend dates. The graph was prepared under the applicable rules of the SEC based on data supplied by Research Data Group. The stock performance shown on the graph is not necessarily indicative of future price performance.



	December 31,
	2012		2013		2014		2015		2016		2017

Adams Resources & Energy, Inc.	$	100.00	$	197.45	$	146.15	$	114.46	$	120.99	$	135.74
S&P 500	100.00		132.39		150.51		152.59		170.84		208.14
S&P Integrated Oil & Gas	100.00		121.53		113.35		97.64		121.21		123.73

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Item 6. Selected Financial Data.

The following table presents our selected historical consolidated financial data. This information has been derived from and should be read in conjunction with our audited financial statements included under Part II, Item 8 of this annual report, which presents our audited balance sheets as of December 31, 2017 and 2016 and related consolidated statements of operations, cash flows and shareholders’ equity for the three years ended December 31, 2017, 2016 and 2015, respectively. As presented in the table, amounts are in thousands (except per share data).



	Year Ended December 31,
	2017			2016			2015			2014			2013
Statements of operations data:
Revenues:
Marketing	$	1,267,275		$	1,043,775		$	1,875,885		$	4,050,497		$	3,863,057
Transportation	53,358			52,355			63,331			68,968			68,783
Oil and natural gas	1,427			3,410			5,063			13,361			14,129
Total revenues	1,322,060			1,099,540			1,944,279			4,132,826			3,945,969

Costs and expenses:
Marketing	1,247,763			1,016,733			1,841,893			4,020,017			3,815,006
Transportation	48,538			45,154			52,076			56,802			56,504
Oil and natural gas	948			2,084			6,931			7,817			6,117
Oil and natural gas property impairments ⁽¹⁾	3			313			12,082			8,009			2,631
Oil and natural gas property sale ⁽²⁾	—			—			—			(2,528		)	—
General and administrative	9,707			10,410			9,939			8,613			9,060
Depreciation, depletion and amortization	13,599			18,792			23,717			24,615			22,275

Operating earnings (losses)	1,502			6,054			(2,359		)	9,481			34,376

Loss on deconsolidation of subsidiary ⁽³⁾	(3,505		)	—			—			—			—
Impairment of investment in unconsolidated
affiliate ⁽⁴⁾	(2,500		)	—			—			—			—
Interest income (expense)	1,076			580			314			299			174

Earnings (losses) from continuing operations	(3,427		)	6,634			(2,045		)	9,780			34,550

Income tax (provision) benefit	2,945			(2,691		)	770			(3,561		)	(12,429		)

Earnings (losses) before investment in
unconsolidated affiliate
and discontinued operations	(482		)	3,943			(1,275		)	6,219			22,121

Discontinued operations, net of taxes	—			—			—			304			(511		)
Losses from investment in unconsolidated
affiliate, net of tax ⁽⁵⁾	—			(1,430		)	—			—			—
Net (losses) earnings	$	(482	)	$	2,513		$	(1,275	)	$	6,523		$	21,610

Earnings (losses) per share:
From continuing operations	$	(0.11	)	$	0.94		$	(0.30	)	$	1.48		$	5.24
From investment in unconsolidated
affiliate	—			(0.34		)	—			—			—
From discontinued operations	—			—			—			0.07			(0.12		)
Basic and diluted earnings per share	$	(0.11	)	$	0.60		$	(0.30	)	$	1.55		$	5.12

Dividends per common share	$	0.88		$	0.88		$	0.88		$	0.88		$	0.66

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	December 31,
	2017		2016		2015		2014		2013
Balance sheet data:
Cash	$	109,393	$	87,342	$	91,877	$	80,184	$	60,733
Total assets	282,704		246,872		243,215		340,814		448,082
Long-term debt	—		—		—		—		—
Shareholders’ equity	147,119		151,312		152,510		157,497		154,685
Dividends on common shares	3,711		3,711		3,712		3,711		2,783

________________________


(1)	During 2015, we recognized an impairment of $10.3 million on producing properties, and an impairment of $1.8 million on non-producing properties.


(2)	During 2014, we sold certain crude oil and natural gas producing properties for $4.1 million, producing a net gain of $2.5 million.


(3)	During 2017, we recognized an impairment related to the bankruptcy, deconsolidation and sale of our upstream crude oil and natural gas exploration and production subsidiary.


(4)	During 2017, we recognized an impairment on our medical investment in VestaCare.


(5)	During 2016, we recognized losses and an impairment on our medical investment in Bencap LLC (“Bencap”). We have no other medical-related investments, and we currently do not have any plans to pursue additional medical-related investments.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .

The following information should be read in conjunction with our Consolidated Financial Statements and accompanying notes included under Part II, Item 8 of this annual report. Our financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”).

Overview of Business

Adams Resources & Energy, Inc. (“AE”), a Delaware corporation organized in 1973, and its subsidiaries are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower 48 states of the U.S. We also conduct tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S.

2017 Developments

Subsidiary Bankruptcy, Deconsolidation and Sale

On April 21, 2017, one of our wholly owned subsidiaries, AREC, filed a voluntary petition in the U.S. Bankruptcy Court seeking relief under Chapter 11 of Title 11 of the Bankruptcy Code. AREC operated its business and managed its properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and order of the Bankruptcy Court. AE was the primary creditor in the Chapter 11 process.

In connection with the bankruptcy filing, AREC entered into the DIP Credit Agreement with AE, which was repaid during the third quarter of 2017 with proceeds from the sales of the assets. See Note 3 in the Notes to Consolidated Financial Statements for further information.

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Voluntary Early Retirement Program

Impairment of Investment in Unconsolidated Affiliate

During the third quarter of 2017, we completed a review of our investment in VestaCare and determined that there was an other than temporary impairment as the current projected operating results of VestaCare did not support the carrying value of our investment. As such, we recognized a pre-tax impairment charge of $2.5 million during the third quarter of 2017 related to our investment in VestaCare. See Note 7 in the Notes to Consolidated Financial Statements for further information.

Results of Operations

Marketing

Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		Change ⁽¹⁾		2015		Change ⁽¹⁾

Revenues	$	1,267,275	$	1,043,775	21.4	%	$	1,875,885	(44.4	%)
Operating earnings	11,700		17,045		(31.4	%)	22,895		(25.6	%)
Depreciation and amortization	7,812		9,997		(21.9	%)	11,097		(9.9	%)
Driver commissions	13,058		14,933		(12.6	%)	22,262		(32.9	%)
Insurance	4,509		7,442		(39.4	%)	8,732		(14.8	%)
Fuel	5,278		5,397		(2.2	%)	9,928		(45.6	%)

____________________


(1)	Represents the percentage increase (decrease) from the prior year.

Volume and price information were as follows for the periods indicated:



	Year Ended December 31,
	2017		2016		2015
Field level purchase volumes – per day ⁽¹⁾
Crude oil – barrels	67,447		72,900		106,400

Average purchase price
Crude oil – per barrel	$	49.88	$	39.30	$	45.41

____________________


(1)	Reflects the volume purchased from third parties at the field level of operations.

2017 compared to 2016 . Crude oil marketing revenues increased by $223.5 million during the year ended December 31, 2017 as compared to 2016 primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $329.7 million, partially offset by lower crude oil volumes, which decreased revenues by approximately $106.2 million. The average crude oil price received was $39.30 for 2016, which increased to $49.88 for 2017.

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Our marketing operating earnings for the year ended December 31, 2017 decreased by $5.3 million as compared to 2016, primarily as a result of declines in crude oil volumes, including declines as a result of the effects of Hurricane Harvey, which affected the Gulf Coast area in late August and early September 2017, as well as a narrowing of margins during 2017. Operating earnings were also impacted by inventory valuation changes (as shown in the table below) and the implementation in August 2017 of a voluntary early retirement program for certain employees, which resulted in an increase in personnel expenses of approximately $0.4 million. During the latter part of 2017, volumes began increasing as activity in certain marketing areas increased primarily as a result of increased wellhead purchases.

Driver commissions decreased by $1.9 million during the year ended December 31, 2017 as compared to 2016, primarily as a result of the decrease in crude oil marketing volumes in 2017. Insurance costs decreased by $2.9 million during the year ended December 31, 2017 as compared to 2016, primarily as a result of favorable driver safety performance and reduced mileage during 2017 as compared to 2016. Fuel costs decreased by $0.1 million during the year ended December 31, 2017 as compared to 2016 consistent with decreased marketing volumes and lower crude oil prices during 2016, offset by an increase in the price of diesel fuel during 2017 as compared to 2016.

2016 compared to 2015 . Crude oil marketing revenues decreased by $832.1 million during the year ended December 31, 2016 as compared to 2015, primarily as a result of lower crude oil volumes, which decreased revenues by approximately $475.5 million and a decrease in the market price of crude oil, which decreased revenues by approximately $356.6 million. The average crude oil price received was $45.41 for 2015, which decreased to $39.30 for 2016. Lower crude oil prices resulted in curtailed drilling efforts in most areas. Crude marketing volumes decreased as a result of lower wellhead purchases in 2016 as compared to 2015.

Our marketing segment operating earnings for the year ended December 31, 2016 decreased by $5.9 million as compared to 2015, primarily as a result of declines in crude oil volumes and a decrease in the market price of crude oil. Volume declines resulted from a decrease in wellhead purchases, partially offset by inventory valuation changes (as shown in the table below).

Driver commissions decreased by $7.3 million during the year ended December 31, 2016 as compared to 2015, primarily as a result of the decrease in crude oil marketing volumes. Insurance costs decreased by $1.3 million during the year ended December 31, 2016 as compared to 2015, primarily as a result of favorable driver safety performance during 2016 as compared to 2015. Fuel costs decreased by $4.5 million during the year ended December 31, 2016 as compared to 2015 consistent with decreased marketing volumes and lower crude oil prices during 2016 as compared to 2015.

Field Level Operating Earnings (Non-GAAP Financial Measure) . Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two significant factors affecting comparative crude oil marketing segment operating earnings. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.

Crude oil marketing operating earnings can be affected by the valuations of our forward month commodity contracts (derivative instruments). These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.

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The impact of inventory liquidations and derivative valuations on our marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

As reported segment operating earnings ⁽¹⁾	$	11,700		$	17,045		$	22,895
Add (subtract):
Inventory liquidation gains	(3,372		)	(8,243		)	—
Inventory valuation losses	—			—			5,357
Derivative valuation (gains) losses	27			(243		)	188
Field level operating earnings ⁽²⁾	$	8,355		$	8,559		$	28,440

____________________


(1)	Segment operating earnings included inventory liquidation gains of $3.3 million and $8.2 million for the years ended December 31, 2017 and 2016, respectively, and inventory valuation losses of $5.4 million for the year ended December 31, 2015.


(2)	The use of field level operating earnings is (a) unique to us, (b) not a substitute for a GAAP measure and (c) may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.

Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales points. Field level operating earnings decreased during the year ended December 31, 2017 as compared to 2016, primarily due to increased personnel costs related to the voluntary early retirement program, partially offset by increased volumes and the effects of a newly negotiated barge contract, which reduced operating expenses, beginning in the third quarter of 2017.

Field level operating earnings decreased during the year ended December 31, 2016 as compared to 2015 as competition and additional industry infrastructure development progressed in the region. A key factor in unit margins is the value difference between crude oil supplies in the mid-continent region of the U.S. versus crude oil supply costs in the eastern region of the U.S. We have been able to capture some of this value difference by shipping crude oil from the Texas Gulf Coast to other locations.

We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):



	December 31,
	2017			2016			2015
		Average			Average			Average
	Barrels	Price		Barrels	Price		Barrels	Price

Crude oil inventory	198,011	$	61.57	255,146	$	51.22	261,718	$	29.31

Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Item 1A. Risk Factors. ”

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Transportation

Our transportation segment revenues, operating earnings (losses) and selected costs were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			Change ⁽¹⁾		2015		Change ⁽¹⁾

Revenues	$	53,358		$	52,355		1.9	%	$	63,331	(17.3	%)
Operating earnings (losses)	$	(544	)	$	(48	)	1033.3	%	$	3,701	(101.3	%)
Depreciation and amortization	$	5,364		$	7,249		(26.0	%)	$	7,554	(4.0	%)
Driver commissions	$	11,546		$	11,227		2.8	%	$	13,265	(15.4	%)
Insurance	$	5,452		$	4,952		10.1	%	$	4,543	9.0	%
Fuel	$	6,401		$	5,688		12.5	%	$	8,134	(30.1	%)
Maintenance expense	$	6,061		$	5,410		12.0	%	$	6,365	(15.0	%)
Mileage (000s)	21,836			22,611			(3.4	%)	25,205		(10.3	%)

____________________


(1)	Represents the percentage increase (decrease) from the prior year.

Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Total transportation revenue	$	53,358		$	52,355		$	63,331
Diesel fuel cost	(6,401		)	(5,688		)	(8,134		)
Revenues, net of fuel cost ⁽¹⁾	$	46,957		$	46,667		$	55,197

____________________


(1)	Revenues, net of fuel cost, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.

2017 compared to 2016 . Revenues, net of fuel cost, increased by $0.3 million during the year ended December 31, 2017, primarily as a result of increased activity in our transportation segment. We began to see a slight increase in transportation activity during late 2017, and we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment. This increase in services resulted in an increase in variable expenses related to transportation activities. Fuel increased by $0.7 million as a result of an increase in the price of diesel during 2017 as compared to 2016. Our operating results for 2017 were also adversely impacted by Hurricane Harvey, which affected the Gulf Coast area in late August and early September of 2017, resulting in decreased revenues and lower mileage during 2017.

2016 compared to 2015 . Revenues, net of fuel cost, decreased by $8.5 million during the year ended December 31, 2016 as compared to 2015, because of lower demand as indicated by the decreased mileage during 2016 as compared to 2015. The combination of lower demand and excess industry-wide trucking capacity led to pressures on volumes and freight rates throughout 2016. The result is an adverse impact on operating earnings. During 2016, we reduced expenses through staff reductions and selling of older inefficient equipment. Fuel decreased by $2.4 million as a result of lower mileage during 2016 as compared to 2015.

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Equipment additions and retirement for the transportation fleet were as follows for the periods indicated:



	Year Ended December 31,
	2017	2016	2015

New truck-tractors purchased	—	30 units	60 units
Truck-tractors retired	21 units	—	—
New trailers purchased	—	54 units	12 units
Trailers retired	—	50 units	—

The sale of retired equipment produced gains of less than $0.1 million, $0.4 million and less than $0.1 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Our customers are primarily in the domestic petrochemical industry. Customer demand is affected by low natural gas prices (a basic feedstock cost for the petrochemical industry) and high export demand for petrochemicals. During 2016, the competitive landscape in the transportation sector remained difficult and led to lower revenues in this segment. During late 2017, we have seen an increase in customer demand for chemical tank trucking, and we are working on capturing those opportunities.

Oil and Gas

Our upstream crude oil and natural gas exploration and production segment revenues and operating earnings (losses) were primarily a function of crude oil and natural gas prices and volumes. We accounted for our upstream operations under the successful efforts method of accounting. As a result of AREC’s bankruptcy filing in April 2017 and our loss of control of this subsidiary, we deconsolidated AREC effective with its bankruptcy filing and recorded our investment in AREC under the cost method of accounting. Our results for 2017 are only through April 30, 2017, during the period in which AREC was consolidated.

Our upstream crude oil and natural gas exploration and production segment revenues, operating earnings (losses) and selected costs were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016			Change ⁽¹⁾		2015			Change ⁽¹⁾

Revenues ⁽²⁾	$	1,427	$	3,410		(58.2	%)	$	5,063		(32.6	%)
Operating earnings (losses) ⁽²⁾	53		(533		)	109.9	%	(19,016		)	97.2	%
Depreciation and depletion ⁽²⁾	423		1,546			(72.6	%)	5,066			(69.5	%)
Dry hole expense ⁽²⁾	—		—			0.0	%	817			(100.0	%)
Prospect impairments ⁽²⁾	3		283			(98.9	%)	1,758			(83.9	%)
Producing property impairments ⁽²⁾	—		30			(100.0	%)	10,324			(99.7	%)

____________________


(1)	Represents the percentage increase (decrease) from the prior year.


(2)	Results for 2017 represents amounts for the period from January 1, 2017 through April 30, 2017.

2017 compared to 2016 . Our upstream crude oil and natural gas exploration and production revenues and depreciation and depletion expense decreased $2.0 million and $1.1 million, respectively, during the year ended December 31, 2017 as compared to 2016. These decreases were primarily as a result of the deconsolidation of AREC effective with its bankruptcy filing in April 2017 (four months of revenues and expenses in 2017 versus twelve months of revenues and expenses in 2016) as well as production declines offsetting commodity price increases in 2017.

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2016 compared to 2015 . Our upstream crude oil and natural gas exploration and production segment revenues and depreciation and depletion expense decreased $1.7 million and $3.5 million, respectively, during the year ended December 31, 2016 as compared to 2015, primarily as a result of production declines. Sales volumes decreased following normal production declines as persistently low prices curtailed the development of crude oil and natural gas properties in 2015 and 2016. Contributing to operating losses were property impairments as shown in the table above. Property impairments in 2015 occurred as result of declines in crude oil prices. Depreciation and depletion expense, calculated on a units-of-production basis, decreased primarily due to lower production volumes in 2016.

Volume and price information was as follows for the periods indicated (volumes in thousands):



	Year Ended December 31,
	2017		2016		2015

Crude oil
Volume – barrels ⁽¹⁾	11,643		34,200		50,000
Average price per barrel	$	49.44	$	38.07	$	46.51

Natural gas
Volume – Mcf ⁽¹⁾	189,488		662,000		889,000
Average price per Mcf	$	2.86	$	2.26	$	2.46

Natural gas liquids
Volume – barrels ⁽¹⁾	11,204		42,500		42,100
Average price per barrel	$	26.77	$	14.39	$	12.70

________________________________


(1)	Volumes for 2017 are only through April 30, 2017 as a result of the deconsolidation of this subsidiary due to its bankruptcy filing.

During the period from January 1, 2017 through April 30, 2017, we participated in the drilling of six wells in the Permian Basin and one well in the Haynesville Shale with no dry holes. During the year ended December 31, 2016, we participated in the drilling of seven wells in Permian Basin with no dry holes, and during the year ended December 31, 2015, we participated in the drilling of 14 wells with one dry hole.

During the years ended December 31, 2016 and 2015, impairment charges for crude oil and natural gas properties were approximately $0.3 million and $12.1 million, respectively.

Capitalized crude oil and natural gas property costs were amortized in expense as the underlying crude oil and natural gas reserves were produced (units-of-production method).

General and Administrative Expense

General and administrative expenses decreased by $0.7 million during the year ended December 31, 2017 as compared to 2016, primarily due to the deconsolidation of AREC in April 2017 (four months of expense in 2017 versus twelve months of expense in 2016), partially offset by an increase of approximately $1.0 million in personnel expenses in 2017 as a result of a voluntary early retirement program for certain employees, and higher legal and audit fees in 2017.

General and administrative expenses increased by $0.5 million during the year ended December 31, 2016 as compared to 2015, primarily as a result of increased use of outside consultants in the fourth quarter of 2016. Expenses in 2015 were higher due to a $1.1 million lump sum payment made during the first quarter of 2015 to our former President upon his retirement.

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Investments in Unconsolidated Affiliates

During the second quarter of 2017, we deconsolidated AREC effective with its bankruptcy filing on April 21, 2017 and recorded our investment in AREC under the cost method of accounting. Based upon bids received in the auction process (see Note 3 in the Notes to Consolidated Financial Statements for further information), we determined that the fair value of our investment in AREC was expected to be lower than its net book value immediately prior to the deconsolidation. As a result, during the second quarter of 2017, we recorded a non-cash charge of $1.6 million associated with the deconsolidation of AREC, which reflected the excess of the net assets of AREC over its estimated fair value based on an expected sales transaction price of approximately $5.0 million, net of estimated transaction costs. During the third quarter of 2017, we recognized an additional loss of $1.9 million, which represents the difference between the proceeds we expect to be paid upon settlement of the bankruptcy, net of anticipated remaining closing costs identified as part of the liquidation plan, and the book value of our cost method investment.

During the year ended December 31, 2016, we completed a review of our equity method investment in Bencap and determined that there was an other than temporary impairment. Under the terms of the investment agreement, Bencap had the option to request borrowings from us of up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that we were required to provide or forfeit our 30 percent member interest. During 2016, our management determined that we were unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception. During the third quarter of 2016, we recognized an after-tax net loss of $1.4 million to write-off our investment in Bencap, which included a pre-tax impairment charge of $1.7 million, pre-tax losses from the equity method investment of $0.5 million and a tax benefit of $0.8 million.

Income Taxes

Provision for (benefit from) income taxes is based upon federal and state tax rates, and variations in amounts are consistent with taxable income in the respective accounting periods.

On December 22, 2017, the Tax Cut and Jobs Act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018. At December 31, 2017, we had a deferred tax liability of approximately $3.3 million (reflecting a reduction of approximately $2.0 million resulting from the lower rate under which those deferred taxes would be expected to be recovered or settled). As a result of the lower tax rate, we expect to see a decrease in either our provision for or benefit from income taxes during 2018 as compared to 2017.

See Note 11 in the Notes to Consolidated Financial Statements for further information.

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Liquidity and Capital Resources

Liquidity

Our liquidity is from our cash balance and net cash provided by operating activities and is therefore dependent on the success of future operations. If our cash inflow subsides or turns negative, we will evaluate our investment plan and remain flexible.

One of our wholly owned subsidiaries, AREC, filed for bankruptcy in April 2017. Over the past few years, we have de-emphasized our upstream operations and do not expect this Chapter 11 filing by AREC to have a material adverse impact on any of our core businesses. In connection with its bankruptcy filing, AREC entered into the DIP Credit Agreement with AE. AREC borrowed approximately $0.4 million under the DIP Credit Agreement, and the amount was repaid during the third quarter of 2017 with proceeds from the sales of the assets. AE was the primary creditor in AREC’s Chapter 11 process. As a result of an auction process (see Note 1 in the Notes to Consolidated Financial Statements), AREC sold its assets for approximately $5.2 million during 2017. After settlement of certain claims in late 2017, AE received approximately $2.8 million from AREC. AE anticipates receiving an additional $0.4 million in 2018 when the bankruptcy case is dismissed.

At December 31, 2017, 2016 and 2015, we had no bank debt or other forms of debenture obligations. We maintain cash balances in order to meet the timing of day-to-day cash needs. Cash and working capital, the excess of current assets over current liabilities, were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016		2015

Cash and cash equivalents	$	109,393	$	87,342	$	91,877
Working capital	116,087		106,444		96,340

We maintain a stand-by letter of credit facility with Wells Fargo Bank, National Association to provide for the issuance of up to $60 million in stand-by letters of credit for the benefit of suppliers of crude oil within our crude oil marketing segment and for other purposes. Stand-by letters of credit are issued as needed and are canceled as the underlying purchase obligations are satisfied by cash payment when due. The issuance of stand-by letters of credit enables us to avoid posting cash collateral when procuring crude oil supply. We are currently using the letter of credit facility for a letter of credit related to our insurance program. At December 31, 2017 , we had $2.2 million outstanding under this facility. During January 2018, the letter of credit amount outstanding decreased to approximately $0.9 million. No letter of credit amounts were outstanding at December 31, 2016 .

We believe current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet our short-term and long-term liquidity needs.

We utilize cash from operations to make discretionary investments in our marketing and transportation businesses. With the exception of operating and capital lease commitments primarily associated with storage tank terminal arrangements, leased office space and tractors, our future commitments and planned investments can be readily curtailed if operating cash flows decrease. See “Other Items” below for information regarding our operating and capital lease obligations.

The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part I, Item 1A. Risk Factors. ”

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Cash Flows from Operating, Investing and Financing Activities

Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Cash provided by (used in):
Operating activities	$	26,096		$	6,944		$	25,477
Investing activities	(216		)	(7,768		)	(10,072		)
Financing activities	(3,829		)	(3,711		)	(3,712		)

Operating activities . Net cash flows provided by operating activities for the year ended December 31, 2017 increased by $19.2 million when compared to 2016. This increase was primarily due to an increase in revenues, partially offset by increased operating and general and administrative expenses.

Net cash flows provided by operating activities for the year ended December 31, 2016 decreased by $18.5 million when compared to 2015. This decrease was primarily due to a decrease in revenues, partially offset by a decrease in operating and general and administrative expenses.

At various times each month, we may make cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within our marketing operations. Crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to us. In addition, in order to secure crude oil supply, we may also “early pay” our suppliers in advance of the normal payment due date of the twentieth of the month following the month of production. These “early payments” reduce cash and accounts payable as of the balance sheet date. We also require certain customers to make similar early payments or to post cash collateral with us in order to support their purchases from us. Early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date.

Early payments were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016		2015

Early payments received	$	20,078	$	15,032	$	16,770
Cash collateral received	—		—		840
Prepayments to suppliers	—		—		167
Early payments to suppliers	6,100		14,382		11,645

We rely heavily on our ability to obtain open-line trade credit from our suppliers especially with respect to our crude oil marketing operations. During the fourth quarter of 2016, we elected to make several early payments in our crude oil marketing operations. Our cash balance increased by approximately $22.1 million at December 31, 2017 relative to the year ended December 31, 2016 as the year end 2016 balance was slightly lower than normal as a result of these early payments made during the fourth quarter of 2016. Consistent with higher crude commodity prices, the need for early payments was higher at December 31, 2017 as compared to December 31, 2016 and 2015.

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Investing activities . Net cash flows used in investing activities for the year ended December 31, 2017 decreased by $7.6 million when compared to 2016. The decrease was primarily due to a $5.8 million decrease in capital spending for property and equipment (see table below), a $4.7 million decrease in investments in unconsolidated affiliates and the receipt of $2.8 million of proceeds related to the partial settlement of AREC’s bankruptcy, partially offset by a $3.0 million decrease in cash proceeds from the sales of assets. During 2016, we invested a total of $4.7 million in two medical-related investments, VestaCare and Bencap.

Net cash flows used in investing activities for the year ended December 31, 2016 decreased by $2.3 million when compared to 2015. The decrease was primarily due to a $2.6 million decrease in capital spending for property and equipment (see table below) and a $3.0 million increase in cash proceeds from the sales of assets, partially offset by a $4.7 million increase in investments in unconsolidated affiliates, as discussed above.

Financing activities . Cash used in financing activities for the year ended December 31, 2017 increased by $0.1 million when compared to 2016 and 2015. During each of the years ended December 31, 2017, 2016 and 2015, we paid a quarterly cash dividend of $0.22 per common share ($0.88 per common share per year), or $3.7 million . During 2017, we paid $0.1 million of principal repayments on capital lease obligations that we entered into in 2017 for certain of our tractors in our marketing segment, with principal contractual commitments to be paid over a period of five years.

Capital Projects

We use cash from operations and existing cash balances to make discretionary investments in our marketing and transportation businesses. Capital spending for the past five years was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015		2014		2013

Crude oil marketing ⁽¹⁾	$	468	$	1,321	$	2,126	$	13,598	$	11,343
Truck transportation	351		6,868		6,579		8,994		3,165
Oil and natural gas exploration	1,825		295		2,369		7,931		13,094
Medical management	—		4,700		—		—		—
Capital spending	$	2,644	$	13,184	$	11,074	$	30,523	$	27,602

_______________


(1)	Our marketing segment amount for 2017 does not include approximately $1.8 million of tractors acquired under capital leases.

Our crude oil marketing segment spending levels were consistent during 2013 and 2014 and were backed by crude oil prices remaining strong, in the $90 – $100 per barrel range. In late 2014, crude oil prices fell and we curtailed spending during 2015, 2016 and 2017.

In our transportation segment, 2013 was stable with an increase in expenditures in 2014 to add capacity tracking with the petrochemical industry expansion efforts. However, in late 2015 and continuing into 2016 and 2017, demand for truck services weakened. The major project for 2016 was improvements to the existing Houston terminal facility. We are seeing increased demand in our transportation segment in 2017 and have plans to grow this segment in 2017.

We exited the crude oil and natural gas exploration and production business with the bankruptcy filing and subsequent sale of our crude oil and natural gas assets. We currently do not have any plans to pursue additional medical-related investments.

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Other Items

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2017 (in thousands):



			Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Capital lease obligations ⁽¹⁾	$	1,847	$	398	$	796	$	653	$	—
Operating lease obligations ⁽²⁾	3,407		2,758		531		95		23
Purchase obligations ⁽³⁾	123,238		123,238		—		—		—
Total contractual obligations	$	128,492	$	126,394	$	1,327	$	748	$	23

___________________


(1)	Amounts represent our principal contractual commitments, including interest, outstanding under capital leases we entered into during 2017 for certain tractors in our marketing segment.


(2)	Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year.


(3)	Amount represents commitments to purchase certain quantities of crude oil substantially in January 2018 in connection with our crude oil marketing activities. These commodity purchase obligations are the basis for commodity sales, which generate the cash flow necessary to meet such purchase obligations.

In January 2018, we entered into a new lease agreement with a seven year term for storage tanks and other related assets in the Port of Victoria area of Texas in our crude oil marketing segment. Annual commitments for the years ended December 31, 2018 through 2025 will be approximately $1.5 million per year, for a total of approximately $10.1 million.

We maintain certain lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis. In addition, we enter into office space and certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. These storage and access contracts require certain minimum monthly payments for the term of the contracts. Rental expense was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Rental expense	$	12,073	$	11,314	$	11,168

Insurance

Our primary insurance needs are workers’ compensation, automobile and umbrella liability coverage for our trucking fleet and medical insurance for our employees. Insurance costs were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Insurance costs	$	10,438	$	13,330	$	15,570

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.

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Related Party Transactions

For information regarding our related party transactions, see Note 9 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this annual report.

Recent Accounting Developments

For information regarding recent accounting developments, see Note 2 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this annual report.

Outlook

We took various steps to streamline our business in 2017, which we anticipate will lead to increased margins in both of our core segments during 2018. Our focus in 2018 will be on expanding our core businesses and working on strategic business development. In spite of recovering crude oil prices and increased production in our crude oil gathering and marketing core areas, margins remain tight. Competition with peers and with pipeline direct connects to lease production remains challenging.

Our major objectives for 2018 are as follows:


•	Marketing – We will have a focus on increasing margins to maximize cash flow, capturing midstream opportunities associated with increasing rig counts, drilling and completion activity in the U.S.


•	Transportation – We plan to increase truck utilization, upgrade fleet quality and enhance driver retention and recruitment. The transportation segment is uniquely positioned to take advantage of major downstream infrastructure projects that are taking place across the Gulf Coast.


•	Strategic business development – We will deploy a disciplined investment approach to growth in our two core segments and funding new growth opportunities that are adjacent and complimentary to existing operating activities.

Critical Accounting Policies and Estimates

In our financial reporting processes, we employ methods, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our financial statements. These methods, estimates and assumptions also affect the reported amounts of revenues and expenses for each reporting period. Investors should be aware that actual results could differ from these estimates if the underlying assumptions prove to be incorrect. The following sections discuss the use of estimates within our critical accounting policies and estimates.

Fair Value Accounting

We enter into certain forward commodity contracts that are required to be recorded at fair value, and these contracts are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during the years ended December 31, 2017, 2016 and 2015.

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We utilize a market approach to valuing our commodity contracts. On a contract by contract, forward month by forward month basis, we obtain observable market data for valuing our contracts that typically have durations of less than 18 months. At December 31, 2017, all of our market value measurements were based on inputs based on observable market data (Level 2 inputs). See discussion under “Fair Value Measurements” in Note 10 to the Consolidated Financial Statements.

Our fair value contracts give rise to market risk, which represents the potential loss that may result from a change in the market value of a particular commitment. We monitor and manage our exposure to market risk to ensure compliance with our risk management policies. These risk management policies are regularly assessed to ensure their appropriateness given our objectives, strategies and current market conditions.

Trade Accounts and Allowance for Doubtful Accounts

Our trade accounts receivable has high volume and complexity of transactions and a high degree of interdependence with third parties. We manage our receivables by participating in a monthly settlement process with each of our counterparties. Ongoing account balances are monitored monthly, and we attempt to gain the cooperation of our counterparties to reconcile outstanding balances. We also place great emphasis on collecting cash balances due and paying only bonafide and properly supported claims. In addition, we maintain and monitor our bad debt allowance. We perform credit evaluations of our customers and grant credit based on past payment history, financial conditions and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based on specific situations and overall industry conditions. However, a degree of risk remains due to the custom and practices of the industry. See Note 2 in the Notes to Consolidated Financial Statements for further information.

Liability and Contingency Accruals

From time to time as incidental to our operations, we become involved in various accidents, lawsuits and/or disputes. As an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims or other items of general liability as are typical for the industry. In addition, we have extensive operations that must comply with a wide variety of tax laws, environmental laws and labor laws, among others. Should an incident occur, we evaluate the claim based on its nature, the facts and circumstances and the applicability of insurance coverage. When our assessment indicates that it is probable that a liability has occurred and the amount of the liability can be reasonably estimated, we make appropriate accruals or disclosure. We base our estimates on all known facts at the time and our assessment of the ultimate outcome, including consultation with external experts and counsel. We revise these estimates as additional information is obtained or resolution is achieved.

At December 31, 2017, we were not aware of any contingencies or liabilities that would have a material adverse effect on our financial position, results of operations or cash flows.

Revenue Recognition

Our crude oil marketing customers are invoiced monthly based on contractually agreed upon terms. Revenue is recognized in the month in which the physical product is delivered to the customer. Where required, we also recognize fair value or mark-to-market gains and losses related to its commodity activities. See discussion under “Revenue Recognition” in Note 2 to the Consolidated Financial Statements. Transportation segment customers are invoiced, and the related revenue is recognized as the service is provided.

See Note 2 in the Notes to Consolidated Financial Statements for a discussion regarding our adoption on January 1, 2018 of the new accounting standard related to revenue recognition.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to certain risks, including changes in interest rates and commodity prices.

Commodity Price Risk

Our major market risk exposure is in the pricing applicable to our marketing and production of crude oil and natural gas. Realized pricing is primarily driven by the prevailing spot prices applicable to crude oil and natural gas. Commodity price risk in our marketing operations represents the potential loss that may result from a change in the market value of an asset or a commitment. From time to time, we enter into forward contracts to minimize or hedge the impact of market fluctuations on our purchases of crude oil and natural gas. In each instance, we lock in a separate matching price support contract with a third party in order to minimize the risk of these financial instruments. Substantially all forward contracts fall within a six-month to eighteen-month term with no contracts extending longer than two years in duration.

Certain forward contracts are recorded at fair value, depending on our assessments of numerous accounting standards and positions that comply with GAAP in the U.S. The fair value of these contracts is reflected in the balance sheet as fair value assets and liabilities and any revaluation is recognized on a net basis in our results of operations (see Note 2 to the Consolidated Financial Statements for further information).

Historically, prices received for crude oil and natural gas sales have been volatile and unpredictable with price volatility expected to continue. From January 1, 2016 through December 31, 2017, our crude oil monthly average wholesale purchase costs ranged from an average low of $26.26 per barrel to a monthly average high of $60.16 per barrel during the same period. A hypothetical ten percent additional adverse change in average hydrocarbon prices, assuming no changes in volume levels, would have reduced earnings by approximately $1.2 million and $1.6 million for the years ended December 31, 2017 and 2016, respectively.

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Item 8. Financial Statements and Supplementary Data .

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page No.
Reports of Independent Registered Public Accounting Firms	35

Consolidated Balance Sheets as of December 31, 2017 and 2016	37

Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015	38

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015	39

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015	40

Notes to Consolidated Financial Statements
Note 1 – Organization and Basis of Presentation	41
Note 2 – Summary of Significant Accounting Policies	42
Note 3 – Subsidiary Bankruptcy, Deconsolidation and Sale	47
Note 4 – Prepayments and Other Current Assets	48
Note 5 – Property and Equipment	49
Note 6 – Cash Deposits and Other Assets	50
Note 7 – Investments in Unconsolidated Affiliates	51
Note 8 – Segment Reporting	53
Note 9 – Transactions with Affiliates	54
Note 10 – Derivative Instruments and Fair Value Measurements	55
Note 11 – Income Taxes	59
Note 12 – Supplemental Cash Flow Information	61
Note 13 – Commitments and Contingencies	61
Note 14 – Concentration of Credit Risk	63
Note 15 – Quarterly Financial Information (Unaudited)	65
Note 16 – Oil and Gas Producing Activities (Unaudited)	66

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Adams Resources & Energy, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Adams Resources & Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Houston, Texas

March 12, 2018

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Adams Resources & Energy, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheet of Adams Resources & Energy, Inc. and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Adams Resources & Energy, Inc. and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

March 31, 2017

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)



	December 31,
	2017		2016
ASSETS
Current assets:
Cash and cash equivalents	$	109,393	$	87,342
Accounts receivable, net of allowance for doubtful accounts of $303 and $225, respectively	121,353		87,162
Inventory	12,192		13,070
Derivative assets	166		112
Income tax receivable	1,317		2,735
Prepayments and other current assets	1,264		2,097
Total current assets	245,685		192,518
Property and equipment, net	29,362		46,325
Investments in unconsolidated affiliates	425		2,500
Cash deposits and other assets	7,232		5,529
Total assets	$	282,704	$	246,872

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	124,706	$	79,897
Accounts payable – related party	5		53
Derivative liabilities	145		64
Current portion of capital lease obligations	338		—
Other current liabilities	4,404		6,060
Total current liabilities	129,598		86,074
Other long-term liabilities:
Asset retirement obligations	1,273		2,329
Capital lease obligations	1,351		—
Deferred taxes and other liabilities	3,363		7,157
Total liabilities	135,585		95,560

Commitments and contingencies (Note 13)

Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares authorized, none outstanding	—		—
Common stock – $0.10 par value, 7,500,000 shares authorized, 4,217,596 shares outstanding	422		422
Contributed capital	11,693		11,693
Retained earnings	135,004		139,197
Total shareholders’ equity	147,119		151,312
Total liabilities and shareholders’ equity	$	282,704	$	246,872

See Notes to Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Year Ended December 31,
	2017			2016			2015
Revenues:
Marketing	$	1,267,275		$	1,043,775		$	1,875,885
Transportation	53,358			52,355			63,331
Oil and natural gas	1,427			3,410			5,063
Total revenues	1,322,060			1,099,540			1,944,279

Costs and expenses:
Marketing	1,247,763			1,016,733			1,841,893
Transportation	48,538			45,154			52,076
Oil and natural gas	948			2,084			6,931
Oil and natural gas property impairments	3			313			12,082
General and administrative	9,707			10,410			9,939
Depreciation, depletion and amortization	13,599			18,792			23,717
Total costs and expenses	1,320,558			1,093,486			1,946,638

Operating earnings (losses)	1,502			6,054			(2,359		)

Other income (expense):
Loss on deconsolidation of subsidiary (Note 3)	(3,505		)	—			—
Impairment of investment in unconsolidated affiliate	(2,500		)	—			—
Interest income	1,103			582			327
Interest expense	(27		)	(2		)	(13		)
Total other income (expense), net	(4,929		)	580			314

(Losses) earnings before income taxes and investment
in unconsolidated affiliate	(3,427		)	6,634			(2,045		)

Income tax (provision) benefit:
Current	(895		)	(2,778		)	(4,073		)
Deferred	3,840			87			4,843
Income tax benefit (provision)	2,945			(2,691		)	770

Earnings (losses) from continuing operations	(482		)	3,943			(1,275		)
Losses from investment in unconsolidated affiliate, net of
tax benefit of $—, $770 and $—, respectively	—			(1,430		)	—
Net (losses) earnings	$	(482	)	$	2,513		$	(1,275	)

Earnings (losses) per share:
From continuing operations	$	(0.11	)	$	0.94		$	(0.30	)
From investment in unconsolidated affiliate	—			(0.34		)	—
Basic and diluted net (losses) earnings per common share	$	(0.11	)	$	0.60		$	(0.30	)

Weighted average number of common shares outstanding	4,218			4,218			4,218

Dividends per common share	$	0.88		$	0.88		$	0.88

See Notes to Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Year Ended December 31,
	2017			2016			2015
Operating activities:
Net (losses) earnings	$	(482	)	$	2,513		$	(1,275	)
Adjustments to reconcile net (losses) earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization	13,599			18,792			23,717
Gains on sale of property	(594		)	(1,966		)	(535		)
Dry hole costs incurred	—			—			817
Impairment of oil and natural gas properties	3			313			12,082
Provision for doubtful accounts	78			19			27
Deferred income taxes	(3,840		)	(857		)	(4,843		)
Net change in fair value contracts	27			(243		)	188
Losses from equity investment	—			468			—
Impairment of investments in unconsolidated affiliates	2,500			1,732			—
Loss on deconsolidation of subsidiary (Note 3)	3,505			—			—
Changes in assets and liabilities:
Accounts receivable	(34,935		)	(15,368		)	72,594
Accounts receivable/payable, affiliates	271			—			—
Inventories	878			(5,399		)	5,810
Income tax receivable	1,418			(148		)	(1,617		)
Prepayments and other current assets	831			492			8,351
Accounts payable	44,790			6,984			(87,404		)
Accrued liabilities	(991		)	52			(166		)
Other	(962		)	(440		)	(2,269		)
Net cash provided by operating activities	26,096			6,944			25,477

Investing activities:
Property and equipment additions	(2,644		)	(8,484		)	(11,074		)
Proceeds from property sales	720			3,706			719
Proceeds from sales of AREC assets	2,775			—			—
Investments in unconsolidated affiliates	—			(4,700		)	—
Insurance and state collateral (deposits) refunds	(1,067		)	1,710			283
Net cash used in investing activities	(216		)	(7,768		)	(10,072		)

Financing activities:
Principal repayments of capital lease obligations	(118		)	—			—
Dividends paid on common stock	(3,711		)	(3,711		)	(3,712		)
Net cash used in financing activities	(3,829		)	(3,711		)	(3,712		)

Increase (decrease) in cash and cash equivalents	22,051			(4,535		)	11,693
Cash and cash equivalents at beginning of period	87,342			91,877			80,184
Cash and cash equivalents at end of period	$	109,393		$	87,342		$	91,877

See Notes to Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)



								Total
	Common		Contributed		Retained			Stockholders’
	Stock		Capital		Earnings			Equity

Balance, January 1, 2015	$	422	$	11,693	$	145,382		$	157,497
Net losses	—		—		(1,275		)	(1,275		)
Dividends paid on common stock	—		—		(3,712		)	(3,712		)
Balance, December 31, 2015	422		11,693		140,395			152,510
Net earnings	—		—		2,513			2,513
Dividends paid on common stock	—		—		(3,711		)	(3,711		)
Balance, December 31, 2016	422		11,693		139,197			151,312
Net losses	—		—		(482		)	(482		)
Dividends paid on common stock	—		—		(3,711		)	(3,711		)
Balance, December 31, 2017	$	422	$	11,693	$	135,004		$	147,119

See Notes to Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

Adams Resources & Energy, Inc. (“AE”) is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE MKT LLC (“NYSE MKT”) under the ticker symbol “AE”. We and our subsidiaries are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico and with terminals in the Gulf Coast region of the U.S. Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “AE” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.

On May 3, 2017, AREC filed a motion with the Bankruptcy Court for approval of an auction process to sell its assets pursuant to Section 363 of the Bankruptcy Code and for approval to engage an advisor to conduct the auction. The auction commenced on July 19, 2017 to determine the highest or otherwise best bid to acquire all or substantially all of AREC’s assets. During the third quarter of 2017, Bankruptcy Court approval was obtained on three asset purchase and sales agreements with three unaffiliated parties, and AREC closed on the sales of substantially all of its assets (see Note 3 for further information).

As a result of AREC’s voluntary bankruptcy filing in April 2017, we no longer controlled the operations of AREC; therefore, we deconsolidated AREC effective with the bankruptcy filing and recorded our investment in AREC under the cost method (see Note 3 for further information). We obtained approval of a confirmed plan in December 2017, and we expect the case to be dismissed during the first half of 2018. Over the past few years, we have de-emphasized our upstream operations and do not expect this Chapter 11 filing by AREC to have a material adverse impact on any of our core businesses.

Historically, we have operated and reported in three business segments: (i) crude oil marketing, transportation and storage, (ii) tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation, and (iii) upstream crude oil and natural gas exploration and production. We exited the crude oil and natural gas exploration and production business during 2017 with the sale of our crude oil and natural gas exploration and production assets (see Note 3 for further information).

The consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). All significant intercompany transactions and balances have been eliminated in consolidation.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Note 2. Summary of Significant Accounting Policies

We adhere to the following significant accounting policies in the preparation of our consolidated financial statements.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable associated with crude oil marketing activities comprise approximately 90 percent of our total receivables, and industry practice requires payment for these sales to occur within 20 days of the end of the month following a transaction. Our customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management. An allowance for doubtful accounts is provided where appropriate.

Our allowance for doubtful accounts is determined based on specific identification combined with a review of the general status of the aging of all accounts. We consider the following factors in our review of our allowance for doubtful accounts: (i) historical experience with customers, (ii) the perceived financial stability of customers based on our research, (iii) the levels of credit we grant to customers, and (iv) the duration of the receivable. We may increase the allowance for doubtful accounts in response to the specific identification of customers involved in bankruptcy proceedings and similar financial difficulties. On a routine basis, we review estimates associated with the allowance for doubtful accounts to ensure that we have recorded sufficient reserves to cover potential losses. See Note 14 for further information regarding credit risk.

The following table presents our allowance for doubtful accounts activity for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Balance at beginning of period	$	225		$	206		$	179
Charges to costs and expenses	137			100			116
Deductions	(59		)	(81		)	(89		)
Balance at end of period	$	303		$	225		$	206

Cash and Cash Equivalents

Cash and cash equivalents represent unrestricted cash on hand and highly liquid investments with original maturities of less than three months from the date of purchase. Cash and cash equivalents are maintained with major financial institutions, and deposit amounts may exceed the amount of federally backed insurance provided. While we regularly monitor the financial stability of these institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of these institutions.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments

In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the product to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.

Employee Benefits

We maintain a 401(k) savings plan for the benefit of our employees. We do not maintain any other pension or retirement plans. Our 401(k) plan contributory expenses were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Contributory expenses	$	734	$	757	$	768

Earnings Per Share

Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period. The weighted average number of shares outstanding was 4,217,596 for each of the years ended December 31, 2017 , 2016 and 2015 . There were no potentially dilutive securities outstanding during those periods.

Fair Value Measurements

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments.

Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk, in the principal market of the asset or liability at a specified measurement date. Recognized valuation techniques employ inputs such as contractual prices, quoted market prices or rates, operating costs, discount factors and business growth rates. These inputs may be either readily observable, corroborated by market data or generally unobservable. In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the highest extent possible. Accordingly, we utilize valuation techniques (such as the market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs.

A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate such fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The characteristics of the fair value amounts classified within each level of the hierarchy are described as follows:

•

Level 1 fair values are based on quoted prices, which are available in active markets for identical assets or liabilities as of the measurement date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency so as to provide pricing information on an ongoing basis. For Level 1 valuation of marketable securities, we utilize market quotations provided by our primary financial institution. For the valuations of derivative financial instruments, we utilize the New York Mercantile Exchange (“NYMEX”) for certain commodity valuations.

•

Level 2 fair values are based on (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices, and (d) inputs derived from observable market data. Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.


•	Level 3 fair values are based on unobservable market data inputs for assets or liabilities.

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any of the current reporting periods (see Note 10 for further information).

Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability, and we use a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions. Currently, for all items presented herein, we utilize a market approach to valuing our contracts. On a contract by contract, forward month by forward month basis, we obtain observable market data for valuing our contracts. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data.

Impairment Testing for Long-Lived Assets

Long-lived assets (primarily property and equipment) are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Long-lived assets with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated fair values. The carrying value of a long-lived asset is deemed not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the asset’s carrying value exceeds the sum of its undiscounted cash flows, a non-cash asset impairment charge equal to the excess of the asset’s carrying value over its estimated fair value is recorded. Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. We measure fair value using market price indicators or, in the absence of such data, appropriate valuation techniques. See Note 10 for information regarding impairment charges related to long-lived assets.

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of such items and their respective tax basis (see Note 11 for further information). On December 22, 2017, the Tax Cut and Jobs Act was enacted into law resulting in a reduction in the federal corporate income tax rate from 35 percent to 21 percent for years beginning in 2018, which will impact our deferred tax assets and liabilities.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of our crude oil marketing operations. Crude oil inventory is carried at the lower of average cost or net realizable value.

Letter of Credit Facility

We maintain a Credit and Security Agreement with Wells Fargo Bank, National Association to provide up to a $ 60 million stand-by letter of credit facility used to support crude oil purchases within our crude oil marketing segment and for other purposes. We are currently using the letter of credit facility for a letter of credit related to our insurance program. This facility is collateralized by the eligible accounts receivable within the crude oil marketing segment and expires on August 27, 2019.

The issued stand-by letters of credit are canceled as the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictions on Gulfmark Energy, Inc., one of our wholly owned subsidiaries. These restrictions include the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. We are currently in compliance with all such financial covenants. At December 31, 2017 , we had $2.2 million outstanding under this facility. No letter of credit amounts were outstanding at December 31, 2016 .

Property and Equipment

Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives of three to twenty years .

Oil and natural gas exploration and development expenditures were accounted for in accordance with the successful efforts method of accounting. Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, were capitalized. Exploratory drilling costs were initially capitalized until the properties were evaluated and determined to be either productive or nonproductive. These evaluations were made on a quarterly basis. If an exploratory well was determined to be nonproductive, the costs of drilling the well were charged to expense. Costs incurred to drill and complete development wells, including dry holes, were capitalized. At December 31, 2017 and 2016, we had no unevaluated or “suspended” exploratory drilling costs. In April 2017, our upstream crude oil and natural gas exploration and production subsidiary was deconsolidated and accounted for under the cost method of accounting (see Notes 1 and 3 for further discussion).

We capitalize interest costs, if any, incurred in connection with major capital expenditures while the asset is in its construction phase. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life as a component of depreciation expense. When capitalized interest is recorded, it reduces interest expense.

Asset retirement obligations (“AROs”) are legal obligations associated with the retirement of tangible long-lived assets that result from their acquisition, construction, development and/or normal operation. When an ARO is incurred, we record a liability for the ARO and capitalize an equal amount as an increase in the carrying value of the related long-lived asset. ARO amounts are measured at their estimated fair value using expected present value techniques. Over time, the ARO liability is accreted to its present value (through accretion expense), and the capitalized amount is depreciated over the remaining useful life of the related long-lived asset. We will incur a gain or loss to the extent that our ARO liabilities are not settled at their recorded amounts.

See Note 5 for additional information regarding our property and equipment and AROs.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

Certain commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activities. From the time of contract origination, these trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.

Most crude oil purchase and sale contracts qualify and are designated as non-trading activities, and we consider these contracts as normal purchases and sales activity. For normal purchases and sales, our customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer. These sales are recorded on a gross basis in the financial statements because we take title, have risk of loss for the products, are the primary obligor for the purchase, establish the sale price independently with a third party and maintain credit risk associated with the sale of the product.

Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements.

Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Revenue gross-up	$	203,095	$	314,270	$	480,111

Transportation segment customers are invoiced, and the related revenue is recognized as the service is provided.

Recent Accounting Pronouncements

Revenue Recognition . In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). The new accounting standard, along with its related amendments, replaces the current rules-based GAAP governing revenue recognition with a principles-based approach. Under the new standard, a company recognizes revenue when it satisfies a performance obligation by transferring a promised good or service to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods and services. The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASC 606 is effective for interim and annual reporting periods beginning after December 15, 2017 and may be applied on either a full or modified retrospective basis.

We adopted the new standard and all related amendments on January 1, 2018 using the modified retrospective approach. This approach required us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018 and (ii) all existing revenue contracts open as of January 1, 2018, with a cumulative adjustment to retained earnings, if applicable. In accordance with this approach, our consolidated revenues for periods prior to January 1, 2018 will not be restated. In addition, no cumulative adjustment will be required to be made to our retained earnings, as there are no material differences in the nature, amount, timing or uncertainty of revenues recognized following our adoption of this new standard on January 1, 2018. We have also evaluated our business processes, systems and controls to ensure the accuracy and timeliness of the recognition and disclosure requirements under the new revenue guidance.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases . In February 2016, the FASB issued ASC 842, Leases (“ASC 842”), which requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the balance sheet using a method referred to as the right-of-use (“ROU”) asset approach. We plan to adopt the new standard on January 1, 2019 using the modified retrospective approach.

The new standard introduces two lease accounting models, which result in a lease being classified as either a “finance” or “operating” lease on the basis of whether the lessee effectively obtains control of the underlying asset during the lease term. A lease would be classified as a finance lease if it meets one of five classification criteria, four of which are generally consistent with current lease accounting guidance. By default, a lease that does not meet the criteria to be classified as a finance lease will be deemed an operating lease. Regardless of classification, the initial measurement of both lease types will result in the balance sheet recognition of a ROU asset representing a company’s right to use the underlying asset for a specified period of time and a corresponding lease liability. The lease liability will be recognized at the present value of the future lease payments, and the ROU asset will equal the lease liability adjusted for any prepaid rent, lease incentives provided by the lessor, and any indirect costs.

The subsequent measurement of each type of lease varies. Leases classified as a finance lease will be accounted for using the effective interest method. Under this approach, a lessee will amortize the ROU asset (generally on a straight-line basis in a manner similar to depreciation) and the discount on the lease liability (as a component of interest expense). Leases classified as an operating lease will result in the recognition of a single lease expense amount that is recorded on a straight-line basis (or another systematic basis, if more appropriate).

We have started the process of reviewing our lease agreements in light of the new guidance. Although we are in the early stages of our ASC 842 implementation project, we anticipate that this new lease guidance will cause significant changes to the way leases are recorded, presented and disclosed in our consolidated financial statements.

Note 3. Subsidiary Bankruptcy, Deconsolidation and Sale

Bankruptcy Filing, Deconsolidation and Sale

On April 21, 2017, AREC filed a voluntary petition in the Bankruptcy Court seeking relief under the Bankruptcy Code. AREC operated its business and managed its properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and order of the Bankruptcy Court. As a result of AREC’s bankruptcy filing, AE ceded its authority to the Bankruptcy Court, and AE management could not carry on AREC activities in the ordinary course of business without Bankruptcy Court approval. AE managed the day-to-day operations of AREC, but did not have discretion to make significant capital or operating budgetary changes or decisions or to purchase or sell significant assets, as AREC’s material decisions were subject to review and approval by the Bankruptcy Court. For these reasons, we concluded that AE lost control of AREC, and no longer had significant influence over AREC during the pendency of the bankruptcy. Therefore, we deconsolidated AREC effective with the filing of the Chapter 11 bankruptcy in April 2017.

In order to deconsolidate AREC, the carrying values of the assets and liabilities of AREC were removed from our consolidated balance sheet as of April 30, 2017, and we recorded our investment in AREC at its estimated fair value of approximately $5.0 million . We determined the fair value of our investment based upon bids we received in an auction process (see Note 1 for further discussion). We also determined that the estimated fair value of our investment in AREC was expected to be lower than its net book value immediately prior to the deconsolidation. As a result, during the second quarter of 2017, we recorded a non-cash charge of approximately $1.6 million associated with the deconsolidation of AREC, which reflected the excess of the net assets of AREC over its estimated fair value based on the expected sales transaction price of approximately $5.0 million , net of estimated transaction costs. Subsequent to the deconsolidation of AREC, we accounted for our investment in AREC using the cost method of accounting because AE did not exercise significant influence over the operations of AREC due to the Chapter 11 filing.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 1, 2017, a hearing was held before the Bankruptcy Court seeking approval of asset purchase and sales agreements under Section 363 of the Bankruptcy Code with three unaffiliated parties to purchase AREC’s crude oil and natural gas assets for aggregate cash proceeds of approximately $5.2 million . The Bankruptcy Court approved the asset purchase and sales agreements, and we closed on the sales of these assets during the third quarter of 2017.

In October 2017, AREC submitted its liquidation plan to the Bankruptcy Court for approval. In connection with the sales of these assets and submission of the liquidation plan, we recognized an additional loss of $1.9 million during the third quarter of 2017, which represents the difference between the proceeds we expect to be paid upon settlement of the bankruptcy, net of anticipated remaining closing costs identified as part of the liquidation plan, and the book value of our cost method investment. In December 2017, we received proceeds of approximately $2.8 million from AREC related to the settlement of a portion of the bankruptcy process. The bankruptcy process is expected to be completed with a confirmed plan during 2018.

DIP Financing – Related Party Relationship

In connection with the bankruptcy filing, AREC entered into a Debtor in Possession Credit and Security Agreement with AE (“DIP Credit Agreement”) dated as of April 25, 2017, in an aggregate amount of up to $1.25 million , of which the funds were to be used by AREC solely to fund operations through August 11, 2017. Loans under the DIP Credit Agreement accrued interest at a rate of LIBOR plus 2.0 percent per annum and were due and payable upon the earlier of (a) twelve months after the petition date, (b) the closing of the sale of substantially all of AREC’s assets, (c) the effective date of a Chapter 11 plan of reorganization of AREC, and (d) the date that the DIP loan was accelerated upon the occurrence of an event of default, as defined in the DIP Credit Agreement. AREC borrowed approximately $0.4 million under the DIP Credit Agreement, and the amount was repaid during the third quarter of 2017 with proceeds from the sales of the assets.

Note 4. Prepayments and Other Current Assets

The components of prepayments and other current assets were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Insurance premiums	$	425	$	1,403
Rents, licenses and other	839		694
Total	$	1,264	$	2,097

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Property and Equipment

The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):



	Estimated
	Useful Life	December 31,
	in Years	2017			2016

Tractors and trailers ⁽¹⁾	5 – 6	$	88,065		$	89,576
Oil and gas (successful efforts)		—			62,784
Field equipment	2 – 5	18,490			18,282
Buildings	5 – 39	15,727			15,707
Office equipment	1 – 5	1,929			1,913
Land		1,790			1,790
Construction in progress		275			596
Total		126,276			190,648
Less accumulated depreciation		(96,914		)	(144,323		)
Property and equipment, net		$	29,362		$	46,325

______________


(1)	2017 includes assets held under capital leases. During the third quarter of 2017, we entered into capital leases for certain tractors in our marketing segment. Gross property and equipment and accumulated amortization associated with assets held under capital leases were $1.8 million and $0.1 million , respectively, at December 31, 2017 (see Note 13 for further information).

Components of depreciation, depletion and amortization expense were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015
Depreciation, depletion and amortization, excluding amounts
under capital leases	$	13,478	$	18,792	$	23,717
Amortization of property and equipment under capital leases	121		—		—
Total depreciation, depletion and amortization	$	13,599	$	18,792	$	23,717

Crude Oil and Natural Gas Exploration and Production Assets

Our subsidiary that owned the upstream crude oil and natural gas exploration and production assets was deconsolidated effective with its bankruptcy filing in April 2017 and subsequently accounted for as a cost method investment (see Note 3). These upstream crude oil and natural gas exploration and production assets were sold during the third quarter of 2017. We have no further interest in these assets.

Impairment provisions including in upstream crude oil and natural gas exploration and production segment operating losses were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Producing property impairments	$	—	$	30	$	10,324
Non-producing property impairments	3		283		1,758
Total crude oil and natural gas impairments	$	3	$	313	$	12,082

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2017 and 2016, we had no capitalized costs for non-producing crude oil and natural gas leasehold interests.

Gains on sales of assets

We sold certain used trucks and equipment from our marketing and transportation segments and recorded net pre-tax gains as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Sales of used trucks and equipment	$	594	$	1,966	$	535

Asset Retirement Obligations

We record AROs for the estimated retirement costs associated with certain tangible long-lived assets. The estimated fair value of AROs are recorded in the period in which they are incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the asset. If the liability is settled for an amount other than the recorded amount, an increase or decrease to expense is recognized. A summary of our AROs is presented as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

ARO liability beginning balance	$	2,329		$	2,469		$	2,464
Liabilities incurred	18			162			39
Accretion of discount	58			92			93
Liabilities settled	(261		)	(394		)	(127		)
Deconsolidation of subsidiary ⁽¹⁾	(871		)	—			—
ARO liability ending balance	$	1,273		$	2,329		$	2,469

_______________


(1)	Relates to our upstream crude oil and natural gas exploration and production subsidiary that was deconsolidated in April 2017 as a result of its bankruptcy filing (see Note 3 for further information).

Note 6. Cash Deposits and Other Assets

Components of cash deposits and other assets were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Amounts associated with liability insurance program:
Insurance collateral deposits	$	3,767	$	2,599
Excess loss fund	2,284		1,450
Accumulated interest income	814		812
Other amounts:
State collateral deposits	57		143
Materials and supplies	273		354
Other	37		171
Total	$	7,232	$	5,529

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.

Insurance collateral deposits are invested at the discretion of our insurance carrier. This fair value measure relies on inputs from quoted prices for similar assets and is thus categorized as a “Level 3” valuation in the fair value hierarchy (see Note 10 for further information).

Note 7. Investments in Unconsolidated Affiliates

At December 31, 2017, we had no remaining balances in our medical-related investments. We currently do not have any plans to pursue additional medical-related investments.

Bencap

In December 2015, we formed a new wholly owned subsidiary, Adams Resources Medical Management, Inc. (“ARMM”), and in January 2016, ARMM acquired a 30 percent member interest in Bencap LLC (“Bencap”) for a $2.2 million cash payment. Bencap provides medical insurance brokerage and medical claims auditing services to employers utilizing ERISA governed employee benefit plans. We accounted for this investment under the equity method of accounting.

Under the terms of the investment agreement, Bencap had the option to request borrowings from us of up to $1.5 million (on or after December 5, 2016 but before October 31, 2018) that we were required to provide or forfeit our 30 percent member interest. During 2016, our management determined that we were unlikely to provide additional funding due to Bencap’s lower than projected revenue growth and operating losses since investment inception. We completed a review of our equity method investment in Bencap during 2016 and determined that there was an other than temporary impairment. During the third quarter of 2016, we recognized an after-tax net loss of $1.4 million to write-off our investment in Bencap, which consisted of a pre-tax impairment charge of approximately $1.7 million , pre-tax losses from the equity method investment of $0.5 million and an income tax benefit of $0.8 million . In February 2017, in accordance with the terms of the investment agreement, Bencap requested additional funding of approximately $0.5 million from us. We declined the additional funding request and as a result, forfeited our 30 percent member interest in Bencap. At December 31, 2017, we had no further ownership interest in Bencap.

VestaCare

In April 2016, ARMM acquired an approximate 15 percent equity interest (less than 3 percent voting interest) in VestaCare, Inc., a California corporation (“VestaCare”), for a $2.5 million cash payment. VestaCare provides an array of software as a service (SaaS) electronic payment technologies to medical providers, payers and patients including VestaCare’s most recent product offering, VestaPay™. VestaPay™ allows medical care providers to structure fully automated and dynamically updating electronic payment plans for their patients. We account for this investment under the cost method of accounting. During the third quarter of 2017, we reviewed our investment in VestaCare and determined that the current projected operating results did not support the carrying value of the investment. As such, during the third quarter of 2017, we recognized an impairment charge of $2.5 million to write-off our investment in VestaCare. At December 31, 2017, we continue to own an approximate 15 percent equity interest in VestaCare.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AREC

As a result of AREC’s voluntary bankruptcy filing in April 2017 and our loss of control of AREC, we deconsolidated AREC in April 2017, and we recorded our investment in this subsidiary under the cost method of accounting. We recorded a non-cash charge during the second quarter of 2017 of approximately $1.6 million associated with the deconsolidation of AREC, which reflected the excess of the net assets of AREC over its estimated fair value based on the expected sales transaction price, net of estimated transaction costs. As a result of the sale of substantially all of AREC’s assets during the third quarter of 2017, we recognized an additional loss of $1.9 million , which represents the difference between the net proceeds we expect to be paid upon settlement of the bankruptcy, net of anticipated remaining closing costs identified as part of the liquidation plan, and the book value of our cost method investment. In December 2017, we received proceeds of approximately $2.8 million from AREC related to the settlement of a portion of the bankruptcy process. At December 31, 2017, our remaining investment in AREC was $0.4 million (see Note 3 for further information). The remaining investment will be removed upon settlement of the bankruptcy, which is anticipated during the first half of 2018.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Segment Reporting

Historically, our three reporting segments have been: (i) crude oil marketing, transportation and storage, (ii) tank truck transportation of liquid chemicals and dry bulk and ISO tank container storage and transportation, and (iii) upstream crude oil and natural gas exploration and production. Our upstream crude oil and natural gas exploration and production wholly owned subsidiary filed for bankruptcy in April 2017 (see Note 3 for further information), and as a result of our loss of control of the wholly owned subsidiary, AREC was deconsolidated and is accounted for under the cost method of accounting. AREC remained a reportable segment until its deconsolidation, effective April 30, 2017.

Information concerning our various business activities was follows for the periods indicated (in thousands):



	Reporting Segments
	Marketing		Transportation			Oil and Gas			Total

Year Ended December 31, 2017
Revenues	$	1,267,275	$	53,358		$	1,427		$	1,322,060
Segment operating (losses) earnings ^{(1) (2)}	11,700		(544		)	53			11,209
Depreciation, depletion and amortization	7,812		5,364			423			13,599
Property and equipment additions ⁽³⁾	468		351			1,825			2,644

Year Ended December 31, 2016
Revenues	$	1,043,775	$	52,355		$	3,410		$	1,099,540
Segment operating (losses) earnings ⁽¹⁾	17,045		(48		)	(533		)	16,464
Depreciation, depletion and amortization	9,997		7,249			1,546			18,792
Property and equipment additions	1,321		6,868			295			8,484

Year Ended December 31, 2015
Revenues	$	1,875,885	$	63,331		$	5,063		$	1,944,279
Segment operating (losses) earnings ^{(1) (4)}	22,895		3,701			(19,016		)	7,580
Depreciation, depletion and amortization	11,097		7,554			5,066			23,717
Property and equipment additions	2,126		6,579			2,369			11,074

_________________


(1)	Our marketing segment’s operating earnings included inventory liquidation gains of $3.3 million and $8.2 million for the years ended December 31, 2017 and 2016 , respectively, and inventory valuation losses of $5.4 million for the year ended December 31, 2015 .


(2)	Segment operating (losses) earnings includes approximately $0.4 million of costs related to a voluntary early retirement program that was implemented in August 2017.


(3)	Our marketing segment’s property and equipment additions do not include approximately $1.8 million of tractors acquired during the third quarter of 2017 under capital leases. See Note 13 for further information.


(4)	Our crude oil and natural gas segment’s operating earnings included property impairments of $12.1 million for the year ended December 31, 2015 .

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization expense and are reconciled to earnings (losses) before income taxes and investment in unconsolidated affiliate, as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Segment operating earnings	$	11,209		$	16,464		$	7,580
General and administrative ⁽¹⁾	(9,707		)	(10,410		)	(9,939		)
Operating earnings (losses)	1,502			6,054			(2,359		)
Loss on deconsolidation of subsidiary	(3,505		)	—			—
Impairment of investment in unconsolidated affiliate	(2,500		)	—			—
Interest income	1,103			582			327
Interest expense	(27		)	(2		)	(13		)
(Losses) earnings before income taxes and investment
in unconsolidated affiliate	$	(3,427	)	$	6,634		$	(2,045	)

_______________


(1)	General and administrative expenses for the year ended December 31, 2017 included approximately $1.0 million of costs related to a voluntary early retirement program we implemented in August 2017.

Identifiable assets by industry segment were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016		2015

Reporting segment:
Marketing	$	134,745	$	107,257	$	96,723
Transportation	29,069		32,120		35,010
Oil and Gas ⁽¹⁾	425		7,279		8,930
Cash and other	118,465		100,216		102,552
Total assets	$	282,704	$	246,872	$	243,215

____________________


(1)	At December 31, 2017, amount represents our remaining cost method investment in this segment. See Note 3 for further information.

Intersegment sales are insignificant. Other identifiable assets are primarily corporate cash, corporate accounts receivable, investments and properties not identified with any specific segment of our business. Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.

Note 9. Transactions with Affiliates

We enter into certain transactions in the normal course of business with affiliated entities including direct cost reimbursement for shared phone and administrative services. In addition, we lease our corporate office space from an affiliated entity.

We utilize our former affiliate, Bencap, to administer certain of our employee medical benefit programs including a detail audit of individual medical claims (see Note 13 for further information). Bencap earns a fee from us for providing such services at a discounted amount from its standard charge to non-affiliates. As discussed in Note 7, at December 31, 2017 , we have no further ownership interest in Bencap.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activities with affiliates were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Overhead recoveries ⁽¹⁾	$	—	$	32	$	97
Affiliate billings to us	81		65		68
Billings to affiliates	4		5		35
Rentals paid to affiliate	583		628		618
Fee paid to Bencap ⁽²⁾	108		583		—

___________________


(1)	In connection with the operation of certain crude oil and natural gas properties, we charged related parties for administrative overhead. In late 2016, these charges ended as properties were either plugged and abandoned or operating responsibilities for these properties were transferred to another entity.


(2)	Amount represents fees paid to Bencap through the forfeiture of our investment during the first quarter of 2017. As a result of the investment forfeiture, Bencap is no longer an affiliate.

DIP Financing

In connection with its voluntary bankruptcy filing, AREC entered into the DIP Credit Agreement with AE, of which amounts outstanding were repaid during the third quarter of 2017 with proceeds from the sales of AREC’s assets. We earned interest income of approximately $0.1 million under the DIP Credit Agreement through December 31, 2017 (see Note 3 for further information).

Note 10. Derivative Instruments and Fair Value Measurements

Derivative Instruments

At December 31, 2017, we had in place 20 commodity purchase and sale contracts, of which four of these contracts had no fair value associated with them as the contractual prices of crude oil were within the range of prices specified in the agreements. These contracts encompassed approximately:


•	452 barrels per day of crude oil during January 2018;


•	322 barrels per day of crude oil during February through May 2018;


•	258 barrels per day of crude oil during June 2018;


•	646 barrels per day of crude oil during July 2018;


•	322 barrels per day of crude oil during August through September 2018; and


•	258 barrels per day of crude oil during October through December 2018.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying consolidated balance sheet were as follows at the date indicated (in thousands):



	December 31, 2017
	Balance Sheet Location and Amount
	Current		Other		Current		Other
	Assets		Assets		Liabilities		Liabilities
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	166	$	—	$	—	$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		145		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	166	$	—	$	145	$	—

At December 31, 2016 , two contracts comprised our derivative valuations. These contracts encompassed approximately 65 barrels per day of diesel fuel during January through March 2017 and 145,000 barrels of crude oil per month during January through April 2017.

The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying consolidated balance sheet were as follows at the date indicated (in thousands):



	December 31, 2016
	Balance Sheet Location and Amount
	Current			Other		Current			Other
	Assets			Assets		Liabilities			Liabilities
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	378		$	—	$	—		$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—			—		330			—
Less counterparty offsets	(266		)	—		(266		)	—
As reported fair value contracts	$	112		$	—	$	64		$	—

We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At December 31, 2017 and 2016 , we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.

Forward month commodity contracts (derivatives) reflected in the accompanying consolidated statements of operations were as follows for the periods indicated (in thousands):



	Gains (Losses)
	Year Ended December 31,
	2017			2016		2015

Revenues – marketing	$	(26	)	$	243	$	(188	)

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):



	December 31, 2017
	Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other			Significant
	Identical Assets		Observable			Unobservable
	and Liabilities		Inputs			Inputs		Counterparty
	(Level 1)		(Level 2)			(Level 3)		Offsets		Total

Derivatives:
Current assets	$	—	$	166		$	—	$	—	$	166
Current liabilities	—		(145		)	—		—		(145		)
Net value	$	—	$	21		$	—	$	—	$	21



	December 31, 2016
	Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other			Significant
	Identical Assets		Observable			Unobservable
	and Liabilities		Inputs			Inputs		Counterparty
	(Level 1)		(Level 2)			(Level 3)		Offsets			Total

Derivatives:
Current assets	$	—	$	378		$	—	$	(266	)	$	112
Current liabilities	—		(330		)	—		266			(64		)
Net value	$	—	$	48		$	—	$	—		$	48

These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.

When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At December 31, 2017 and 2016 , credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonrecurring Fair Value Measurements

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the year ended December 31, 2017 (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
			Quoted Prices
			in Active		Significant
	Carrying		Markets for		Other		Significant		Total
	Value at		Identical Assets		Observable		Unobservable		Non-Cash
	December 31,		and Liabilities		Inputs		Inputs		Impairment
	2017		(Level 1)		(Level 2)		(Level 3)		Loss

Oil and gas properties -
Investment in AREC	$	425	$	—	$	425	$	—	$	3,505
Investment in VestaCare	—		—		—		—		2,500
									$	6,005

The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the year ended December 31, 2016 (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
			Quoted Prices
			in Active		Significant
	Carrying		Markets for		Other		Significant		Total
	Value at		Identical Assets		Observable		Unobservable		Non-Cash
	December 31,		and Liabilities		Inputs		Inputs		Impairment
	2016		(Level 1)		(Level 2)		(Level 3)		Loss

Investment in Bencap	$	—	$	—	$	—	$	—	$	2,200
Oil and gas properties	62,784		—		—		62,784		313
									$	2,513

The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the year ended December 31, 2015 (in thousands):

Fair Value Measurements at the End of the Reporting Period Using

Quoted Prices

in Active

Significant

Carrying

Markets for

Other

Significant

Total

Value at

Identical Assets

Observable

Unobservable

Non-Cash

December 31,

and Liabilities

Inputs

Impairment

2015

(Level 1)

(Level 2)

(Level 3)

Loss

Oil and gas properties

77,117

—

77,117

12,082

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Income Taxes

The components of our income tax (provision) benefit were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	(1,418	)	$	(2,103	)	$	(3,883	)
State	523			(675		)	(190		)
Total current	(895		)	(2,778		)	(4,073		)
Deferred:
Federal	3,722			777			5,011
State	118			80			(168		)
Total deferred	3,840			857			4,843
Total provision for (benefit from) income taxes ⁽¹⁾	$	2,945		$	(1,921	)	$	770

______________


(1)	2016 includes a tax benefit of $0.8 million related to losses from our investment in Bencap, and is included in the loss from investment in unconsolidated affiliate category on the consolidated statements of operations.

A reconciliation of the provision for (benefit from) income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Pre-tax net book income ⁽¹⁾	$	(3,427	)	$	4,434		$	(2,045	)

Statutory federal income tax (provision) benefit	$	1,165		$	(1,552	)	$	716
State income tax (provision) benefit	736			(387		)	(233		)
Federal statutory depletion	153			62			144
Federal tax rate adjustment	2,007			—			—
Valuation allowance	(1,038		)	—			—
Other	(78		)	(44		)	143
Total provision for (benefit from) income taxes	$	2,945		$	(1,921	)	$	770
Effective income tax rate ⁽²⁾	86		%	43		%	38		%

_______________


(1)	2016 includes the pre-tax loss from investment in unconsolidated affiliate of $2.2 million .


(2)	Excluding the adjustment related to the federal tax rate change, the effective income tax rate for 2017 is 58 percent .

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net difference between the financial statement carrying amounts and the underlying income tax basis in these items. The components of the federal deferred tax asset (liability) were as follows at the dates indicated (in thousands):



	December 31,
	2017			2016

Long-term deferred tax asset (liability): ⁽¹⁾
Prepaid and other insurance	$	(684	)	$	(1,058	)
Property	(2,497		)	(7,341		)
Investments in unconsolidated affiliates	623			606
Valuation allowance related to investments in unconsolidated affiliates	(623		)	—
Uniform capitalization	—			729
Other	(121		)	(93		)
Net long-term deferred tax liability	(3,302		)	(7,157		)
Net deferred tax liability	$	(3,302	)	$	(7,157	)

______________


(1)	Amounts as of December 31, 2017 have been revalued at 21 percent as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017.

Financial statement recognition and measurement of positions taken, or expected to be taken, by an entity in its income tax returns must consider the uncertainty and judgment involved in the determination and filing of income taxes. Tax positions taken in an income tax return that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the tax position will be examined by taxing authorities with full knowledge of all relevant information. We have no significant unrecognized tax benefits. Interest and penalties associated with income tax liabilities are classified as income tax expense.

The earliest tax years remaining open for audit for federal and major states of operations are as follows:



	Earliest Open
	Tax Year

Federal	2013
Texas	2013
Louisiana	2014
Michigan	2013

Other Matters

The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act changed many aspects of U.S. corporate income taxation and included a reduction of the corporate income tax rate from 35 percent to 21 percent, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. We recognized the tax effects of the Act in the year ended December 31, 2017 and recorded a $2.0 million tax benefit, which relates entirely to the remeasurement of deferred tax liabilities to the 21 percent tax rate. Upon completion of our 2017 U.S. income tax return in 2018, we may identify additional remeasurement adjustments to our recorded deferred tax liabilities. We will continue to assess our income taxes as future guidance is issued but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Supplemental Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Cash paid for interest	$	22	$	2	$	13
Cash paid for federal and state taxes	459		2,589		6,197

Non-cash transactions:
Change in accounts payable related to property and equipment additions	70		679		1,707
Property and equipment acquired under capital leases	1,808		—		—

Note 13. Commitment and Contingencies

Capital Lease Obligations

During the third quarter of 2017, we entered into capital leases for certain of our tractors in our marketing segment. The following table summarizes our principal contractual commitments outstanding under our capital leases at December 31, 2017 for the next five years, and in total thereafter (in thousands):



2018	$	398
2019	398
2020	398
2021	398
2022	255
Thereafter	—
Total minimum lease payments	1,847
Less: Amount representing interest	(158		)
Present value of capital lease obligations	1,689
Less current portion of capital lease obligations	(338		)
Total long-term capital lease obligations	$	1,351

Operating Lease Obligations

We lease certain property and equipment under noncancellable and cancelable operating leases. Our significant lease agreements consist of (i) arrangements with independent truck owner-operators for use of their equipment and driver services; (ii) leased office space; and (iii) certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. Currently, our significant lease agreements have terms that range from one to eight years.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease expense is charged to operating costs and expenses on a straight-line basis over the period of expected economic benefit. Contingent rental payments are expensed as incurred. We are generally required to perform routine maintenance on the underlying leased assets. Maintenance and repairs of leased assets resulting from our operations are charged to expense as incurred. Rental expense was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Rental expense	$	12,073	$	11,314	$	11,168

At December 31, 2017 , rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year for the next five years and thereafter are payable as follows (in thousands):



	2018		2019		2020		2021		2022		Thereafter		Total

Operating leases	$	2,758	$	463	$	68	$	63	$	32	$	23	$	3,407

Insurance Policies

Under our automobile and workers’ compensation insurance policies that were in place through September 30, 2017, we pre-funded our estimated losses, and therefore, we could either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances, the risk of insured losses was shared with a group of similarly situated entities through an insurance captive. We have appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to us or our insurance carrier. The amount of pre-funded insurance premiums left to cover potential future losses totaled as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Pre-funded premiums for losses incurred but not reported	$	988	$	2,657

If the potential insurance claims do not further develop, the pre-funded premiums will be returned to us as a premium refund.

Effective October 1, 2017, we changed the structure of our automobile and workers’ compensation insurance policies. We have exited the group captive and now establish a liability for expected claims incurred but not reported on a monthly basis as we move forward. As claims are paid, the liability is relieved. At December 31, 2017, our accrual for automobile and workers’ compensation claims was $0.5 million .

We maintain a self-insurance program for managing employee medical claims. A liability for expected claims incurred but not reported is established on a monthly basis. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for annual aggregate medical claims exceeding $4.5 million . Medical accrual amounts were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Accrued medical claims	$	1,329	$	1,411

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Litigation

AREC was named as a defendant in a number of Louisiana lawsuits involving alleged environmental contamination from prior drilling operations. Such suits typically allege improper disposal of oilfield wastes in earthen pits, with one matter involving allegations that drilling operations in 1986 contributed to the formation of a sinkhole in 2012 (the “Sinkhole Cases”). The Sinkhole Cases, while arising from a singular event, include a number of different lawsuits brought in Louisiana State Court and one consolidated action in the United States District Court for the Eastern District of Louisiana. In addition to the Sinkhole Cases, AREC is also currently involved in two other suits. These suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004 filed in Acadia Parish, Louisiana, and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013 filed in Jefferson Davis Parish, Louisiana. Each suit involves multiple industry defendants with substantially larger proportional interest in the properties. In the LePetit Chateau Deluxe matter, all the larger defendants have settled the case.

The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages. While we do not believe that these claims will result in a material adverse effect on us, significant attorney fees may be incurred to address claims related to these suits. At December 31, 2016 , we had $0.5 million accrued for future legal costs for these matters. During May 2017, AREC was dismissed without prejudice as a party to the suit with Henning Management. We also determined that the likelihood of future claims from other remaining litigation was remote. As such, we released the $0.5 million accrual for future legal settlements related to these matters. At December 31, 2017 , we had no remaining accruals for legal costs for these matters.

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.

Guarantees

AE issues parent guarantees of commitments associated with the activities of its subsidiary companies. The guarantees generally result from subsidiary commodity purchase obligations, subsidiary operating lease commitments and subsidiary banking transactions. The nature of these arrangements is to guarantee the performance of the subsidiary in meeting their respective underlying obligations. The parent would only be called upon to perform under the guarantee in the event of a payment default by the applicable subsidiary company. In satisfying such obligations, the parent would first look to the assets of the defaulting subsidiary company.

At December 31, 2017 , parental guaranteed obligations were approximately $48.2 million . Currently, neither AE nor any of its subsidiaries has any other types of guarantees outstanding that require liability recognition.

Note 14. Concentration of Credit Risk

We may incur credit risk to the extent our customers do not fulfill their obligations to us pursuant to contractual terms. Risks of nonpayment and nonperformance by our customers are a major consideration in our business, and our credit procedures and policies may not be adequate to sufficiently eliminate customer credit risk. Managing credit risk involves a number of considerations, such as the financial profile of the customer, the value of collateral held, if any, specific terms and duration of the contractual agreement, and the customer’s sensitivity to economic developments. We have established various procedures to manage credit exposure, including initial credit approval, credit limits, and rights of offset. We also utilize letters of credit and guarantees to limit exposure.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our largest customers consist of large multinational integrated crude oil companies and independent domestic refiners of crude oil. In addition, we transact business with independent crude oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users. Within this group of customers, we derive approximately 50 percent of our revenues from three to five large crude oil refining customers. While we have ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since we supply less than one percent of U.S. domestic refiner demand. As a fungible commodity delivered to major Gulf Coast supply points, our crude oil sales can be readily delivered to alternative end markets.

We believe that a loss of any of those customers where we currently derive more than 10 percent of our revenues would not have a material adverse effect on our operations as shown in the table below:



Individual customer sales						Individual customer receivables in excess
in excess of 10% of revenues						of 10% of total receivables
for the year ended December 31,						at December 31,
2017		2016		2015		2017		2016		2015

22.8	%	18.2	%	24.4	%	19.1	%	20.9	%	20.3	%
17.1	%	16.5	%	13.8	%	15.0	%	14.0	%	16.5	%
10.8	%	15.9	%			11.1	%	10.1	%	12.7	%
10.7	%	10.6	%			10.4	%

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Quarterly Financial Information (Unaudited)

The following table presents selected quarterly financial data for the periods indicated (in thousands, except per share data):



	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Year Ended December 31, 2017
Revenues	$	303,087		$	315,202		$	295,311		$	408,460
Operating (losses) earnings	(1,584		)	619			(1,290		)	3,757
Earnings (losses) from continuing operations	(860		)	(282		)	(3,033		)	3,693
Net (losses) earnings	(860		)	(282		)	(3,033		)	3,693

Earnings (losses) per share:
From continuing operations	$	(0.20	)	$	(0.07	)	$	(0.72	)	$	0.88
From investment in unconsolidated
affiliate	—			—			—			—
Basic and diluted net (losses) earnings per share	$	(0.20	)	$	(0.07	)	$	(0.72	)	$	0.88

Year Ended December 31, 2016
Revenues	$	250,531		$	293,163		$	256,877		$	298,969
Operating (losses) earnings	2,339			5,601			(1,822		)	(64		)
Earnings (losses) from continuing operations	1,554			3,540			(983		)	(168		)
Net (losses) earnings	1,430			3,404			(2,153		)	(168		)

Earnings (losses) per share:
From continuing operations	$	0.37		$	0.84		$	(0.23	)	$	(0.04	)
From investment in unconsolidated
affiliate	(0.03		)	(0.03		)	(0.28		)	—
Basic and diluted net (losses) earnings per share	$	0.34		$	0.81		$	(0.51	)	$	(0.04	)

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Oil and Gas Producing Activities (Unaudited)

Our wholly owned subsidiary, AREC, participated in the exploration and development of domestic crude oil and natural gas properties primarily in the Permian Basin of West Texas and the Haynesville Shale. AREC’s offices were maintained in Houston, and at December 31, 2016, we held an interest in 470 producing wells of which we operated six . As discussed further in Note 3, AREC was deconsolidated effective with its bankruptcy filing in April 2017, and we recorded our investment in AREC under the cost method of accounting in April 2017. During the third quarter of 2017, AREC closed on the sale of substantially all of its assets. As a result of the sales of these assets, we no longer have an ownership interest in any crude oil and natural gas producing activities. In the disclosures and tables below, amounts for 2017 are for the period from January 1, 2017 through April 30, 2017, as a result of the deconsolidation of AREC due to its bankruptcy filing.

Crude Oil and Natural Gas Producing Activities

Total costs incurred in crude oil and natural gas exploration and development activities, all within the U.S., were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015
Property acquisition costs:
Unproved	$	4	$	32	$	348
Proved	—		—		—
Exploration costs:
Expensed	5		291		1,667
Capitalized	—		—		—
Development costs	1,815		—		370
Total costs incurred	$	1,824	$	323	$	2,385

The aggregate capitalized costs relative to crude oil and natural gas producing activities were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Unproved crude oil and natural gas properties	$	—	$	—
Proved crude oil and natural gas properties	—		62,784
Subtotal	—		62,784
Accumulated depreciation, depletion and amortization	—		(56,426		)
Net capitalized cost	$	—	$	6,358

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated Crude Oil and Natural Gas Reserves

The following information regarding estimates of our proved crude oil and natural gas reserves, substantially all located onshore in Texas and Louisiana, was based on reports prepared on our behalf by our independent petroleum engineers. Because crude oil and natural gas reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures. The revisions of previous estimates as reflected in the table below result from changes in commodity pricing assumptions and from more precise engineering calculations based upon additional production histories and price changes. As discussed previously, AREC was deconsolidated effective with its bankruptcy filing in April 2017, and we recorded our investment in AREC under the cost method of accounting in April 2017. During the third quarter of 2017, AREC closed on the sale of substantially all of its assets. As a result of the sales of these assets, we no longer have an ownership interested in any crude oil and natural gas producing activities. In the tables below, amounts for 2017 are for the period from January 1, 2017 through April 30, 2017, as a result of the deconsolidation of AREC due to its bankruptcy filing.

Proved developed and undeveloped reserves were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017				2016				2015
	Natural		Crude		Natural		Crude		Natural		Crude
	Gas		Oil		Gas		Oil		Gas		Oil
	(Mcf)		(Bbls)		(Mcf)		(Bbls)		(Mcf)		(Bbls)
Total proved reserves:
Beginning of year	4,214		187		4,835		226		5,611		318
Revisions of previous estimates	—		—		65		24		27		(2	)
Crude oil and natural gas reserves sold	(4,067	)	(170	)	(175	)	(4	)	—		(3	)
Extensions, discoveries and other
reserve additions	42		6		151		18		86		13
Production	(189	)	(23	)	(662	)	(77	)	(889	)	(100	)
End of year	—		—		4,214		187		4,835		226

The components of our previously owned proved crude oil and natural gas reserves, all within the U.S., were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015
	Natural	Crude	Natural	Crude	Natural	Crude
	Gas	Oil	Gas	Oil	Gas	Oil
	(Mcf)	(Bbls)	(Mcf)	(Bbls)	(Mcf)	(Bbls)

Proved developed reserves	—	—	4,214	187	4,813	223
Proved undeveloped reserves	—	—	—	—	22	3
Total proved reserves	—	—	4,214	187	4,835	226

We had developed internal policies and controls for estimating and recording crude oil and natural gas reserve data. The estimation and recording of proved reserves is required to be in compliance with SEC definitions and guidance. We assigned responsibility for compliance in reserve bookings to the office of President of AREC. No portion of this individual’s compensation was directly dependent on the quantity of reserves booked. Reserve estimates are required to be made by qualified reserve estimators, as defined by Society of Petroleum Engineers’ Standards.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We employed a third party petroleum consultant, Ryder Scott Company, to prepare our crude oil and natural gas reserve data estimates as of December 31, 2016 and 2015 . The firm of Ryder Scott is well recognized within the industry for more than 50 years. As prescribed by the SEC, such proved reserves were estimated using 12 -month average crude oil and natural gas prices, based on the first-day-of-the-month price for each month in the period, and year-end production and development costs for each of the years presented, all without escalation.

The process of estimating crude oil and natural gas reserves is complex and requires significant judgment. Uncertainties are inherent in estimating quantities of proved reserves, including many factors beyond the estimator’s control. Reserve engineering is a subjective process of estimating subsurface accumulations of crude oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and the interpretation thereof. As a result, assessments by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Accordingly, crude oil and natural gas quantities ultimately recovered will vary from reserve estimates.

Standardized Measure of Discounted Future Net Cash Flows from Crude Oil and Natural Gas Operations and Changes Therein

The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at the end of the years presented, except in those instances where fixed and determinable gas price escalations were included in contracts. The disclosures below do not purport to present the fair market value of our previously owned crude oil and natural gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and risks inherent in reserve estimates. The standardized measure of discounted future net cash flows was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016			2015

Future gross revenues	$	—	$	17,938		$	23,040
Future costs:
Lease operating expenses	—		(12,421		)	(14,524		)
Development costs	—		(38		)	(103		)
Future net cash flows before income taxes	—		5,479			8,413
Discount at 10% per annum	—		(2,002		)	(2,987		)
Discounted future net cash flows before income taxes	—		3,477			5,426
Future income taxes, net of discount at 10% per annum	—		(1,217		)	(1,899		)
Standardized measure of discounted future net cash flows	$	—	$	2,260		$	3,527

The estimated value of crude oil and natural gas reserves and future net revenues derived therefrom are highly dependent upon crude oil and natural gas commodity price assumptions. For such estimates, our independent petroleum engineers assumed market prices as presented in the table below:



	Year Ended December 31,
	2017		2016		2015
Market price:
Crude oil per barrel	$	—	$	38.34	$	45.83
Natural gas per thousand cubic feet (Mcf)	$	—	$	2.56	$	2.62

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These prices were based on the unweighted arithmetic average of the prices in effect on the first day of the month for each month of the respective twelve month periods as required by SEC regulations. The prices reported in the reserve disclosures for natural gas included the value of associated natural gas liquids. Crude oil and natural gas reserve values and future net cash flow estimates are very sensitive to pricing assumptions and will vary accordingly.

The effect of income taxes and discounting on the standardized measure of discounted future net cash flows was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016			2015

Future net cash flows before income taxes	$	—	$	5,479		$	8,413
Future income taxes	—		(1,918		)	(2,945		)
Future net cash flows	—		3,561			5,468
Discount at 10% per annum	—		(1,301		)	(1,941		)
Standardized measure of discounted future net cash flows	$	—	$	2,260		$	3,527

The principal sources of changes in the standardized measure of discounted future net cash flows were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Beginning of year	$	2,260		$	3,527		$	15,744
Sale of crude oil and natural gas reserves	(2,732		)	(350		)	(54		)
Net change in prices and production costs	—			(1,391		)	(17,622		)
New field discoveries and extensions, net of future production costs	94			275			292
Sales of crude oil and natural gas produced, net of production costs	(476		)	87			1,038
Net change due to revisions in quantity estimates	—			181			38
Accretion of discount	130			194			1,116
Production rate changes and other	(493		)	(945		)	(3,603		)
Net change in income taxes	1,217			682			6,578
End of year	$	—		$	2,260		$	3,527

Results of Operations for Crude Oil and Natural Gas Producing Activities

The results of crude oil and natural gas producing activities, excluding corporate overhead and interest costs, were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Revenues	$	1,427		$	3,410		$	5,063
Costs and expenses:
Production	(951		)	(3,337		)	(7,022		)
Producing property impairment	—			(30		)	(10,324		)
Exploration	—			—			(1,667		)
Depreciation, depletion and amortization	(423		)	(1,546		)	(5,066		)
Operating loss before income taxes	53			(1,503		)	(19,016		)
Income tax benefit (expense)	(19		)	526			6,656
Operating earnings (losses)	$	34		$	(977	)	$	(12,360	)

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Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On June 7, 2017, we dismissed Deloitte & Touche, LLP (“Deloitte”) as our independent registered public accounting firm. There was no dispute or disagreement with the firm on any issue. On June 7, 2017, we appointed KPMG LLP as our new independent registered public accounting firm to perform independent audit services for the fiscal year ended December 31, 2017.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

As of the end of the period covered by this annual report, our management carried out an evaluation, with the participation of our Executive Chairman and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this evaluation, as of the end of the period covered by this annual report, our Executive Chairman and our Chief Financial Officer concluded:

(i)

that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow for timely decisions regarding required disclosures; and


(ii)	that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the fourth quarter of 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING AS OF DECEMBER 31, 2017

Management of Adams Resources & Energy, Inc. and its consolidated subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed under the supervision of our Executive Chairman and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management, including the Company’s Executive Chairman and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, including the Company’s Executive Chairman and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 31, 2017.

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KPMG LLP has issued its attestation report regarding our internal control over financial reporting. That report is included within this Item 9A (See “Report of Independent Registered Public Accounting Firm”).

Pursuant to the requirements of Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended, this annual report on Internal Control Over Financial Reporting has been signed below by the following persons on behalf of the registrant and in their respective capacities indicated below on March 12, 2018 .



/s/ Townes G. Pressler		/s/ Josh C. Anders
Townes G. Pressler		Josh C. Anders
Executive Chairman		Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Adams Resources & Energy, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Adams Resources & Energy, Inc.’s and subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements), and our report dated March 12, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting as of December 31, 2017. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ KPMG LLP

Houston, Texas

March 12, 2018

Item 9B. Other Information.

None.

PART III


Item 10.	Directors, Executive Officers and Corporate Governance.

The information required by this item will be included in our definitive Proxy Statement in connection with our 2018 Annual Meeting of Shareholders (the “2018 Proxy Statement”), which will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2017, under the headings “Election of Directors” and “Executive Officers” and is incorporated herein by reference.


Item 11.	Executive Compensation.

The information required by this item will be set forth in our 2018 Proxy Statement, which will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2017, under the heading “Executive Compensation” and is incorporated herein by reference.


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item will be set forth in our 2018 Proxy Statement, which will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2017, under the heading “Voting Securities and Principal Holders Thereof” and is incorporated herein by reference.

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Item 13.	Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be set forth in our 2018 Proxy Statement, which will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2017, under the headings “Transactions with Related Parties” and “Director Independence” and is incorporated herein by reference.


Item 14.	Principal Accounting Fees and Services

The information required by this item will be set forth in our 2018 Proxy Statement, which will be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2017, under the heading “Principal Accounting Fees and Services” and is incorporated herein by reference.

PART IV


Item 15.	Exhibits, Financial Statement Schedules

(a) The following documents are filed as a part of this annual report:


(1)	Financial Statements: See “Index to Consolidated Financial Statements” beginning on page 34 of this annual report for the financial statements included herein.


(2)	Financial Statement Schedules: The separate filing of financial statement schedules has been omitted because such schedules are either not applicable or the information called for therein appears in the footnotes of our Consolidated Financial Statements.


(3)	Exhibits:



	Exhibit Number	Exhibit
	Exhibit Number	Exhibit

	3.1	Certificate of Incorporation of Adams Resources & Energy, Inc., as amended (incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended December 31, 1987).
	3.2	Bylaws of Adams Resources & Energy, Inc., as amended (incorporated by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 2012).
	3.3	Adams Resources & Energy, Inc. and Subsidiaries’ Code of Ethics (incorporated by reference to Exhibit 3(d) to Form 10-K for the year ended December 31, 2002).
	4.1	Specimen common stock certificate (incorporated by reference to Exhibit 4(a) to Form 10-K for the fiscal year ended December 31, 1991).
	4.2	Credit and Security Agreement between Gulfmark Energy, Inc., Adams Resources Marketing, Ltd., and Wells Fargo Bank, National Association dated August 27, 2009 (incorporated by reference to Exhibit 4(b) to Quarterly Report on Form 10-Q for the period ended September 30, 2009).
	10.1+	Form of Indemnification Agreement for directors and executive officers (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on May 15, 2015).
	10.2+	Retirement Agreement, dated February 26, 2015, by and between Adams Resources Energy, Inc. and Frank T. “Chip” Webster (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February 26, 2015).
	10.3	Sixth Amendment to Credit and Security Agreement dated as of September 28, 2017 between Gulfmark Energy, Inc., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended September 30, 2017).

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	Exhibit Number	Exhibit
	Exhibit Number	Exhibit
	10.4*	Debtor in Possession Credit and Security Agreement dated as of April 25, 2017 by and among Adams Resources Exploration Corporation, as Borrower, and Adams Resources & Energy, Inc., as Lender.
	21*	Subsidiaries of the registrant.
	23.1*	Consent of Ryder Scott Company.
	31.1*	Sarbanes-Oxley Section 302 Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2*	Sarbanes-Oxley Section 302 Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1*	Sarbanes-Oxley Section 906 Certification of Chief Executive Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2*	Sarbanes-Oxley Section 906 Certification of Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.1	Ryder Scott Company Report as of December 31, 2016 (incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2016).
	101.CAL*	XBRL Calculation Linkbase Document
	101.DEF*	XBRL Definition Linkbase Document
	101.INS*	XBRL Instance Document
	101.LAB*	XBRL Labels Linkbase Document
	101.PRE*	XBRL Presentation Linkbase Document
	101.SCH*	XBRL Schema Document

______________________________

* Filed for furnished (in the case of Exhibits 32.1 and 32.2) with this report.

+ Management contract or compensation plan or arrangement.


Item 16.	Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 12, 2018 .



		ADAMS RESOURCES & ENERGY, INC.
		(Registrant)


	By:	/s/ Townes G. Pressler
		Townes G. Pressler
		Executive Chairman
		(Principal Executive Officer)

	By:	/s/ Josh C. Anders
		Josh C. Anders
		Chief Financial Officer
		(Principal Financial Officer and Principal
		Accounting Officer)

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on March 12, 2018 .



Signature		Title

/s/ Townes G. Pressler		Director and Executive Chairman of the Board
Townes G. Pressler
/s/ Larry E. Bell		Director
Larry E. Bell
/s/ Murray E. Brasseux		Director
Murray E. Brasseux
/s/ Michelle A. Earley		Director
Michelle A. Earley
/s/ Richard C. Jenner		Director
Richard C. Jenner
/s/ E.C. Reinauer, Jr.		Director
E.C. Reinauer, Jr.
/s/ W.R. Scofield		Director
W.R. Scofield

Exhibit 10.4

DEBTOR IN POSSESSION CREDIT AND SECURITY AGREEMENT

dated as of April 25, 2017

by and among

ADAMS RESOURCES EXPLORATION CORPORATION

as Borrower,

and

ADAMS RESOURCES & ENERGY, INC.,

as Lender

DEBTOR IN POSSESSION CREDIT AND SECURITY AGREEMENT

THIS DEBTOR IN POSSESSION CREDIT AND SECURITY AGREEMENT (as the same may be amended, supplemented, restated or otherwise modified from time to time, the “ Agreement ”) is dated as of April 25, 2017 by and among ADAMS RESOURCES EXPLORATION CORPORATION (“ AREC” ), a Delaware corporation (“ Borrower ”) and ADAMS RESOURCES & ENERGY, INC. (“ ARE ”) , as Lender.

RECITALS

A. On April 21, 2017 (the “ Petition Date ”), the Borrower filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (defined below) in the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Court ”) and is continuing to operate its business and manage its properties as debtor and debtor in possession under sections 1107 and 1108 of the Bankruptcy Code.

B. Borrower has requested that Lender provide financing to Borrower in the form of term loans in the maximum aggregate principal amount of $1,250,000.00, subject to the terms set forth herein, in the Interim Order or Final Order (defined below) and pursuant to sections 364(c)(1), 364(c)(2), and 364(c)(3), of the Bankruptcy Code, the proceeds of which will be used solely in accordance with the Budget (defined below): (i) to pay interest, fees and expenses in respect of amounts due under this Agreement to Lender in accordance with the Financing Documents (defined below); (ii) to pay reimbursement of fees and expenses of the Lender; (iii) to the extent set forth in the Budget, to fund the postpetition operating costs of the Borrower (including the reasonable fees of the Borrower’s professionals (subject to variance if in Compliance) incurred in connection with the Bankruptcy Case (defined below), provided, however , that budgeted professional fees not paid in a particular budget period may be paid during a subsequent period; and (iv) to the extent set forth in the Budget, (subject to variance if in Compliance) to pay certain other costs and expenses of administration of the Bankruptcy Case.

C. Lender has agreed to provide term loans to Borrower pursuant to sections 364(c)(1), 364(c)(2), and 364(c)(3) of the Bankruptcy Code on the terms and conditions of this Agreement and in the Interim Order or Final Order so long as such postpetition credit obligations are secured by Liens granted by Borrower pursuant to this Agreement, the Interim Order or Final Order and the other Financing Documents and given super-priority status as provided in the Interim Order or Final Order.

AGREEMENT

NOW, THEREFORE , in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower and Lender agree as follows:

ARTICLE 1 - DEFINITIONS

Section 1.1 Certain Defined Terms

The following terms have the following meanings:

“ Acceleration Event ” means the occurrence of an Event of Default (a) in respect of which Lender has declared all or any portion of the Obligations to be immediately due and payable pursuant to Section 8.2, and/or (b) pursuant to any of subsections (a), (e), (f), (i), (k), (l), (m), (t), (u), (v), (x), (cc), (dd), (ee) or (ff) of Section 8.1.

“ Account Debtor ” means “account debtor”, as defined in Article 9 of the UCC, and any other obligor in respect of an Account.

“ Accounts ” means, collectively, (a) any right to payment of a monetary obligation, whether or not earned by performance, (b) without duplication, any “account” (as defined in the UCC), any accounts receivable (whether in the form of payments for services rendered or goods sold, rents, license fees or otherwise), any “payment intangibles” (as defined in the UCC) and all other rights to payment and/or reimbursement of every kind and description, whether or

not earned by performance, (c) “general intangibles” (as defined in the UCC), Intellectual Property, rights, remedies, guarantees, “supporting obligations” (as defined in the UCC), “letter-of-credit rights” (as defined in the UCC) and security interests in respect of the foregoing, all rights of enforcement and collection, all books and records evidencing or related to the foregoing, and all rights under the Financing Documents in respect of the foregoing, (d) all information and data compiled or derived by Borrower or to which Borrower is entitled in respect of or related to the foregoing, and (e) all products and proceeds of any of the foregoing.

“ Affiliate ” means, with respect to any Person, (a) any Person that directly or indirectly controls such Person, (b) any Person which is controlled by or is under common control with such controlling Person, and (c) each of such Person’s (other than, with respect to any Lender, any Lender’s) officers or directors (or Persons functioning in substantially similar roles) and the spouses, parents, descendants and siblings of such officers, directors or other Persons. As used in this definition, the term “control” of a Person means the possession, directly or indirectly, of the power to vote five percent (5%) or more of any class of voting securities of such Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“ Allowed Fees ” means, with respect to the Bankruptcy Case, fees and reimbursement for distributions of professionals retained by the Borrower and any official committee of unsecured creditors appointed by the United States Trustee’s Office in the Bankruptcy Case and allowed or otherwise payable pursuant to an order of the Bankruptcy Court, including, without limitation, pursuant to monthly fee statements, that has not been vacated, stayed, appealed or objected to by Lender, under sections 327, 328 or 1103 of the Bankruptcy Code.

“ Anti-Terrorism Laws ” means any Law relating to terrorism or money laundering, including, without limitation, Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC.

“ Asset Disposition ” means any sale, lease, license, transfer, assignment or other consensual disposition by Borrower of any asset.

“ Bankruptcy Case ” means the following case pending before the Bankruptcy Court: In re Adams Resources Exploration Corporation, pending in the United States Bankruptcy Court for the District of Delaware, Case No. 17-10866(KG).

“ Bankruptcy Code ” means title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. , entitled “Bankruptcy”, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto.

“ Bankruptcy Court ” has the meaning specified therefor in the recitals to this Agreement.

“ Blocked Person ” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list or is named as a “listed person” or “listed entity” on other lists made under any Anti-Terrorism Law.

“ Borrower ” means the entity described in the first paragraph of this Agreement and each of its successors and permitted assigns.

“ Borrower Representatives ” means the Chief Restructuring Officer and the President (defined herein) of Borrower, each in his capacity as borrower representative pursuant to the provisions of Section 2.9 herein, or any such successor selected by Borrower, approved by Lender, and authorized by the Bankruptcy Court.

“ Budget ” means the budget attached hereto as Exhibit A , as may be amended, depicting on a weekly basis cash revenue, receipts, expenses, disbursements, outstanding advances under the DIP Loans and other information for the fiscal week period following the Closing Date.

“ Business Day ” means any day except a Saturday, Sunday or other day on which either the New York Stock Exchange is closed, or on which commercial banks in Wilmington, Delaware are authorized by law to close.

“ Carve-Out ” has the meaning set forth in the Interim Order. The relative priority of all amounts owed under this Agreement will be subject only to a carve-out for (i) the fees and expenses of professionals retained by the Borrower (after the application of any retainer) in an aggregate amount not to exceed $75,000 or the Committee (the “ Professional Fees and Expenses ”) in an aggregate amount not to exceed $30,000 in fees and expenses incurred and unpaid prior to a Termination Event, to the extent set forth in the Budget and remains unpaid; and (ii) the statutory fees of the United States Trustee pursuant to 28 U.S.C. § 1930 and the fees of the Clerk of this Court.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. § 9601 et seq ., as the same may be amended from time to time.

“ Change in Control ” means any of the following: (a) any change in the legal or beneficial ownership of the capital stock, partnership interests or membership interests, or in the capital structure, organizational documents or governing documents, of the applicable Person; (b) any pledge, assignment or hypothecation of or Lien or encumbrance on any of the legal or beneficial equity interests in the applicable Person; (c) any change in the legal or beneficial ownership or control of the outstanding voting equity interests of the applicable Person necessary at all times to elect a majority of the board of directors (or similar governing body) of each such Person and to direct the management policies and decisions of such Person; (d) the applicable Person shall cease to, directly or indirectly, own and control one hundred percent (100%) of each class of the outstanding equity interests of each Subsidiary of such Person; and (e) any “Change of Control”, “Change in Control” or terms of similar import under any document or instrument governing or relating to Debt of or equity in such Person.

“ Chief Restructuring Officer” means the Chief Restructuring Officer appointed by the Debtors and as authorized by an order of the Bankruptcy Court.

“ Closing Date ” means the date the Interim Order is entered by the Bankruptcy Court approving this Agreement and all conditions to closing set forth herein are determined by the Lender to be satisfied or waived.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Collateral ” means all property, now existing or hereafter acquired, mortgaged or pledged to, or purported to be subjected to a Lien in favor of, Lender, pursuant to this Agreement, including, without limitation, all of the property described in the Interim Order and Final Order.

“ Compliance Certificate ” means a certificate, duly executed by the Chief Restructuring Officer or President, appropriately completed and substantially in the form of Exhibit B hereto.

“ Confirmation Date ” means the date on which the Confirmation Order is entered in the docket on the Bankruptcy Court.

“ Confirmation Order ” means an order of the Bankruptcy Court, in form and substance reasonably satisfactory to the Lender in connection with the payment of the Obligations on the Effective Date, confirming the Plan of Reorganization.

“ Contingent Obligation ” means, with respect to any Person, any direct or indirect liability of such Person: (a) with respect to any Debt of another Person (a “ Third Party Obligation ”) if the purpose or intent of such Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such Third Party Obligation that such Third Party Obligation will be paid or discharged, or that any agreement relating thereto will be complied with,

or that any holder of such Third Party Obligation will be protected, in whole or in part, against loss with respect thereto; (b) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (c) for any obligations of another Person pursuant to any guarantee or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determinable amount, the maximum amount so guaranteed or otherwise supported.

“ Controlled Group ” means all members of any group of corporations and all members of a group of trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA.

“ Debt ” of a Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid on a timely basis and in the Ordinary Course of Business, (d) all capital leases of such Person, (e) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, (f) all equity securities of such Person subject to repurchase or redemption other than at the sole option of such Person, (g) all obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (h) “earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts, (i) all Debt of others guaranteed by such Person, (j) off-balance sheet liabilities and/or Pension Plan or Multiemployer Plan liabilities of such Person, (k) obligations arising under non-compete agreements, and (l) obligations arising under bonus, deferred compensation, incentive compensation or similar arrangements, other than those arising in the Ordinary Course of Business. Without duplication of any of the foregoing, Debt of Borrower shall include any and all DIP Loans.

“ Deposit Account ” means a “deposit account” (as defined in Article 9 of the UCC), an investment account, or other account in which funds are held or invested for credit to or for the benefit of Borrower.

“ Deposit Account Control Agreement ” means a deposit account control agreement among Borrower, Lender and each financial institution where Borrower maintains deposit accounts, in a form satisfactory to Lender in its reasonable discretion, as the same may be amended, restated, modified or supplemental from time to time.

“ DIP Loan(s) ” has the meaning set forth in Section 2.1.

“ DIP Loan Commitment ” means $1,250,000.

“ Dollars ” or “ $ ” means the lawful currency of the United States of America.

“ Environmental Laws ” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other governmental directives or requirements, as well as common law, pertaining to the environment, natural resources, pollution, health (including any environmental clean-up statutes and all regulations adopted by any local, state, federal or other Governmental Authority, and any statute, ordinance, code, order, decree, law rule or regulation all of which pertain to or impose liability or standards of conduct concerning medical waste or medical products, equipment or supplies), safety or clean-up that apply to Borrower or any Project and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq. ), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et seq. ), the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq. ), the Hazardous Materials Transportation Act (49 U.S.C. § 5101 et seq. ), the Clean Air Act (42 U.S.C. § 7401 et seq. ), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq. ), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq. ), the Occupational Safety and Health Act (29 U.S.C. § 651 et seq. ), the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. § 4851 et seq. ), any analogous state or local laws, any

amendments thereto, and the regulations promulgated pursuant to said laws, together with all amendments from time to time to any of the foregoing and judicial interpretations thereof.

“ Environmental Liens ” means all Liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Borrower or any other Person.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto, and any and all rules or regulations promulgated from time to time thereunder.

“ ERISA Plan ” means any “employee benefit plan”, as such term is defined in Section 3(3) of ERISA (other than a Multiemployer Plan), which Borrower maintains, sponsors or contributes to, or, in the case of an employee benefit plan which is subject to Section 412 of the Code or Title IV of ERISA, to which Borrower or any member of the Controlled Group may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

“ Event of Default ” has the meaning set forth in Section 8.1.

“ Final Order ” means an order of the Bankruptcy Court in the Bankruptcy Case which approves the transactions contemplated by this Agreement and the other Financing Documents on a final basis and is in form and substance acceptable to Lender, as the same may be amended, modified or otherwise supplemented from time to time in compliance with this Agreement.

“ Financing Documents ” means this Agreement, any Notes, the Interim Order, the Final Order, any subordination or intercreditor agreement pursuant to which any Debt and/or any Liens securing such Debt is subordinated to all or any portion of the Obligations and all other documents, instruments and agreements related to the Obligations and heretofore executed, executed concurrently herewith or executed at any time and from time to time hereafter, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

“ Fraudulent Conveyance ” has the meaning set forth in Section 2.10(b).

“ GAAP ” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the United States accounting profession), which are applicable to the circumstances as of the date of determination.

“ General Intangible ” means any “general intangible” as defined in Article 9 of the UCC, and any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction, but including payment intangibles and software.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, and any agency, department or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other Person owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing, whether domestic or foreign.

“ Hazardous Materials ” means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on the Project is prohibited by any Environmental Laws; toxic mold, any substance that requires special handling; and any other material or substance now or in the future defined as a “hazardous substance,” “hazardous material,” “hazardous

waste,” “toxic substance,” “toxic pollutant,” “contaminant,” “pollutant” or other words of similar import within the meaning of any Environmental Law, including: (a) any “hazardous substance” defined as such in (or for purposes of) CERCLA, or any so-called “superfund” or “superlien” Law, including the judicial interpretation thereof; (b) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33); (c) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (d) any petroleum or petroleum by-products, including crude oil or any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910; (g) any toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls (“ PCB’s ”), flammable explosives, radioactive materials, infectious substances, materials containing lead-based paint or raw materials which include hazardous constituents); and (h) any other toxic substance or contaminant that is subject to any Environmental Laws or other past or present requirement of any Governmental Authority.

“ Hazardous Materials Contamination ” means contamination (whether now existing or hereafter occurring) of the improvements, buildings, facilities, personalty, soil, groundwater, air or other elements on or of the relevant property by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the relevant property.

“ Instrument ” means “instrument”, as defined in Article 9 of the UCC.

“ Intellectual Property ” means, with respect to any Person, all patents, patent applications and like protections, including improvements divisions, continuation, renewals, reissues, extensions and continuations in part of the same, trademarks, trade names, trade styles, trade dress, service marks, logos and other business identifiers and, to the extent permitted under applicable law, any applications therefor, whether registered or not, and the goodwill of the business of such Person connected with and symbolized thereby, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative works, whether published or unpublished, technology, know-how and processes, operating manuals, trade secrets, computer hardware and software, rights to unpatented inventions and all applications and licenses therefor, used in or necessary for the conduct of business by such Person and all claims for damages by way of any past, present or future infringement of any of the foregoing.

“ Interim Order ” means an order of the Bankruptcy Court in the Bankruptcy Case which approves the transactions contemplated by this Agreement and the other Financing Documents on an interim basis and is in form and substance acceptable to Lender, as the same may be amended, modified or otherwise supplemented from time to time in compliance with this Agreement.

“ Inventory ” means “inventory” as defined in Article 9 of the UCC.

“ Intercompany Loans ” has the meaning set forth in Section 2.9.

“ Investment ” means any investment in any Person, whether by means of acquiring (whether for cash, property, services, securities or otherwise), making or holding Debt, securities, capital contributions, loans, time deposits, advances, guarantees or otherwise. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect thereto.

“ Laws ” means any and all federal, state, provincial, territorial, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, injunctions, permits, governmental agreements and governmental restrictions, whether now or hereafter in effect, which are applicable to Borrower in any particular circumstance. “Laws” includes, without limitation, Healthcare Laws and Environmental Laws.

“ Lender ” means the entity described in the first paragraph of this Agreement and its successors and assigns.

“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, in respect of such asset. For the purposes of this Agreement and the other Financing Documents, Borrower

shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“ Litigation ” means any action, suit or proceeding before any court, mediator, arbitrator or Governmental Authority.

“ Loan Account ” has the meaning set forth in Section 2.6(b).

“ Material Adverse Effect ” means with respect to any event, act, condition or occurrence of whatever nature, whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, (a) a material adverse change in, or a material adverse effect upon, any of (i) the condition (financial or otherwise), operations, business, properties or prospects of the Borrower, exclusive of any impact based upon the filing of the Borrower’s bankruptcy petitions, (ii) the rights and remedies of Lender under any Financing Document, or the ability of Borrower to perform any of its obligations under any Financing Document to which it is a party, (iii) the legality, validity or enforceability of any Financing Document, (iv) the existence, perfection or priority of any security interest granted in any Financing Document or (v) the value of any material Collateral.

“ Material Contracts ” has the meaning set forth in Section 3.16.

“ Maturity Date ” means the earliest of (i) April 21, 2018; (ii) the effective date of a confirmed Plan of Reorganization; or (iii) the closing date of a sale under Section 363 of the Bankruptcy Code of all or substantially all of Borrower’s assets which are Collateral.

“ Maximum Lawful Rate ” has the meaning set forth in Section 2.7.

“ Measuring Period ” has the meaning set forth in Section 4.1.

“ Milestones ” means (a) on or before May 22, 2017, the Debtor shall either (i) execute a sale agreement with a stalking horse bidder relating to the sale of, or substantially all of, Debtor’s assets, and filing a sale motion and bidding procedures motion relating to such sale in form and substance acceptable to Lender, or (ii) file a bidding procedures motion and an auction sale motion with the Court to implement bidding procedures for a sale of substantially all Debtor’s assets without a stalking horse bidder; (b) on or before June 21, 2017, the Debtor shall obtain entry of a bidding procedures order from the Bankruptcy Court approving bidding procedures for a sale of substantially all Debtor’s assets.; (c) on or before July 21, 2017, Debtor shall identify a winning bidder or other purchaser for all or substantially all of Debtor’s assets; (d) on or before August 21, 2017, Debtor shall obtain Court approval of and close a sale of substantially all of the Debtor’s assets.

“ Multiemployer Plan ” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which Borrower or any other member of the Controlled Group (or any Person who in the last five years was a member of the Controlled Group) is making or accruing an obligation to make contributions or has within the preceding five plan years (as determined on the applicable date of determination) made contributions.

“ Notes ” has the meaning set forth in Section 2.5.

“ Notice of Borrowing ” means a notice of the Chief Restructuring Officer or President, appropriately completed and substantially in the form of Exhibit C hereto.

“ Obligations ” means all obligations, liabilities and indebtedness (monetary (including interest, fees, obligations for costs and expense and indemnity obligations, whether or not allowable or allowed) or otherwise) of Borrower under this Agreement or any other Financing Document, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due.

“ OFAC ” means the U.S. Department of Treasury Office of Foreign Assets Control.

“ OFAC Lists ” means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.

“ Operative Documents ” means the Financing Documents and each other agreement, documents and certificate executed or delivered in connection therewith.

“ Ordinary Course of Business ” means, in respect of any transaction involving Borrower, the ordinary course of business of Borrower, as conducted by Borrower in accordance with past practices.

“ Organizational Documents ” means, with respect to any Person other than a natural person, the documents by which such Person was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Person (such as by-laws, a partnership agreement or an operating, limited liability company or members agreement), including any and all shareholder agreements or voting agreements relating to the capital stock or other equity interests of such Person.

“ Payment Account ” means the account specified on the signature pages hereof into which all payments by or on behalf of Borrower to Lender under the Financing Documents shall be made, or such other account as Lender shall from time to time specify by notice to Borrower Representatives.

“ Payment Notification ” means a written notification substantially in the form of Exhibit D hereto.

“ PBGC ” means the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions under ERISA.

“ Pension Plan ” means any ERISA Plan that is subject to Section 412 of the Code or Title IV of ERISA.

“ Permits ” means all governmental licenses, authorizations, certificates, franchises, qualifications, accreditations, consents and approvals of Borrower required under all applicable Laws and required for Borrower in order to carry on its business.

“ Permitted Asset Dispositions ” means the following Asset Dispositions, provided, however, that at the time of such Asset Disposition, no Event of Default exists or would result from such Asset Disposition: (a) dispositions of Inventory in the Ordinary Course of Business and not pursuant to any bulk sale, (b) dispositions of furniture, fixtures and equipment in the Ordinary Course of Business that the applicable Borrower determines in good faith is no longer used or useful in the business of Borrower, (c) dispositions approved by Lender and the Bankruptcy Court, and (d) any asset sale contemplated by the Milestones.

“ Permitted Contest ” means, with respect to any tax obligation or other obligation allegedly or potentially owing from Borrower to any governmental tax authority or other third party, a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made on the books and records and financial statements of the Borrower; provided , however , that (a) compliance with the obligation that is the subject of such contest is effectively stayed during such challenge; (b) Borrower’s title to, and its right to use, the Collateral is not adversely affected thereby and Lender’s Lien and priority on the Collateral are not adversely affected, altered or impaired thereby; (c) Borrower has given prior written notice to Lender of Borrower’s intent to so contest the obligation; (d) the Collateral or any part thereof or any interest therein shall not be in any danger of being sold, forfeited or lost by reason of such contest by Borrower; (e) Borrower has given Lender notice of the commencement of such contest and upon request by Lender, from time to time, notice of the status of such contest by Borrower and/or confirmation of the continuing satisfaction of this definition; and (f) upon a final determination of such contest, Borrower shall promptly comply with the requirements thereof.

“ Permitted Contingent Obligations ” means (a) Contingent Obligations arising in respect of the Debt under the Financing Documents; (b) Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business; (c) Contingent Obligations outstanding on the date of this Agreement and set forth on Schedule 5.1 (but not including any refinancings, extensions, increases or amendments to the indebtedness underlying such Contingent Obligations other than extensions of the maturity thereof without any other change in terms); (d) Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations not to exceed $[TBD] in the aggregate at any time outstanding; and (e) other Contingent Obligations not permitted by clauses (a) through (d) above, not to exceed $25,000 in the aggregate at any time outstanding.

“ Permitted Debt ” means: (a) Borrower’s Debt to Lender under this Agreement, the other Financing Documents; (b) Debt incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business; (c) Debt existing on the date of this Agreement and described on Schedule 5.1 (but not including any refinancings, extensions, increases or amendments to such Debt other than extensions of the maturity thereof without any other change in terms); and (d) Debt in the form of insurance premiums financed through the applicable insurance company.

“ Permitted Investments ” means: (a) Investments shown on Schedule 5.7 and existing on the Closing Date; (b) (i) cash equivalents, and (ii) any similar short term Investments permitted by Borrower’s investment policies, as amended from time to time, provided, however, that such investment policy (and any such amendment thereto) has been approved by Lender; (c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the Ordinary Course of Business; (d) Investments consisting of travel advances and employee relocation loans and other employee loans and advances in the Ordinary Course of Business; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the Ordinary Course of Business; (f) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the Ordinary Course of Business, provided, however , that this subpart (f) shall not apply to Investments of Borrower in any Subsidiary; (g) Investments consisting of deposit accounts in which Lender has received a Deposit Account Control Agreement; and (h) other Investments in an amount not exceeding $50,000 in the aggregate.

“ Permitted Liens ” means: (a) deposits or pledges of cash to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance (but excluding Liens arising under ERISA) pertaining to Borrower’s employees, if any; (b) deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money or the deferred purchase price of property or services), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business; (c) carrier’s, warehousemen’s, mechanic’s, or other like Liens on Collateral arising in the Ordinary Course of Business with respect to obligations which are not due, or which are being contested pursuant to a Permitted Contest; (d) Liens on Collateral, other than Accounts, for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or the subject of a Permitted Contest; (e) attachments, appeal bonds, judgments and other similar Liens on Collateral other than Accounts, for sums not exceeding $25,000 in the aggregate arising in connection with court proceedings; provided , however , that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are the subject of a Permitted Contest; (f) with respect to real estate, easements, rights of way, restrictions, minor defects or irregularities of title, none of which, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by the Financing Documents, materially affect the value or marketability of the Collateral, impair the use or operation of the Collateral for the use currently being made thereof or impair Borrower’s ability to pay the Obligations in a timely manner or impair the use of the Collateral or the ordinary conduct of the business of Borrower and which, in the case of any real estate which is part of the Collateral; (g) Liens and encumbrances in favor of Lender under the Financing Documents; and (h) Liens on Collateral existing on the date hereof and set forth on Schedule 5.2 .

“ Person ” means any natural person, corporation, limited liability company, professional association, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority.

“ Plan Documentation ” means the Plan of Reorganization and all documentation related thereto or referenced therein, including without limitation any amendments, modifications or supplements to any of the foregoing, including any subsequent plans of reorganization, any motions related thereto and the Confirmation Order.

“ Plan of Reorganization ” means, as the same may be amended, modified or otherwise supplemented in compliance with this Agreement, a plan of reorganization of the Borrower in its Bankruptcy Case which either (a) provides for indefeasible payment in full cash and in accordance with the terms of the this Agreement of all Obligations due and owing as of the effective date of such plan of reorganization, or (b) is otherwise in form and content acceptable to Lender.

“ Postpetition ” or “ postpetition ” means the time period commencing on the Petition Date and ending on the effective date of the Plan of Reorganization.

“ Prepetition ” or “ prepetition ” means the time period prior to the Petition Date.

“ President ” means John Riney.

“ Release ” has the meaning set forth in 42 U.S.C. § 9601 (22).

“ Released Parties ” has the meaning set forth in Section 9.2.

“ Restricted Distribution ” means as to any Person (a) any dividend or other distribution (whether in cash, securities or other property) on any equity interest in such Person (except those payable solely in its equity interests of the same class), (b) any payment by such Person on account of (i) the purchase, redemption, retirement, defeasance, surrender, cancellation, termination or acquisition of any equity interests in such Person or any claim respecting the purchase or sale of any equity interest in such Person, or (ii) any option, warrant or other right to acquire any equity interests in such Person, (c) any management fees, salaries or other fees or compensation to any Person other than Lender holding an equity interest in a Borrower, an Affiliate of a Borrower, or (d) repayments of or debt service on loans or other indebtedness held by any Person other than Lender holding an equity interest in Borrower unless permitted under and made pursuant to a Subordination Agreement applicable to such loans or other indebtedness.

“ Securities Account ” means a “securities account” (as defined in Article 9 of the UCC), an investment account, or other account in which investment property or securities are held or invested for credit to or for the benefit of Borrower.

“ Securities Account Control Agreement ” means an agreement, in form and substance satisfactory to Lender, among Lender, Borrower and each securities intermediary in which Borrower maintains a Securities Account pursuant to which Lender shall obtain “control” (as defined in Article 9 of the UCC) over such Securities Account.

“ Taxes ” has the meaning set forth in Section 2.8.

“ Termination Date ” means the earlier to occur of (a) any date on which Lender accelerates the maturity of the DIP Loans pursuant to Section 8.2, or (b) the termination date stated in any notice of termination of this Agreement provided by Borrower in accordance with Section 2.12.

“ Termination Event ” has the meaning set forth in the Interim Order or Final Order.

“ UCC ” means the Uniform Commercial Code of the State of Delaware or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any Collateral.

“ United States ” means the United States of America.

Section 1.2 Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including, without limitation,

determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of Borrower and any consolidated entities delivered to Lender on or prior to the Closing Date. If at any time any change in GAAP would affect the computation of any financial ratio or financial requirement set forth in any Financing Document, and Borrower shall so request, Lender and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided , however , that until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide to Lender financial statements and other documents required under this Agreement which include a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (or any other Financial Accounting Standard having a similar result or effect) to value any Debt or other liabilities of Borrower at “fair value”, as defined therein.

Section 1.3 Other Definitional and Interpretive Provisions . References in this Agreement to “Articles”, “Sections”, “Annexes”, “Exhibits”, or “Schedules” shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement unless otherwise specifically provided. Any term defined herein may be used in the singular or plural. “Include”, “includes” and “including” shall be deemed to be followed by “without limitation”. Except as otherwise specified or limited herein, references to any Person include the successors and assigns of such Person. References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including”, respectively. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds. References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations. All amounts used for purposes of financial calculations required to be made herein shall be without duplication. References to any statute or act, without additional reference, shall be deemed to refer to federal statutes and acts of the United States. References to any agreement, instrument or document shall include all schedules, exhibits, annexes and other attachments thereto. As used in this Agreement, the meaning of the term “material” or the phrase “in all material respects” is intended to refer to an act, omission, violation or condition which reflects or could reasonably be expected to result in a Material Adverse Effect. References to capitalized terms that are not defined herein, but are defined in the UCC, shall have the meanings given them in the UCC. All references herein to times of day shall be references to daylight or standard time, as applicable.

Section 1.4 Time is of the Essence . Time is of the essence in Borrower’s performance under this Agreement and all other Financing Documents.

ARTICLE 2 - LOANS

Section 2.1 DIP Loan . On the terms and subject to the conditions set forth herein, Lender hereby agrees to make to Borrower term loans in an aggregate original principal amount equal to the DIP Loan Commitment (such term loans or the outstanding principal balance thereof from time to time, as the context requires, being referred to as the “ DIP Loan ” or “ DIP Loans ”). The DIP Loans shall be funded in multiple advances on and after the Closing Date as needed and to the extent required as set forth in the Budget, for the payment of expenses set forth in the Budget in the amounts set forth in such Budget equal to 100% of the projected operating deficit for such [week] shown on the Budget and solely for those items and for Borrower (subject to the variance described in Section 4.1).

Section 2.2 Making of DIP Loans . The Borrower shall give Lender prior notice of each DIP Loan requested hereunder of at least two (2) Business Days; such notice shall be in the form of and contain the information set forth in the form of Notice of Borrowing attached hereto as Exhibit C , shall be irrevocable and shall specify the amount of the proposed DIP Loan and the date thereof (which shall be a Business Day) and shall contain disbursement instructions. Such notice, to be effective, must be received by Lender not later than 11:00 a.m., Central time on the second Business Day preceding the date on which such DIP Loan is to be made. On the borrowing date specified in such notice, Lender shall disburse such funds in the manner specified in the Notice of Borrowing delivered by the

Borrower and shall use reasonable efforts to make the funds available to the Borrower no later than 2:00 p.m. on the third Business Day following receipt of a proper Notice of Borrowing.

Section 2.3 Interest, Interest Calculations and Certain Fees .

(a) Interest and Fees . The DIP Loan shall accrue variable interest at the rate of LIBOR plus 200 bps. There shall be no fees due the Lender with respect to the DIP Loan Facility except for the reimbursement of reasonable attorneys’ fees and costs associated with the Bankruptcy Case. Such attorneys’ fees shall constitute Obligations under the terms of this DIP Credit Agreement.

(b) Default Interest . Upon the occurrence and during the continuance of an Event of Default, all outstanding DIP Loans and any other Obligations, following issuance of written notice from Lender, shall bear interest at a default rate of interest equal to an additional two percent (2.0%) per annum over the rate otherwise applicable, and such interest will be payable on demand.

Section 2.4 Scheduled Repayments; Mandatory Prepayments; Optional Prepayments .

(a) The Borrower hereby unconditionally promises to pay to Lender the then unpaid principal amount (including any accrued and unpaid interest thereon) of each DIP Loan, on the first to occur of (i) the Maturity Date, and (ii) the Termination Date.

(b) There shall become due and payable and Borrower shall prepay the DIP Loan in the following amounts and at the following times:

(i) on the date on which Borrower receives any casualty proceeds with respect to assets upon which Lender maintains a Lien, an amount equal to one hundred percent (100%) of such proceeds;

(ii) upon receipt by Borrower of the proceeds of any Asset Disposition involving an asset upon which Lender maintains a Lien, an amount equal to one hundred percent (100%) of the net cash proceeds of such asset disposition; and

Section 2.5 Notes . The DIP Loans shall be evidenced, if so requested by Lender, by one or more promissory notes executed by Borrower (each, a “ Note ”) in an original principal amount equal to the DIP Loan Commitment Amount.

Section 2.6 General Provisions Regarding Payment; Loan Account .

(a) All payments to be made by Borrower under any Financing Document, including payments of principal and interest made hereunder and pursuant to any other Financing Document, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment or counterclaim. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension (it being understood and agreed that, solely for purposes of calculating financial covenants and computations contained herein and determining compliance therewith, if payment is made, in full, on any such extended due date, such payment shall be deemed to have been paid on the original due date without giving effect to any extension thereto). Any payments received in the Payment Account before 12:00 Noon (Central time) on any date shall be deemed received by Lender on such date, and any payments received in the Payment Account at or after 12:00 Noon (Central time) on any date shall be deemed received by Lender on the next succeeding Business Day. In the absence of receipt by Lender of a written designation by a Borrower Representative, at least two (2) Business Days prior to such

prepayment, that such prepayment is to be applied to a DIP Loan, Borrower hereby authorizes and directs Lender, subject to the provisions of Section 8.7 hereof, to apply such prepayment pro rata against all outstanding DIP Loans in accordance with the provisions of this Agreement; provided, however, that if Lender at any time determines that payments received by Lender were in respect of a mandatory prepayment event, Lender shall apply such payments in accordance with the provisions of Section 2.4 and shall be fully authorized by Borrower to make corresponding Loan Account reversals in respect thereof.

(b) Lender shall maintain a loan account (the “ Loan Account ”) on its books to record DIP Loans and other extensions of credit made by Lender hereunder or under any other Financing Document, and all payments thereon made by Borrower. All entries in the Loan Account shall be made in accordance with Lender’s customary accounting practices as in effect from time to time. Lender shall endeavor to provide Borrower with a monthly statement regarding the Loan Account (but Lender shall not have any liability if it shall fail to provide any such statement). Unless Borrower notifies Lender of any objection to any such statement (specifically describing the basis for such objection) within sixty (60) days after the date of receipt thereof, it shall be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein.

Section 2.7 Maximum Interest . In no event shall the interest charged with respect to the DIP Loans or any other Obligations of Borrower under any Financing Document exceed the maximum amount permitted under the laws of the State of Delaware or of any other applicable jurisdiction. Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate of interest payable hereunder or under any Note or other Financing Document (the “ Stated Rate ”) would exceed the highest rate of interest permitted under any applicable law to be charged (the “ Maximum Lawful Rate ”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided , however , that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by Lender exceed the amount which it could lawfully have received had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the DIP Loans or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower. In computing interest payable with reference to the Maximum Lawful Rate applicable to Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.

Section 2.8 Taxes; Capital Adequacy .

(a) All payments of principal and interest on the DIP Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp, documentary, payroll, employment, property or franchise taxes and other taxes, fees, duties, levies, assessments, withholdings or other charges of any nature whatsoever (including interest and penalties thereon) imposed by any taxing authority, excluding taxes imposed on or measured by Lender’s net income by the jurisdictions under which Lender is organized or conducts business (other than solely as the result of entering into any of the Financing Documents or taking any action thereunder) (all non-excluded items being called “ Taxes ”). If any withholding or deduction from any payment to be made by Borrower hereunder is required in respect of any Taxes pursuant to any applicable Law, then Borrower will: (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to Lender an official receipt or other documentation satisfactory to Lender evidencing such payment to such authority; and (iii) pay to Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by Lender will equal the full amount Lender would have received had no such withholding or deduction been required. If any Taxes are directly asserted against Lender with respect to any payment received by Lender, Lender may pay such Taxes and Borrower will promptly pay such additional amounts (including any

penalty, interest or expense) as is necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted so long as such amounts have accrued on or after the day which is two hundred seventy (270) days prior to the date on which Lender first made written demand therefor.

(b) If Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Lender, the required receipts or other required documentary evidence, Borrower shall indemnify Lender for any incremental Taxes, interest or penalties that may become payable by Lender as a result of any such failure.

Section 2.9 Appointment of Borrower Representatives . Borrower hereby designates the Borrower Representatives each as its representative and agent on its behalf for the purposes of issuing Notices of Borrowing, and giving instructions with respect to the disbursement of the proceeds of the DIP Loans, giving and receiving all other notices and consents hereunder or under any of the other Financing Documents and taking all other actions (including in respect of compliance with covenants) on behalf of Borrower under the Financing Documents. The Borrower Representatives hereby accept such appointment. Notwithstanding anything to the contrary contained in this Agreement, no person other than a Borrower Representative shall be entitled to take any of the foregoing actions. Lender may regard any notice or other communication pursuant to any Financing Document from either Borrower Representative as a notice or communication from Borrower, and may give any notice or communication required or permitted to be given to Borrower hereunder to either Borrower Representative on behalf of Borrower. Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by a Borrower Representative shall be deemed for all purposes to have been made by Borrower and shall be binding upon and enforceable against Borrower to the same extent as if the same had been made directly by Borrower.

Section 2.10 [Reserved].

Section 2.11 Collections and Deposit Account Control Agreements .

(a) Borrower shall ensure that all collections of Accounts are paid directly from Account Debtors into an operating account of Borrower that is subject to a Deposit Account Control Agreement.

(b) Borrower hereby indemnifies and agrees to hold Lender harmless from any and all liabilities, claims, losses and demands whatsoever, including reasonable attorneys’ fees and expenses, arising from or relating to actions of Lender or the depository bank pursuant to this Section or any Deposit Account Control Agreement or similar agreement, except to the extent of such losses arising solely from Lender’s gross negligence or willful misconduct.

(c) To the extent that any collections of Accounts or proceeds of other Collateral are not deposited into an account that is subject to a Deposit Account Control Agreement but are received by Borrower, such collections shall be held in trust for the benefit of Lender pursuant to an express trust created hereby and immediately remitted, in the form received, to an applicable account subject to a Deposit Account Control Agreement. No such funds received by Borrower shall be commingled with other funds of the Borrower.

Section 2.12 Termination; Restriction on Termination .

(a) Termination by Lender . In addition to the rights set forth in Section 8.2 and the Final Order, Lender may terminate this Agreement upon (i) notice on or after the occurrence and during the continuance of an Event of Default and (ii) application for order of the Bankruptcy Court, which may be requested on an expedited basis.

(b) Effectiveness of Termination . Notwithstanding the provisions of Section 362 of the Bankruptcy Code, and without further application to or order of the Bankruptcy Court except as provided

in the Interim Order of the Final Order, as applicable, all of the Obligations shall be immediately due and payable upon the Termination Date. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Financing Documents shall survive any such termination and Lender shall retain its Liens in the Collateral and Lender shall retain all of its rights and remedies under the Financing Documents notwithstanding such termination until all monetary Obligations have been discharged or paid, in full, in immediately available funds.

(c) No Discharge; Survival of Claims . Borrower agrees that (i) its obligations hereunder shall not be discharged by the entry of an order confirming a Plan of Reorganization (and Borrower, pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and (ii) the superiority claim (as defined in the Final Order) granted to Lender pursuant to the Final Order and the Liens granted to Lender pursuant to the Final Order shall not be affected in any manner by the entry of an order confirming a Plan of Reorganization.

ARTICLE 3 - REPRESENTATIONS AND WARRANTIES

To induce Lender to enter into this Agreement and to make the DIP Loans and other credit accommodations contemplated hereby, Borrower hereby represents and warrants to Lender that:

Section 3.1 Existence and Power . Borrower is an entity as specified on Schedule 3.1 , is duly organized, validly existing and in good standing under the laws of the jurisdiction specified on Schedule 3.1 and no other jurisdiction, has the same legal name as it appears in Borrower’s Organizational Documents and an organizational identification number (if any), in each case as specified on Schedule 3.1 , and has all powers and all Permits necessary or desirable in the operation of its business as presently conducted or as to be conducted if fully operational, except where the failure to have such Permits could not reasonably be expected to have a Material Adverse Effect.

Section 3.2 Organization and Governmental Authorization; No Contravention . Other than the entry of the Interim Order or Final Order, the execution, delivery and performance by Borrower of the Operative Documents to which it is a party are within its powers, have been duly authorized by all necessary action pursuant to its Organizational Documents, require no further action by or in respect of, or filing with, any Governmental Authority and do not violate, conflict with or cause a breach or a default under (a) any Law applicable to Borrower or any of the Organizational Documents of Borrower, or (b) any agreement or instrument binding upon it, except for such violations, conflicts, breaches or defaults as could not, with respect to this clause (b), reasonably be expected to have a Material Adverse Effect.

Section 3.3 Binding Effect . Each of the Operative Documents to which Borrower is a party constitutes a valid and binding agreement or instrument of Borrower, enforceable against Borrower in accordance with its terms.

Section 3.4 Financial Information . All information delivered to Lender and pertaining to the financial condition of Borrower fairly presents the financial position of Borrower as of such date in conformity with GAAP (and as to unaudited financial statements, subject to normal year-end adjustments and the absence of footnote disclosures). All information delivered to Lender after April 21, 2017, and pertaining to the financial, physical or other condition or aspect of the Borrower’s operations and assets is true, accurate and correct in all material respects as of such date and as of the date hereof.

Section 3.5 Litigation . Except as set forth on Schedule 3.5 as of the Closing Date, and except as hereafter disclosed to Lender in writing, there is no Litigation pending against, or to Borrower’s knowledge threatened against or affecting, Borrower or, to Borrower’s knowledge, any party to any Operative Document other than Borrower. There is no Litigation pending in which an adverse decision could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of any of the Operative Documents.

Section 3.6 Ownership of Property . Borrower is the lawful owner of, has good and marketable title to and is in lawful possession of, or has valid leasehold interests in, all properties and other assets (real or personal, tangible, intangible or mixed) purported or reported to be owned or leased (as the case may be) by Borrower.

Section 3.7 No Default . No Event of Default has occurred and is continuing. Taking into account the effect of the bankruptcy filings, no breach or default has occurred under or with respect to any contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default could reasonably be expected to have a Material Adverse Effect.

Section 3.8 Labor Matters . As of the Closing Date, there are no strikes or other labor disputes pending or, to Borrower’s knowledge, threatened against Borrower. Hours worked and payments made to the employees of the Borrower have not been in violation of the Fair Labor Standards Act or any other applicable Law dealing with such matters. All payments due from the Borrower, or for which any claim may be made against it, on account of wages and employee and retiree health and welfare insurance and other benefits have been paid or accrued as a liability on their books, as the case may be. The consummation of the transactions contemplated by the Financing Documents will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which it is a party or by which it is bound.

Section 3.9 Regulated Entities . Borrower is not an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company,” all within the meaning of the Investment Company Act of 1940.

Section 3.10 Margin Regulations . None of the proceeds from the DIP Loans have been or will be used, directly or indirectly, for the purpose of purchasing or carrying any “margin stock” (as defined in Regulation U of the Federal Reserve Board), for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any “margin stock” or for any other purpose which might cause any of the DIP Loans to be considered a “purpose credit” within the meaning of Regulation T, U or X of the Federal Reserve Board.

Section 3.11 Compliance With Laws; Anti-Terrorism Laws .

(a) Borrower is in compliance with the requirements of all applicable Laws, except for such Laws the noncompliance with which could not reasonably be expected to have a Material Adverse Effect.

(b) Neither Borrower nor, to the knowledge of the Borrower, any of its Affiliates (i) is in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, (iii) is a Blocked Person, or is controlled by a Blocked Person, (iv) is acting or will act for or on behalf of a Blocked Person, (v) is associated with, or will become associated with, a Blocked Person or (vi) is providing, or will provide, material, financial or technical support or other services to or in support of acts of terrorism of a Blocked Person. Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (A) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (B) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law.

Section 3.12 Taxes . All federal, state and local tax returns, reports and statements required to be filed after the commencement of the Bankruptcy Case by or on behalf of Borrower have been filed with the appropriate Governmental Authorities in all jurisdictions in which such returns, reports and statements are required to be filed and, except to the extent subject to a Permitted Contest, all Taxes (including real property Taxes) and other charges shown to be due and payable in respect thereof have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof. Except to the extent subject to a Permitted Contest, all state and local sales and use Taxes arising after the commencement of the Bankruptcy Case and required to be paid by Borrower after have been paid. All federal and state returns have been filed by Borrower for all postpetition periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes,

and, except to the extent subject to a Permitted Contest, the amounts shown thereon to be due and payable have been paid in full or adequate provisions therefor have been made.

Section 3.14 Compliance with ERISA .

(a) Each ERISA Plan (and the related trusts and funding agreements) complies in form and in operation with, has been administered in compliance with, and the terms of each ERISA Plan satisfy, the applicable requirements of ERISA and the Code in all material respects. Each ERISA Plan which is intended to be qualified under Section 401(a) of the Code is so qualified, and the United States Internal Revenue Service has issued a favorable determination letter with respect to each such ERISA Plan which may be relied on currently. Borrower has not incurred liability for any material excise tax under any of Sections 4971 through 5000 of the Code.

(b) Except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, Borrower is in compliance with the applicable provisions of ERISA and the provision of the Code relating to ERISA Plans and the regulations and published interpretations therein. During the thirty-six (36) month period prior to the Closing Date or the making of any DIP Loan, (i) no steps have been taken to terminate any Pension Plan, and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by Borrower of any material liability, fine or penalty. Borrower has not incurred liability to the PBGC (other than for current premiums) with respect to any employee Pension Plan. All contributions (if any) have been made on a timely basis to any Multiemployer Plan that are required to be made by Borrower or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable Law; neither Borrower nor any member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Plan, incurred any withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan, and neither Borrower nor any member of the Controlled Group has received any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

Section 3.15 Consummation of Operative Documents; Brokers . Except for fees payable to Lender, no broker, finder or other intermediary has brought about the obtaining, making or closing of the transactions contemplated by the Operative Documents, and Borrower has not nor will it have any obligation to any Person in respect of any finder’s or brokerage fees, commissions or other expenses in connection herewith or therewith.

Section 3.16 Material Contracts . Except for the Operative Documents and the other agreements set forth on Schedule 3.16 (collectively with the Operative Documents, the “ Material Contracts ”), as of the Closing Date there are no agreements or instruments to which Borrower is a party, and the breach, nonperformance or cancellation of which, or the failure of which to renew, could reasonably be expected to have a Material Adverse Effect. Schedule 3.16 sets forth, with respect to each real estate lease agreement to which Borrower is a party (as a lessee) as of the Closing Date, the address of the subject property and the annual rental (or, where applicable, a general description of the method of computing the annual rental). The consummation of the transactions contemplated by the Financing Documents will not give rise to a right of termination in favor of any party to any Material Contract (other than Borrower).

Section 3.17 Compliance with Environmental Requirements; No Hazardous Materials . Except in each case as set forth on Schedule 3.17 :

(a) no notice, notification, demand, request for information, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending, or to Borrower’s knowledge, threatened by any Governmental Authority

or other Person with respect to any (i) alleged violation by Borrower of any Environmental Law, (ii) alleged failure by Borrower to have any Permits required in connection with the conduct of its business or to comply with the terms and conditions thereof, (iii) any generation, treatment, storage, recycling, transportation or disposal of any Hazardous Materials, or (iv) release of Hazardous Materials; and

(b) no property now owned or leased by Borrower and, to the knowledge of Borrower, no such property previously owned or leased by Borrower, to which Borrower has, directly or indirectly, transported or arranged for the transportation of any Hazardous Materials, is listed or, to Borrower’s knowledge, proposed for listing, on the National Priorities List (as promulgated pursuant to CERCLA), or CERCLIS (as defined in CERCLA) or any similar state list or is the subject of federal, state or local enforcement actions or, to the knowledge of Borrower, other investigations which may lead to claims against Borrower for clean-up costs, remedial work, damage to natural resources or personal injury claims, including, without limitation, claims under CERCLA.

Section 3.18 Intellectual Property . Borrower owns, is licensed to use or otherwise has the right to use, all Intellectual Property that is material to the condition (financial or other), business or operations of Borrower. All Intellectual Property existing as of the Closing Date which is issued, registered or pending with any United States or foreign Governmental Authority (including, without limitation, any and all applications for the registration of any Intellectual Property with any such United States or foreign Governmental Authority) and all licenses under which Borrower is the licensee of any such registered Intellectual Property (or any such application for the registration of Intellectual Property) owned by another Person are set forth on Schedule 3.18 . Such Schedule 3.18 indicates in each case whether such registered Intellectual Property (or application therefor) is owned or licensed by Borrower, and in the case of any such licensed registered Intellectual Property (or application therefor), lists the name and address of the licensor and the name and date of the agreement pursuant to which such item of Intellectual Property is licensed and whether or not such license is an exclusive license and indicates whether there are any purported restrictions in such license on the ability to Borrower to grant a security interest in and/or to transfer any of its rights as a licensee under such license. Except as indicated on Schedule 3.18 , the Borrower is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each such registered Intellectual Property (or application therefor) purported to be owned by Borrower, free and clear of any Liens and/or licenses in favor of third parties or agreements or covenants not to sue such third parties for infringement. All registered Intellectual Property of Borrower is duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. Borrower is not a party to, nor bound by, any material license or other agreement with respect to which Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or other property. To Borrower’s knowledge, Borrower conducts its business without infringement or claim of infringement of any Intellectual Property rights of others and there is no infringement or claim of infringement by others of any Intellectual Property rights of Borrower, which infringement or claim of infringement could reasonably be expected to have a Material Adverse Effect.

Section 3.19 Full Disclosure . Taken as a whole, none of the written information (financial or otherwise), furnished by or on behalf of Borrower to Lender in connection with the consummation of the transactions contemplated by the Operative Documents, contain any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which such statements were made. All financial projections delivered to Lender by Borrower (or its agents) have been prepared on the basis of the assumptions stated therein. Such projections represent Borrower’s best estimate of Borrower’s future financial performance and such assumptions are believed by Borrower to be fair and reasonable in light of current business conditions; provided , however , that Borrower can give no assurance that such projections will be attained.

Section 3.20 Reserved .

Section 3.21 Reorganization Matters .

(a) Proper notice for (i) the motion seeking approval of this Agreement, the other Financing Documents, the Interim Order or Final Order, and (ii) the hearing for approval of the Final Order

will be given. The Borrower will give, on a timely basis as specified in the Interim Order or Final Order, as applicable, all notices required to be given to all parties specified in the Interim Order or Final Order, as applicable.

(b) From and after the entry of Final Order, the Liens securing the Obligations are valid and enforceable, perfected Liens on all of the Collateral of Lender with the priority required by the Final Order with respect to all Collateral.

(d) Notwithstanding the provisions of Section 362 of the Bankruptcy Code, and subject to the applicable provisions of the Final Order and Section 8.2 , as the case may be, on the Termination Date, Lender shall be entitled to payment of such Obligations and to enforce the remedies provided for hereunder or under applicable law, without further application to or order by the Bankruptcy Court.

ARTICLE 4 - AFFIRMATIVE COVENANTS

From the date hereof and for so long as any commitment shall be in effect or any amount shall remain outstanding or unpaid under this Agreement, Borrower agrees:

Section 4.1 Financial Statements and Other Reports . Borrower will deliver to Lender:

(a) no later than 5:00 p.m. (prevailing Central time) on Tuesday of each week, a weekly report certified by the Chief Restructuring Officer or President of the Debtor and in the same form as the Budget indicating all receipts received and disbursements made by the Debtor during the applicable measuring period compared to the Budget for such period (each, a “ Measuring Period ”), with (a) aggregate expenditures during such period not exceeding 110% of the total budgeted expenses for such period; (b) any single line item not exceeding 115% of the such budgeted line item for such period; (c) total revenues not less than 85% of such budgeted revenues for such period, and (d) expenditures for estate professional fees shall not exceed 100% of the amount allocated for such expenditures in the Budget for such period (both in the aggregate and with respect to each professional’s respective line on the Budget). This “ Variance ” shall be measured on a rolling four-week basis. Any budgeted expenditures not paid in a particular Budget period may be paid during a subsequent period and, for the purpose of calculating rolling four week Variances set forth above, the Budget will be revised to move such expenditures to the later period. Expenditures may be paid in an earlier period in the reasonable discretion of the Debtor, in which event, the Budget shall be deemed amended to move the expenditure into the week of the actual expenditure for the purposes of calculating rolling four week variances set forth above; and

(b) as soon as available, but no later than fifteen (15) days after the last day of each month, a company prepared consolidated balance sheet, cash flow and income statement covering Borrower’s operations during the period, prepared under GAAP, consistently applied, certified by the Chief Restructuring Officer or President and in a form acceptable to Lender; (c) together with the financial reporting package described in (a) above, evidence of payment and satisfaction of all payroll, withholding and similar taxes due and owing by Borrower with respect to the payroll period(s) occurring during such month; (d) a prompt written report of any legal actions pending or threatened against Borrower that could reasonably be expected to result in damages or costs to Borrower of Fifty Thousand Dollars ($50,000) or more; and (e) prompt written notice of an event that materially and adversely affects the value of any Collateral.

Section 4.2 Payment and Performance of Obligations . Subject to the entry of appropriate orders of the Bankruptcy Court and in compliance with the Budget, Borrower (a) will pay and discharge on a timely basis as and when due, all of its obligations and liabilities, except for such obligations and/or liabilities (i) that may be the subject of a Permitted Contest, and (ii) the nonpayment or nondischarge of which could not reasonably be expected to have a Material Adverse Effect or result in a Lien against any Collateral, except for Permitted Liens, (b) without limiting

anything contained in the foregoing clause (a), pay all amounts due and owing in respect of Taxes (including without limitation, payroll and withholdings tax liabilities) on a timely basis as and when due, and in any case prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof, and (c) will not breach or permit to exist any default under, the terms of any lease, commitment, contract, instrument or obligation to which it is a party, or by which its properties or assets are bound, except for such breaches or defaults which could not reasonably be expected to have a Material Adverse Effect.

Section 4.3 Maintenance of Existence . Borrower will preserve, renew and keep in full force and effect and in good standing its existence and its rights, privileges and franchises necessary or desirable in the normal conduct of business.

Section 4.4 Maintenance of Property; Insurance .

(a) Borrower will keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. If all or any part of the Collateral useful or necessary in its business becomes damaged or destroyed, Borrower will promptly and completely repair and/or restore the affected Collateral in a good and workmanlike manner, regardless of whether Lender agrees to disburse insurance proceeds or other sums to pay costs of the work of repair or reconstruction.

(b) Subject to the entry of appropriate orders of the Bankruptcy Court and in compliance with the Budget, upon completion of any Permitted Contest, Borrower shall promptly pay the amount due, if any, and deliver to Lender proof of the completion of the contest and payment of the amount due, if any, following which Lender shall return the security, if any, deposited with Lender pursuant to the definition of Permitted Contest.

(d) Reserved .

(e) Reserved .

Section 4.5 Compliance with Laws and Material Contracts . Borrower will comply with the requirements of all applicable Laws and Material Contracts, except to the extent that failure to so comply could not reasonably be expected to (a) have a Material Adverse Effect, or (b) result in any Lien upon a material portion of the assets of any such Person in favor of any Governmental Authority.

Section 4.6 Inspection of Property, Books and Records . Borrower will keep proper books of record substantially in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit upon two (2) Business Days prior written notice, representatives of Lender to visit and inspect any of their respective properties, to examine and make abstracts or copies from any of the books and records of the Borrower, to conduct a collateral audit and analysis of its operations and the Collateral, to discuss the Borrower’s respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be desired. In addition, the Borrower agrees, and agrees to instruct its advisors, employees, managers and professionals, to reasonably cooperate with the Lender and its respective counsel, advisors, appraisers and professionals, with respect to the obligations owing under the DIP Loans and the Chapter 11 Case. The Borrower further agrees, and agrees to instruct its advisors, employees, managers and professionals to provide the Lender and its professionals independent access to the Borrower’s advisors, employees, managers and professionals with respect to any matter relating to the Chapter 11 Case, and any reports and information as the Lender may reasonably request from time to time, including but not limited to balance sheets, payables, receivables, income statements, and cash flow statements, with all information provided being subject to the confidentiality protections agreed to between the Lender and the Borrower. Notwithstanding the foregoing, no notice shall be required during the existence and continuance of any Event of Default or any time during which Lender reasonably believes an Event of Default exists.

Section 4.7 Use of Proceeds .

(a) Any proceeds received from a DIP Loan provided to the Borrower shall be used solely by the Borrower in accordance with the Budget:

(i) to pay operational, capital and administrative costs, (ii) interest, fees and expenses in respect of the Facility to the DIP Lender in accordance with the DIP Credit Documents, (iii) to fund the operating costs of the Borrower; (iv) to fund necessary preservation and maintenance costs associated with the Borrower’s assets; and (v), other costs and expenses of administration all as set forth on the Budget.

(b) Neither the Collateral nor proceeds of the DIP Loans shall be used (1) to permit the Borrower, to the extent such action has not been waived in the Financing Documents, or any other party in interest or their representatives, (x) to challenge or otherwise contest any proceeding to determine the validity, perfection or priority of security interests on assets of the Borrower or their respective affiliates in favor of the Lender or Liens granted under any of the Final Order, or (y) the enforceability of the obligations of the Borrower under the DIP Loan (2) to commence or prosecute any motion, proceeding or cause of action against the Lender, or its agents, attorneys, advisors or representatives, (3) to fund acquisitions, capital expenditures, capital leases or other transactions not in the ordinary course of Borrower’s business other than as set forth in the Budget, nor (4) to assert any claims or causes of action against Lender.

Section 4.8 Control Agreements . Borrower shall enter into and maintain at all times a valid and enforceable Deposit Account Control Agreement or Securities Account Control Agreement, as applicable with respect to each account set forth in Schedule 5.13 . The provisions of this Section 4.8 requiring Deposit Account Control Agreements shall not apply to Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Lender by Borrower as such; provided, however, that at all times that any Obligations remain outstanding, Borrower shall maintain one or more separate Deposit Accounts to hold any and all amounts to be used for payroll, payroll taxes and other employee wage and benefit payments, and shall not commingle any monies allocated for such purposes with funds in any other Deposit Account.

Section 4.9 Notices of Litigation and Defaults . Borrower will give prompt written notice to Lender (a) of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to have a Material Adverse Effect with respect to Borrower or which in any manner calls into question the validity or enforceability of any Financing Document, (b) upon Borrower becoming aware of the existence of any Event of Default, (c) if Borrower is in breach or default under or with respect to any Material Contract, or if Borrower is in breach or default under or with respect to any other contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default could reasonably be expected to have a Material Adverse Effect, (d) of any strikes or other labor disputes pending or, to Borrower’s knowledge, threatened against Borrower, (e) if there is any infringement or claim of infringement by any other Person with respect to any Intellectual Property rights of Borrower that could reasonably be expected to have a Material Adverse Effect, or if there is any claim by any other Person that Borrower in the conduct of its business is infringing on the Intellectual Property Rights of others, and (f) of all returns, recoveries, disputes and claims that involve more than $25,000. Borrower represents and warrants that Schedule 4.9 sets forth a complete list of all matters existing as of the Closing Date for which notice could be required under this Section 4.9 and all litigation or governmental proceedings pending or threatened (in writing) against Borrower as of the Closing Date.

Section 4.10 Hazardous Materials; Remediation .

(a) If any release or disposal of Hazardous Materials shall occur or shall have occurred on any real property or any other assets of Borrower, Borrower will cause the prompt containment and removal of such Hazardous Materials and the remediation of such real property or other assets as is necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets. Without limiting the generality of the foregoing, Borrower shall comply with each Environmental Law requiring the performance

at any real property by Borrower of activities in response to the release or threatened release of a Hazardous Material.

(b) Borrower will provide Lender within thirty (30) days after written demand therefor with a bond, letter of credit or similar financial assurance evidencing to the reasonable satisfaction of Lender that sufficient funds are available to pay the cost of removing, treating and disposing of any Hazardous Materials or Hazardous Materials Contamination and discharging any assessment which may be established on any property as a result thereof, such demand to be made, if at all, upon Lender’s reasonable business determination that the failure to remove, treat or dispose of any Hazardous Materials or Hazardous Materials Contamination, or the failure to discharge any such assessment could reasonably be expected to have a Material Adverse Effect.

Section 4.11 Further Assurances .

(a) Borrower will at its own cost and expense, promptly and duly take, execute, acknowledge and deliver all such further acts, documents and assurances as may from time to time be necessary or as Lender may from time to time reasonably request in order to carry out the intent and purposes of the Financing Documents and the transactions contemplated thereby, including all such actions to establish, create, preserve, protect and perfect a first priority Lien (subject only to Permitted Liens) in favor of Lender on the Collateral (including Collateral acquired after the date hereof). Without limiting the generality of the foregoing, at the request of Lender, following the disclosure by Borrower on any Compliance Certificate of the acquisition by Borrower of any rights under a license as a licensee with respect to any registered Intellectual Property or application for the registration of any Intellectual Property owned by another Person, Borrower shall execute any documents requested by Lender to establish, create, preserve, protect and perfect a first priority lien in favor of Lender, to the extent legally possible, in Borrower’s rights under such license and shall use their commercially reasonable best efforts to obtain the written consent of the licensor which such license to the granting in favor of Lender of a Lien on Borrower’s rights as licensee under such license.

(b) Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of any Note or any other Financing Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or other applicable Financing Document, Borrower will issue, in lieu thereof, a replacement Note or other applicable Financing Document, dated the date of such lost, stolen, destroyed or mutilated Note or other Financing Document in the same principal amount thereof and otherwise of like tenor.

(c) Borrower shall cooperate fully with Lender and its counsel, advisors, appraisers and professionals in connection with matters in the Bankruptcy Case, including without limitation, pursuit and achievement of the Milestones.

Section 4.12 Power of Attorney . After the occurrence and during the continuance of an Event of Default Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrower (without requiring it to act as such) with full power of substitution to do the following: (a) endorse the name of Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to Borrower and constitute collections on Borrower’s Accounts; (b) so long as Lender has provided not less than three (3) Business Days’ prior written notice to Borrower to perform the same and Borrower has failed to take such action, execute in the name of Borrower any schedules, assignments, instruments, documents, and statements that Borrower is obligated to give Lender under this Agreement; (c) take any action Borrower is required to take under this Agreement; (d) so long as Lender has provided not less than three (3) Business Days’ prior written notice to Borrower to perform the same and Borrower has failed to take such action, do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or desirable to enforce any Account or other Collateral or perfect Lender’s security interest or Lien in any Collateral; and (e) do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or desirable to enforce its rights with regard to any Account or other Collateral. This power of attorney shall be irrevocable and coupled with an interest.

Section 4.13 Compliance Certificate . At the time of each request for a DIP Loan, a Borrower Representative shall be required to deliver to the Lender the Compliance Certificate certifying those facts set forth therein. A form of Compliance Certificate is attached hereto as Exhibit B .

Section 4.14 Milestones . The Borrower shall timely comply with and achieve the Milestones; it being expressly understood that time is of the essence with respect to each Milestone.

Section 4.15 Bankruptcy Reports . Promptly after the filing of any reports, motions, affidavits, statements or other documents that Borrower sends, receives or files with the Bankruptcy Court, including all correspondence with the Bankruptcy Court, copies of such documents shall be delivered to Lender.

ARTICLE 5 - NEGATIVE COVENANTS

From the date hereof and for so long as any commitment shall be in effect or any amount shall remain outstanding or unpaid under this Agreement, Borrower agrees:

Section 5.1 Debt; Contingent Obligations . Borrower will not, directly or indirectly, create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to, any Debt, except for Permitted Debt. Borrower will not, directly or indirectly, create, assume, incur or suffer to exist any Contingent Obligations, except for Permitted Contingent Obligations.

Section 5.2 Liens . Borrower will not, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for Permitted Liens.

Section 5.3 Restricted Distributions . Borrower will not, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Distribution.

Section 5.4 Restrictive Agreements . Borrower will not, directly or indirectly, enter into or assume any agreement (other than the Financing Documents) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired.

Section 5.5 Consolidations, Mergers and Sales of Assets; Change in Control . Borrower will not, directly or indirectly (a) consolidate or merge or amalgamate with or into any other Person, or (b) consummate any Asset Dispositions other than Permitted Asset Dispositions or as contemplated by the Milestones; provided however, that Lender shall be permitted to credit bid (under Section 363 of the Bankruptcy Code or otherwise) the amount of any obligations owing to it by the Borrower in connection with any Permitted Asset Disposition or other authorized sale of assets constituting Collateral or serving as collateral under the DIP Loan. Borrower will not suffer or permit to occur any Change in Control.

Section 5.6 Purchase of Assets, Investments . Borrower will not, directly or indirectly (a) acquire or enter into any agreement to acquire any assets other than in the Ordinary Course of Business or as permitted under clause (h) of the definition of Permitted Investments; (b) engage or enter into any agreement to engage in any joint venture or partnership with any other Person; or (c) acquire or own or enter into any agreement to acquire or own any Investment in any Person other than Permitted Investments.

Section 5.7 Transactions with Affiliates . Except as otherwise disclosed on Schedule 5.7 , Borrower will not, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of Borrower other than Lender. For the avoidance of doubt, at no time shall Borrower extend any credit to, be owed any trade payable from or be owed any other amount pursuant to any other financing or lending arrangement from, any Affiliate other than Lender and other than as set forth on Schedule 5.7 .

Section 5.8 Modification of Organizational Documents . Borrower will not, directly or indirectly, amend or otherwise modify any Organizational Documents of such Person.

Section 5.9 Modification of Certain Agreements . Borrower will not, directly or indirectly, amend or otherwise modify any Material Contract, which amendment or modification in any case: (a) is contrary to the terms of this Agreement or any other Financing Document; (b) could reasonably be expected to be adverse to the rights, interests or privileges of Lender or its ability to enforce the same; (c) results in the imposition or expansion in any material respect of any obligation of or restriction or burden on Borrower; (d) reduces in any material respect any rights or benefits of Borrower (it being understood and agreed that any such determination shall be in the discretion of Lender); or (e) limits the right of Borrower to receive any payments on the Closing Date. Borrower shall, prior to entering into any amendment or other modification of any of the foregoing documents, deliver to Lender reasonably in advance of the execution thereof, any final or execution form copy of amendments or other modifications to such documents, and Borrower agrees not to take any such action with respect to any such documents without obtaining such approval from Lender.

Section 5.10 Conduct of Business . Borrower will not, directly or indirectly, engage in any line of business other than the business conducted in the ordinary course prior to the Petition Date.

Section 5.11 Lease Payments . Borrower will not, directly or indirectly, incur or assume (whether pursuant to a guarantee or otherwise) any liability for rental payments except in compliance with the Budget.

Section 5.12 Reserved.

Section 5.13 Deposit Accounts and Securities Accounts; Payroll and Benefits Accounts . Borrower will not, directly or indirectly, establish any new Deposit Account or Securities Account without prior written notice to Lender. Borrower represents and warrants that Schedule 5.13 lists all of the Deposit Accounts and Securities Accounts of Borrower as of the Closing Date. The provisions of this Section 5.13 requiring Deposit Account Control Agreements shall not apply to Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Lender by Borrower as such; provided, however , that at all times that any Obligations remain outstanding, Borrower shall maintain one or more separate Deposit Accounts to hold any and all amounts to be used for payroll, payroll taxes and other employee wage and benefit payments, and shall not commingle any monies allocated for such purposes with funds in any other Deposit Account.

Section 5.14 Compliance with Anti-Terrorism Laws . Lender hereby notifies Borrower that pursuant to the requirements of Anti-Terrorism Laws, and Lender’s policies and practices, Lender is required to obtain, verify and record certain information and documentation that identifies Borrower and its principals, which information includes the name and address of Borrower and its principals and such other information that will allow Lender to identify such party in accordance with Anti-Terrorism Laws. Borrower will not, directly or indirectly, knowingly enter into any Material Contracts with any Blocked Person or any Person listed on the OFAC Lists. Borrower shall immediately notify Lender if Borrower has knowledge that Borrower or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is or becomes a Blocked Person or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. Borrower will not, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.

Section 5.15 Final Order; Administrative Expense Priority; Payments .

(a) Borrower will not seek, consent to or suffer to exist at any time any modification, stay, vacation or amendment of the Final Order, except for modifications and amendments joined in or agreed to in writing by Lender.

(b) Borrower will not suffer to exist at any time a priority for any administrative expense or unsecured claim against Borrower (now existing or hereafter arising of any kind or nature whatsoever, including, without limitation, any administrative expense of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code) equal or superior to the priority of Lender in respect of the Obligations, except for the Carve-Out.

(c) Prior to the date on which the Obligations have been indefeasibly paid in full, all in accordance with the terms of this Agreement, and this Agreement has been terminated, Borrower will not (i) pay any administrative expenses pursuant to Section 503(b) of the Bankruptcy Code, except (A) administrative expenses incurred in the Ordinary Course of Business of the Borrower, and (B) Allowed Fees payable under Section 330 and 331 of the Bankruptcy Code, in each case as set forth in the Budget, or (ii) permit or seek to permit the granting of adequate protection in favor of any Person other than to Lender in connection with the Final Order.

(d) Except as provided in the Final Order (which will provide for a waiver and release of any surcharge claims under Sections 506(c) and 552(b) of the Bankruptcy Code, or otherwise for any costs and expenses incurred in connection with the preservation, protection or enhancement of or realization by the Lender), Borrower will not waive any claims under Sections 506(c) and 552(b) of the Bankruptcy Code, or take any other action Lender deems adverse to it or its rights and remedies under the Financing Documents.

Section 5.16 Bankruptcy Actions .

(a) Borrower shall not make (i) any payments on account of any creditor’s claims against Borrower, (ii) payments on account of claims or expenses arising under Section 503(b)(9) of the Bankruptcy Code, or (iii) payments in respect of a reclamation, except as expressly permitted by the Budget.

(b) Borrower shall not obtain, or seek to obtain, any stay on the exercise of the remedies of Lender hereunder, under any Financing Document or the Final Order.

ARTICLE 6 - CONDITIONS

Section 6.1 Conditions to Closing . The obligation of Lender to make the initial DIP Loans on the Closing Date shall be subject to the receipt by Lender of each agreement, document and instrument set forth on the closing checklist prepared by Lender or its counsel, each in form and substance satisfactory to Lender as such documents relate to the payment of the Obligations on the Effective Date, and such other closing deliverables reasonably requested by Lender, and to the satisfaction of the following conditions precedent, each to the satisfaction of Lender and its counsel in in their sole discretion:

(a) the Interim Oder or the Final Order, in form and substance satisfactory to Lender, shall be in effect and shall not have been reversed, modified, amended or stayed, and no motion seeking a reversal, modification, amendment or stay shall have been filed by any Person;

(b) Lender shall have received the Budget covering the period of the first four (4) weeks after the Closing Date in form and substance satisfactory to Lender;

(c) Lender shall have received the Financing Documents, each duly executed by the Chief Restructuring Officer or President or another authorized officer of the Borrower and other parties thereto;

(d) the payment of all fees, expenses and other amounts due and payable under this Agreement and the Final Order;

(e) all motions and other documents to be filed with and submitted to the Bankruptcy Court in connection with the DIP Loans and the approval thereof shall be in form and substance reasonably satisfactory to Lender;

(f) except as set forth on Schedule 3.5 as of the Closing Date, there shall be no pending or threatened litigation with respect to Borrower before any court, arbitrator or governmental or administrative body or agency which challenges or relates to the transactions contemplated hereby, or which might have a Material Adverse Effect;

(g) in the judgment of Lender (a) taking into account the effect of the bankruptcy filings no Material Adverse Effect shall have occurred to the Borrower from that reflected in the Financial Statements, and (b) no other Material Adverse Effect shall have occurred to the Borrower since April 21, 2017;

(h) Reserved ;

(i) Reserved ; and

(j) the Closing Date shall have occurred on or prior to May 26, 2017.

Lender, by delivering its signature page to this Agreement, shall be deemed to have acknowledged receipt of, and consented to and approved, each Financing Document, each additional Operative Document and each other document, agreement and/or instrument required to be approved by Lender on the Closing Date.

Section 6.2 Conditions to Each DIP Loan . The obligation of Lender to make any DIP Loan is subject to the satisfaction of the following additional conditions:

(a) immediately after such borrowing and after application of the proceeds thereof or after such issuance, the aggregate amount outstanding under all DIP Loans will not exceed the DIP Loan Commitment;

(b) immediately before and after such advance or issuance, no default or Event of Default shall have occurred and be continuing;

(c) the representations and warranties of Borrower contained in the this Agreement shall be true, correct and complete in all material respects on and as of the date of such borrowing or issuance, except to the extent that any such representation or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date;

(d) the making of such DIP Loans will not violate any requirement of Law and shall not be enjoined, temporarily, preliminarily or permanently;

(e) no adverse change in the condition (financial or otherwise), properties, business, prospects, or operations of Borrower shall have occurred and be continuing with respect to Borrower since the date of this Agreement; and

(f) after making all expenditures under the Budget, the sum of cash held by the Borrower plus amounts previously advanced under DIP Loans and in the possession of the Borrower is no greater than $20,000.

Each giving of a Notice of Borrowing hereunder and each acceptance by Borrower of the proceeds of any DIP Loan made hereunder shall be deemed to be (y) a representation and warranty by Borrower on the date of such notice or acceptance as to the facts specified in this Section 6.2, and (z) a restatement by Borrower that each and every one of the representations made by it in any of the Financing Documents is true and correct in all material respects as of such date (except to the extent that such representations and warranties expressly relate solely to an earlier date).

Section 6.3 Reserved .

ARTICLE 7 - SECURITY AGREEMENT

Section 7.1 Generally .

(a) As security for the payment and performance of the Obligations, Borrower hereby assigns and grants to Lender (i) a continuing first priority Lien on and security interest in, subject only to the Carve Out and any Permitted Liens, all unencumbered assets (tangible, intangible, real, personal and mixed) of the Borrower, whether now owned or hereafter acquired, including, without limitation a first priority lien in and against gross revenues, cash and cash accounts, deposit accounts, receivables, inventory, equipment, goods, documents, fixtures, capital stock or membership interests in subsidiaries, investment property, letters of credit, instruments, chattel paper, real estate, leasehold interests, contracts, patents, copyrights, trademarks, intercompany claims, claims against affiliates, and other general intangibles, and all products and proceeds thereof, (collectively, the “ Collateral ”) and continuing junior Lien and security interest in, subject only to the Carve Out and any Permitted Liens, on all Collateral subject to valid and perfected Liens as of the Petition Date.

(b) [Reserved].

(c) Subject to the Carve Out, all amounts owing by the Borrower under this Agreement (a) will be entitled to super priority claim status pursuant to Section 364(c)(1) of the Bankruptcy Code with priority over any or all administrative expense claims of every kind and nature whatsoever, and (b) will be secured by a perfected (and, to the extent applicable, first priority) security interest pursuant to Section 364(c)(2) and Section 364(c)(3) of the Bankruptcy Code with priority over the all of the security interests.

Section 7.2 Representations and Warranties and Covenants Relating to Collateral.

(a) Schedule 7.2 sets forth (i) each chief executive office and principal place of business of Borrower and (ii) all of the addresses (including all warehouses) at which any of the Collateral is located and/or books and records of Borrower regarding any of the Collateral are kept, which such Schedule 7.2 indicates in each case which Borrower has Collateral and/or books and records located at such address, and, in the case of any such address not owned by Borrower, indicates the nature of such location (e.g., leased business location operated by Borrower, third party warehouse, consignment location, processor location, etc.) and the name and address of the third party owning and/or operating such location.

(b) As of the Closing Date, Borrower does not have any ownership interest in any Chattel Paper (as defined in Article 9 of the UCC), letter of credit rights, commercial tort claims, Instruments, documents or investment property and Borrower shall give notice to Lender promptly (but in any event not later than the delivery by Borrower of the next Compliance Certificate required pursuant to Section 4.1 above) upon the acquisition by Borrower of any such Chattel Paper, letter of credit rights, commercial tort claims, Instruments, documents, investment property. No Person other than Lender has “control” (as defined in Article 9 of the UCC) over any Deposit Account, investment property (including Securities Accounts and commodities account), letter of credit rights or electronic chattel paper in which Borrower has any interest (except for such control arising by operation of law in favor of any bank or securities intermediary or commodities intermediary with whom any Deposit Account, Securities Account or commodities account of Borrower is maintained).

(c) Borrower shall not take any of the following actions or make any of the following changes unless Borrower has given at least thirty (30) days prior written notice to Lender of Borrower’s intention to take any such action (which such written notice shall include an updated version of any Schedule impacted by such change) and have executed any and all documents, instruments and agreements and taken any other actions which Lender may request after receiving such written notice in order to protect and preserve the Liens, rights and remedies of Lender with respect to the Collateral: (i) change the legal name or organizational identification number of Borrower as it appears in official filings in the jurisdiction of its organization, (ii) change the jurisdiction of incorporation or formation of Borrower or allow Borrower to designate any jurisdiction as an additional jurisdiction of incorporation for Borrower, or change the type of entity that it is, or (iii) change its chief executive office, principal place of business, or the location of its records concerning the Collateral or move any Collateral to or place any Collateral on any location that is not then listed on the Schedules and/or establish any business location at any location that is not then listed on the Schedules.

(d) Borrower shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any Account Debtor, or allow any credit or discount thereon (other than adjustments, settlements, compromises, credits and discounts in the Ordinary Course of Business, made while no Event of Default exists and in amounts which are not material with respect to the Account without the prior written consent of Lender). Without limiting the generality of this Agreement or any other provisions of any of the Financing Documents relating to the rights of Lender after the occurrence and during the continuance of an Event of Default, Lender shall have the right at any time after the occurrence and during the continuance of an Event of Default to: (i) exercise the rights of Borrower with respect to the obligation of any Account Debtor to make payment or otherwise render performance to Borrower and with respect to any property that secures the obligations of any Account Debtor or any other Person obligated on the Collateral, and (ii) adjust, settle or compromise the amount or payment of such Accounts.

(e) Without limiting the generality of (b) and (d):

(i) Borrower shall deliver to Lender all tangible Chattel Paper and all Instruments and documents owned by Borrower and constituting part of the Collateral duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Lender. Borrower shall provide Lender with “control” (as defined in Article 7 of the UCC) of all electronic Chattel Paper owned by Borrower and constituting part of the Collateral by having Lender identified as the assignee on the records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the UCC. Borrower also shall deliver to Lender all security agreements securing any such Chattel Paper and securing any such Instruments. Borrower will mark conspicuously all such Chattel Paper and all such Instruments and documents with a legend, in form and substance satisfactory to Lender, indicating that such Chattel Paper and such instruments and documents are subject to the security interests and Liens in favor of Lender created pursuant to this Agreement. Borrower shall comply with all the provisions of Section 5.13 with respect to the Deposit Accounts and Securities Accounts of Borrower.

(ii) Borrower shall deliver to Lender all letters of credit on which Borrower is the beneficiary and which give rise to letter of credit rights owned by Borrower which constitute part of the Collateral in each case duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Lender. Borrower shall take any and all actions as may be necessary or desirable, or that Lender may request, from time to time, to cause Lender to obtain exclusive “control” (as defined in Article 7 of the UCC) of any such letter of credit rights in a manner acceptable to Lender.

(iii) Borrower shall promptly advise Lender upon Borrower becoming aware that it has any interests in any commercial tort claim that constitutes part of the Collateral, which such notice shall include descriptions of the events and circumstances giving rise to such commercial tort claim and the dates such events and circumstances occurred, the potential defendants with respect such

commercial tort claim and any court proceedings that have been instituted with respect to such commercial tort claims, and Borrower shall, with respect to any such commercial tort claim, execute and deliver to Lender such documents as Lender shall request to perfect, preserve or protect the Liens, rights and remedies of Lender with respect to any such commercial tort claim.

(iv) No Accounts or Inventory or other Collateral shall at any time be in the possession or control of any warehouse, consignee, bailee or any of Borrower’s agents or processors without prior written notice to Lender and the receipt by Lender, if Lender has so requested, of warehouse receipts, consignment agreements or bailee lien waivers (as applicable) satisfactory to Lender prior to the commencement of such possession or control. Borrower has notified Lender that Inventory is currently located at the locations set forth on Schedule 7.2 . Borrower shall, upon the request of Lender, notify any such warehouse, consignee, bailee, agent or processor of the security interests and Liens in favor of Lender created pursuant to this Agreement, instruct such Person to hold all such Collateral for Lender’s account subject to Lender’s instructions and shall obtain an acknowledgement from such Person that such Person holds the Collateral for Lender’s benefit.

(v) To the extent provided in the Budget, Borrower shall cause all equipment and other tangible Personal Property other than Inventory to be maintained and preserved in the same condition, repair and in working order as when new, ordinary wear and tear excepted, and shall promptly make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Upon request of Lender, Borrower shall promptly deliver to Lender any and all certificates of title, applications for title or similar evidence of ownership of all such tangible Personal Property and shall cause Lender to be named as lienholder on any such certificate of title or other evidence of ownership. Borrower shall not permit any such tangible Personal Property to become fixtures to real estate unless such real estate is subject to a Lien in favor of Lender.

(vi) Borrower hereby authorizes Lender to file without the signature of Borrower one or more UCC financing statements relating to liens on personal property relating to all or any part of the Collateral, which financing statements may list Lender as the “secured party” and Borrower as the “debtor” and which describe and indicate the collateral covered thereby as all or any part of the Collateral under the Financing Documents (including an indication of the collateral covered by any such financing statement as “all assets” of Borrower now owned or hereafter acquired), in such jurisdictions as Lender from time to time determines are appropriate, and to file without the signature of Borrower any continuations of or corrective amendments to any such financing statements, in any such case in order for Lender to perfect, preserve or protect the Liens, rights and remedies of Lender with respect to the Collateral. Borrower also ratifies its authorization for Lender to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

(vii) As of the Closing Date, Borrower does not hold, and after the Closing Date Borrower shall promptly notify Lender in writing upon creation or acquisition by Borrower of, any Collateral which constitutes a claim against any Governmental Authority, including, without limitation, the federal government of the United States or any instrumentality or agency thereof, the assignment of which claim is restricted by any applicable Law, including, without limitation, the federal Assignment of Claims Act and any other comparable Law. Upon the request of Lender, Borrower shall take such steps as may be necessary or desirable, or that Lender may request, to comply with any such applicable Law.

(viii) Borrower shall furnish to Lender from time to time any statements and schedules further identifying or describing the Collateral and any other information, reports or evidence concerning the Collateral as Lender may reasonably request from time to time.

ARTICLE 8 - EVENTS OF DEFAULT

Section 8.1 Events of Default . For purposes of the Financing Documents, the occurrence of any of the following conditions and/or events, whether voluntary or involuntary, by operation of law or otherwise, shall constitute an “ Event of Default ”:

(a) (i) Borrower shall fail to pay when due any principal, interest, premium or fee under any Financing Document or any other amount payable under any Financing Document, (ii) there shall occur any default in the performance of or compliance with any of the following sections of this Agreement: Section 2.11, Section 4.2, Section 4.4(c), Section 4.7, Section 4.8 and Article 5, or (iii) there shall occur any default in the performance of or compliance with Section 4.1 and/or Article 6 of this Agreement and a Borrower Representative has received written notice from Lender of such default;

(b) Borrower defaults in the performance of or compliance with any term contained in this Agreement or in any other Financing Document (other than occurrences described in other provisions of this Section 8.1 for which a different grace or cure period is specified or for which no grace or cure period is specified and thereby constitute immediate Events of Default) and such default is not remedied by the Borrower or waived by Lender within fifteen (15) days after the earlier of (i) receipt by a Borrower Representative of notice from Lender of such default, or (ii) actual knowledge of Borrower of such default;

(c) any representation, warranty, certification or statement made by Borrower or any other Person in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document is incorrect in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) when made (or deemed made);

(d) failure of Borrower to pay when due or within any applicable grace period any principal, interest or other amount on Debt (other than the DIP Loans), or the occurrence of any breach, default, condition or event with respect to any Debt (other than the DIP Loans), if the effect of such failure or occurrence is to cause or to permit the holder or holders of any such Debt, to cause, Debt or other liabilities having an individual principal amount in excess of $25,000 or having an aggregate principal amount in excess of $25,000 to become or be declared due prior to its stated maturity;

(e) any filing by Borrower of any challenge to the Liens or claims of Lender under this Agreement;

(f) the payment, or granting, of adequate protection under Section 361 or otherwise with respect to any Debt, other than the DIP Loans unless such payment is set forth in the Budget;

(g) [Reserved];;

(h) one or more judgments or orders for the payment of money (not paid or fully covered by insurance maintained in accordance with the requirements of this Agreement and as to which the relevant insurance company has acknowledged coverage) aggregating in excess of $25,000 shall be rendered against Borrower and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgments or orders, or (ii) there shall be any period of twenty (20) consecutive days during which a stay of enforcement of any such judgments or orders, by reason of a pending appeal, bond or otherwise, shall not be in effect;

(i) [Reserved];

(j) [Reserved];

(k) any superpriority claim granted by the Final Order in favor of Lender shall at any time fail to constitute a valid and enforceable superpriority claim under Section 507, or Borrower shall so assert;

(l) the occurrence of an Event of Default under the Final Order;

(m) Borrower makes any payment on account of any Debt that has been subordinated to any of the Obligations, other than payments specifically permitted by the terms of such subordination and set forth in the Budget;

(n) the occurrence of any fact, event or circumstance that could reasonably be expected to result in a Material Adverse Effect, if such default shall have continued unremedied for a period of ten (10) days after written notice from Lender;

(o) if (i) the Bankruptcy Case is converted to a case under chapter 7 of the Bankruptcy Code, or (ii) the Bankruptcy Case is dismissed;

(p) if a Chapter 11 trustee or an examiner with enlarged powers relating to the operations of the Borrower’s business (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) is appointed pursuant to Section 1104 of the Bankruptcy Code in the Bankruptcy Case;

(q) except with respect to the Carve-Out, if any super-priority administrative expense claim or any Lien that is pari passu with or senior to those of Lender, is granted to any Person other than Lender, or the authorization to use any cash collateral without the consent of Lender is granted to any Person other than Lender;

(r) if any Person other than Lender is granted relief from the automatic stay provided for in the Bankruptcy Case, or such automatic stay is otherwise modified, to permit enforcement of rights by such Person with respect to any asset of Borrower that serves as Collateral for the Liens of Lender, unless otherwise consented to in writing by Lender;

(s) if Borrower shall authorize the sale of their business pursuant to one or more Section 363 sales or otherwise, or shall file any motion under Section 363 of the Bankruptcy Code, unless consented to in writing by Lender;

(t) if Borrower shall file a Plan of Reorganization not acceptable to and supported in writing by Lender;

(u) if Borrower shall fail to comply with or perform any of the terms, conditions, covenants or other obligations under the Final Order;

(v) if the Borrower fails to achieve any Milestone as and when required, except as otherwise consented to in writing by Lender;

(w) [Reserved];

(x) if the Chief Restructuring Officer and President are both terminated;

(y) the amendment, modification, reversal, revocation, issuance of a stay or order to vacate or supplement the Final Order, or any other order of the Bankruptcy Court affecting this Agreement, any other Financing Document, or the transactions contemplated hereby or thereby, in each case, in any manner not acceptable to Lender;

(z) if the Borrower fails to pay in full in cash all Obligations on or before the Maturity Date;

(aa) if any Confirmation Order is executed, filed, delivered, or any confirmation order is entered which does not provide for repayment in full in cash of all Obligations;

(bb) [Reserved];

(cc) if the Borrower fails to be in compliance under the Budget.

(dd) [Reserved].

Any cure periods provided for in this Section 8.1 shall run concurrently with any cure period provided for in any applicable Financing Documents under which the default occurred.

Section 8.2 Acceleration and Suspension or Termination of DIP Loan Commitment . Notwithstanding the provisions of Section 362 of the Bankruptcy Code and subject to the terms of the Interim Order and Final Order, as applicable, upon the occurrence and during the continuance of an Event of Default, Lender may (a) by notice to a Borrower Representative suspend or terminate the DIP Loan Commitment and the obligations of Lender with respect thereto, in whole or in part, and/or (b) by notice to a Borrower Representative declare all or any portion of the Obligations to be, and the Obligations shall thereupon become, immediately due and payable, with accrued interest thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower and Borrower will pay the same.

Section 8.3 Additional Remedies .

(a) Notwithstanding the provisions of Section 362 of the Bankruptcy Code and subject to the terms of the Interim Order and Final Order, as applicable, upon the occurrence of and during the continuance of an Event of Default under this Agreement or the other Financing Documents, Lender, in addition to all other rights, options, and remedies granted to Lender under this Agreement or at law or in equity, may exercise, either directly or through one or more assignees or designees, all rights and remedies granted to it under all Financing Documents and under the UCC in effect in the applicable jurisdiction(s) and under any other applicable law; including, without limitation:

(i) the right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process;

(ii) the right to (by its own means or with judicial assistance) enter Borrower’s premises and take possession of the Collateral, or render it unusable, or to render it usable or saleable, or dispose of the Collateral on such premises in compliance with subsection (iii) below and to take possession of Borrower’s original books and records, to obtain access to Borrower’s data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Lender deems appropriate, without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action (if Borrower’s books and records are prepared or maintained by an accounting service, contractor or other third party agent, Borrower hereby irrevocably authorizes such service, contractor or other agent, upon notice by Lender to such Person that an Event of Default has occurred and is continuing, to deliver to Lender or its designees such books and records, and to follow Lender’s instructions with respect to further services to be rendered);

(iii) the right to require Borrower at Borrower’s expense to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender;

(iv) and/or forward mail to Lender; and/or

(v) the right to enforce Borrower’s rights against Account Debtors and other obligors, including, without limitation, (i) the right to collect Accounts directly in Lender’s own name and to charge the collection costs and expenses, including attorneys’ fees, to Borrower, and (ii) the right, in the name of Lender or any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise, including, without limitation, verification of Borrower’s compliance with applicable Laws. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process.

(b) Notwithstanding the provisions of Section 362 of the Bankruptcy Code and subject to the terms of the Interim Order and Final Order, as applicable, Borrower agrees that a notice received by it at least ten (10) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender’s exercise of its rights and remedies with respect to the Collateral. Lender shall have no obligation to clean-up or otherwise prepare the Collateral for sale. Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. If Lender sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Lender and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Lender may resell the Collateral and Borrower shall be credited with the proceeds of the sale. Borrower shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all Obligations.

(c) Without restricting the generality of the foregoing and for the purposes aforesaid, Borrower hereby appoints and constitutes Lender its lawful attorney-in-fact with full power of substitution in the Collateral, upon the occurrence and during the continuance of an Event of Default, to (i) use unadvanced funds remaining under this Agreement or which may be reserved, escrowed or set aside for any purposes hereunder at any time, or to advance funds in excess of the face amount of the Notes, (ii) pay, settle or compromise all existing bills and claims, which may be Liens or security interests, or to avoid such bills and claims becoming Liens against the Collateral, (iii) execute all applications and certificates in the name of Borrower and to prosecute and defend all actions or proceedings in connection with the Collateral, and (iv) do any and every act which Borrower might do in its own behalf; it being understood and agreed that this power of attorney in this subsection (c) shall be a power coupled with an interest and cannot be revoked.

(d) Lender is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, mask works, rights of use of any name, any other Intellectual Property and advertising matter, and any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Lender’s exercise of its rights under this Article, Borrower’s rights under all licenses (whether as licensor or licensee) and all franchise agreements inure to Lender’s benefit.

Section 8.4 Terminated Use of Cash Collateral . Without limitation of any of the remedies set forth in this Agreement and the other Financing Documents, upon the occurrence and during the continuance of any Event of Default, or upon the occurrence of the Termination Date, Borrower shall have not any right to use or seek to use any cash collateral (as defined in Section 363(a) of the Bankruptcy Code) in which Lender has an interest.

Section 8.5 Default Rate of Interest . Notwithstanding the provisions of Section 362 of the Bankruptcy Code and subject to the terms of the Interim or Final Order, at the election of Lender, after the occurrence of an Event

of Default and for so long as it continues, the DIP Loans and other Obligations shall bear interest at rates that are one and one-half percent (1.5.0%) per annum] in excess of the rates otherwise payable under this Agreement.

Section 8.6 Setoff Rights . Notwithstanding the provisions of Section 362 of the Bankruptcy Code, but subject to the Interim Order or the Final Order, as applicable, during the continuance of any Event of Default, Lender is hereby authorized by Borrower at any time or from time to time, with reasonably prompt subsequent notice to Borrower (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances held by Lender or any of such Lender’s Affiliates at any of its offices for the account of Borrower (regardless of whether such balances are then due to Borrower), and (b) other property at any time held or owing by Lender to or for the credit or for the account of Borrower, against and on account of any of the Obligations. Borrower agrees, to the fullest extent permitted by law, that Lender and any of Lender’s Affiliates may exercise its right to set off with respect to the Obligations as provided in this Section 8.6.

Section 8.7 Application of Proceeds .

(a) Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Lender from or on behalf of Borrower of all or any part of the Obligations, and, as between Borrower on the one hand and Lender on the other, Lender shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Lender may deem advisable notwithstanding any previous application by Lender.

(b) Following the occurrence and continuance of an Event of Default, but absent the occurrence and continuance of an Acceleration Event, Lender shall apply any and all payments received by Lender in respect of the Obligations, and any and all proceeds of Collateral received by Lender, in such order as Lender may from time to time elect.

(c) Notwithstanding anything to the contrary contained in this Agreement, if an Acceleration Event shall have occurred, and so long as it continues, Lender shall apply any and all payments received by Lender in respect of the Obligations, and any and all proceeds of Collateral received by Lender, in the following order: first , to the Carve-Out; second , to all fees, costs, indemnities, liabilities, obligations and expenses incurred by or owing to Lender with respect to this Agreement; third , to the principal amount of the Obligations outstanding. Any balance remaining shall be delivered to Borrower or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out the foregoing, (y) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (z) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category.

Section 8.8 Waivers .

(a) Except as otherwise provided for in this Agreement and the Financing Order and to the fullest extent permitted by applicable law, Borrower waives: (i) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Financing Documents, the Notes or any other notes, commercial paper, accounts, contracts, documents, Instruments, Chattel Paper and guarantees at any time held by Lender on which Borrower may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard; (ii) all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; and (iii) the benefit of all valuation, appraisal and exemption Laws. Borrower acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Financing Documents and the transactions evidenced hereby and thereby.

(b) Borrower for itself and all its successors and assigns, (i) agrees that its liability shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by Lender; (ii) consents to any indulgences and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions of the Financing Documents, and to any substitution, exchange or release of the Collateral, or any part thereof, with or without substitution, and agrees to the addition or release any endorsers, guarantors, or sureties, or whether primarily or secondarily liable, without notice to Borrower and without affecting its liability hereunder; (iii) agrees that its liability shall be unconditional and without regard to the liability of any other person; and (iv) to the fullest extent permitted by law, expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing.

(c) To the extent that Lender may have acquiesced in any noncompliance with any requirements or conditions precedent to the closing of the DIP Loans or to any subsequent disbursement of DIP Loan proceeds, such acquiescence shall not be deemed to constitute a waiver by Lender of such requirements with respect to any future disbursements of DIP Loan proceeds and Lender may at any time after such acquiescence require Borrower to comply with all such requirements. Any forbearance by Lender in exercising any right or remedy under any of the Financing Documents, or otherwise afforded by applicable law, including any failure to accelerate the maturity date of the DIP Loans, shall not be a waiver of or preclude the exercise of any right or remedy nor shall it serve as a novation of the Notes or as a reinstatement of the DIP Loans or a waiver of such right of acceleration or the right to insist upon strict compliance of the terms of the Financing Documents. Lender’s acceptance of payment of any sum secured by any of the Financing Documents after the due date of such payment shall not be a waiver of Lender’s right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other Liens or charges by Lender as the result of an Event of Default shall not be a waiver of Lender’s right to accelerate the maturity of the DIP Loans, nor shall Lender’s receipt of any condemnation awards, insurance proceeds, or damages under this Agreement operate to cure or waive Borrower’s default in payment of sums secured by any of the Financing Documents.

(d) Without limiting the generality of anything contained in this Agreement or the other Financing Documents, Borrower agrees that if an Event of Default is continuing (i) Lender shall not be subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has satisfied all obligations, exclusive of any unknown indemnity claims, or have exhausted all remedies against the Collateral and any other properties owned by Borrower and the Financing Documents and other security instruments or agreements securing the DIP Loans have been foreclosed, sold and/or otherwise realized upon in satisfaction of Borrower’s obligations under the Financing Documents.

(e) Nothing contained herein or in any other Financing Document shall be construed as requiring Lender to resort to any part of the Collateral for the satisfaction of any of Borrower’s obligations under the Financing Documents in preference or priority to any other Collateral, and Lender may seek satisfaction out of all of the Collateral or any part thereof, in its absolute discretion in respect of Borrower’s obligations under the Financing Documents. In addition, subject to the Final Order, Lender shall have the right from time to time to partially foreclose upon any Collateral in any manner and for any amounts secured by the Financing Documents then due and payable as determined by Lender in its sole discretion, including, without limitation, in the event Lender elects to accelerate less than the entire outstanding principal balance of the DIP Loans, Lender may foreclose all or any part of the Collateral to recover so much of the principal balance of the DIP Loans as Lender may accelerate and such other sums secured by one or more of the Financing Documents as Lender may elect. Notwithstanding one or more partial foreclosures, any unforeclosed Collateral shall remain subject to the Financing Documents to secure payment of sums secured by the Financing Documents and not previously recovered.

(f) To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Collateral any equitable right otherwise available

to Borrower which would require the separate sale of any of the Collateral or require Lender to exhaust its remedies against any part of the Collateral before proceeding against any other part of the Collateral; and further in the event of such foreclosure Borrower does hereby expressly consent to and authorize, at the option of Lender, the foreclosure and sale either separately or together of each part of the Collateral.

Section 8.9 Injunctive Relief . The parties acknowledge and agree that, in the event of a breach or threatened breach of Borrower’s obligations under any Financing Documents, Lender may have no adequate remedy in money damages and, accordingly, shall be entitled to an injunction (including, without limitation, a temporary restraining order, preliminary injunction, writ of attachment, or order compelling an audit) against such breach or threatened breach, including, without limitation, maintaining any cash management and collection procedure described herein. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach or threatened breach of any provision of this Agreement. Borrower waives, to the fullest extent permitted by law, the requirement of the posting of any bond in connection with such injunctive relief. By joining in the Financing Documents as a Borrower, Borrower specifically joins in this Section 8.9 as if this Section 8.9 were a part of each Financing Document executed by Borrower.

Section 8.10 Marshalling; Payments Set Aside . Lender shall not be under any obligation to marshal any assets in payment of any or all of the Obligations. To the extent that Borrower makes any payment or Lender enforces its Liens or Lender exercises its right of set-off, and such payment or the proceeds of such enforcement or set-off is subsequently invalidated, declared to be fraudulent or preferential, set aside, or required to be repaid by anyone, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefore, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred.

ARTICLE 9 - [RESERVED]

ARTICLE 10 - MISCELLANEOUS

Section 10.1 Survival . All agreements, representations and warranties made herein and in every other Financing Document shall survive the execution and delivery of this Agreement and the other Financing Documents and the other Operative Documents. The provisions of Section 2.10 and Article 9 and Article 10 shall survive the payment of the Obligations and any termination of this Agreement and any judgment with respect to any Obligations, including any final foreclosure judgment with respect to any Security Document, and no unpaid or unperformed, current or future, Obligations will merge into any such judgment.

Section 10.2 No Waivers . No failure or delay by Lender in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Any reference in any Financing Document to the “continuing” nature of any Event of Default shall not be construed as establishing or otherwise indicating that Borrower has the independent right to cure any such Event of Default, but is rather presented merely for convenience should such Event of Default be waived in accordance with the terms of the applicable Financing Documents.

Section 10.3 Notices .

(a) All notices, requests and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to such party at its address, facsimile number or email address set forth on the signature pages hereof or at such other address, facsimile number or email address as such party may hereafter specify for the purpose by notice to Lender and Borrower Representatives; provided , however , that notices, requests or other communications shall be permitted by electronic means only in accordance with the provisions of Section 10.3(b) and (c). Each such notice, request or other communication shall be effective (i) if given by facsimile, when such notice is transmitted to the facsimile number specified by this Section and the sender receives a confirmation of

transmission from the sending facsimile machine, or (ii) if given by mail, prepaid overnight courier or any other means, when received or when receipt is refused at the applicable address specified by this Section 10.3. Notices to the Lender shall be delivered to its counsel, Ashby & Geddes.

(b) Notices and other communications to the parties hereto may be delivered or furnished by electronic communication (including email) pursuant to procedures approved from time to time by Lender. Lender or Borrower Representatives may, in their discretion, agree to accept notices and other communications to them hereunder by electronic communications pursuant to procedures approved by it, provided , however , that approval of such procedures may be limited to particular notices or communications.

(c) Unless Lender otherwise prescribes, notices and other communications sent to an email address shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgment), provided , however , that if any such notice or other communication is not sent during normal business hours, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day.

Section 10.4 Severability . In case any provision of or obligation under this Agreement or any other Financing Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

Section 10.5 Headings . Headings and captions used in the Financing Documents (including the Exhibits, Schedules and Annexes hereto and thereto) are included for convenience of reference only and shall not be given any substantive effect.

Section 10.6 Waiver of Consequential and Other Damages . To the fullest extent permitted by applicable law, Borrower shall not assert, and Borrower and Lend hereby waive, any claim against any Indemnitee (as defined below), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of this Agreement, any other Financing Document or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, any DIP Loan or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Financing Documents or the transactions contemplated hereby or thereby.

Section 10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION .

(a) THIS AGREEMENT, EACH NOTE AND EACH OTHER FINANCING DOCUMENT, AND ALL DISPUTES AND OTHER MATTERS RELATING HERETO OR THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

(b) EACH PARTY HERETO HEREBY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION (OR IF THE BANKRUPTCY COURT DOES NOT HAVE JURISDICTION, ANY FEDERAL OR STATE COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF DELAWARE) TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE PARTIES HERETO, ON THE ONE HAND, AND LENDER, ON THE OTHER HAND, PERTAINING TO THE AGREEMENT OR ANY OF THE OTHER FINANCING DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER FINANCING DOCUMENTS; PROVIDED THAT EACH PARTY ACKNOWLEDGES THAT ANY APPEALS FROM THE BANKRUPTCY COURT MAY HAVE TO BE

HEARD BY A COURT OTHER THAN THE BANKRUPTCY COURT; PROVIDED , FURTHER , THAT NOTHING IN THE AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH PARTY HERETO EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

(c) Borrower and Lender agree that each DIP Loan (including those made on the Closing Date) shall be deemed to be made in, and the transactions contemplated hereunder and in any other Financing Document shall be deemed to have been performed in, the State of Delaware.

Section 10.8 WAIVER OF JURY TRIAL .

BORROWER AND LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF BORROWER AND LENDER WARRANT AND REPRESENT THAT IT HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

Section 10.9 Counterparts; Integration . This Agreement and the other Financing Documents may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Signatures by facsimile or by electronic mail delivery of an electronic version of any executed signature page shall bind the parties hereto. This Agreement and the other Financing Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 10.10 No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

Section 10.11 Lender Approvals . Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Lender with respect to any matter that is the subject of this Agreement, the other Financing Documents may be granted or withheld by Lender in its sole and absolute discretion and judgment.

Section 10.12 Expenses; Indemnity .

(a) [Reserved].

(b) Borrower hereby agrees to indemnify, pay and hold harmless Lender and the officers, directors, employees, trustees, agents, investment advisors, collateral managers, servicers, and counsel of Lender (collectively called the “ Indemnitees ”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature

whatsoever (including the fees and disbursements of counsel for such Indemnitee) in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnitee shall be designated a party thereto and including any such proceeding initiated by or on behalf of Borrower, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Lender) asserting any right to payment for the transactions contemplated hereby, which may be imposed on, incurred by or asserted against such Indemnitee as a result of or in connection with the transactions contemplated hereby or by the other Operative Documents (including (i)(A) as a direct or indirect result of the presence on or under, or escape, seepage, leakage, spillage, discharge, emission or release from, any property now or previously owned, leased or operated by Borrower or any other Person of any Hazardous Materials, (B) arising out of or relating to the offsite disposal of any materials generated or present on any such property, or (C) arising out of or resulting from the environmental condition of any such property or the applicability of any governmental requirements relating to Hazardous Materials, whether or not occasioned wholly or in part by any condition, accident or event caused by any act or omission of Borrower, and (ii) proposed and actual extensions of credit under this Agreement) and the use or intended use of the proceeds of the DIP Loans, except that Borrower shall have no obligation hereunder to an Indemnitee with respect to any liability resulting from the gross negligence or willful misconduct of such Indemnitee, as determined by a final non-appealable judgment of a court of competent jurisdiction. To the extent that the undertaking set forth in the immediately preceding sentence may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable Law to the payment and satisfaction of all such indemnified liabilities incurred by the Indemnitees or any of them.

(c) Notwithstanding any contrary provision in this Agreement, the obligations of Borrower under this Section 10.14 shall survive the payment in full of the Obligations and the termination of this Agreement. NO INDEMNITEE SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWER OR TO ANY OTHER PARTY TO ANY FINANCING DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

Section 10.13 Reinstatement . This Agreement shall remain in full force and effect and continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a fraudulent preference reviewable transaction or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

Section 10.14 Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and permitted assigns.

[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]

(Signature Page to DIP Credit and Security Agreement)

IN WITNESS WHEREOF , intending to be legally bound, and intending that this Agreement constitute an agreement executed under seal, each of the parties have caused this Agreement to be executed under seal the day and year first above mentioned.



BORROWER:		ADAMS RESOURCES EXPLORATION
		CORPORATION

	By:	/s/ John Riney
		Name: John Riney
		Title: President


BORROWER’S COUNSEL:		SULLIVAN HAZELTINE ALLINSON LLC
		Attn: William D. Sullivan
		603 West 18th Street, Suite 1300
		Wilmington, DE 19801
		Phone: 302.428.8191
		Email: bsullivan@sha-llc.com

LENDER:		ADAMS RESOURCES & ENERGY, INC.
	By:	/s/ Josh C. Anders
		Name: Josh C. Anders
		Title: EVP, CFO

LENDER’S COUNSEL:		ASHBY & GEDDES
		Attn: Ricardo Palacio and Gregory Taylor
		500 Delaware Avenue
		P.O. Box 1150
		Wilmington, DE 19899
		Phone. 302.504.3718
		Email: rpalacio@ashby-geddes.com

EXHIBITS

Exhibit A Budget

Exhibit B Form of Compliance Certificate

Exhibit C Form of Notice of Borrowing

Exhibit D Form of Payment Notification

Exhibit A

(Budget)

Exhibit B

(Form of Compliance Certificate)

COMPLIANCE CERTIFICATE

In accordance with the terms of the Debtor in Possession Credit and Security Agreement, dated April 25, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ DIP Loan Agreement ”) by and among Adams Resources Exploration Corporation (“ Borrower ”) and Adams Resources & Exploration, Inc. (“ Lender ”), the undersigned hereby certifies that: ¹

(a) I am the [Chief Restructuring Officer or President] of Borrower under the DIP Loan Agreement, and deliver this Certificate for the week ending [________] (the “ Weekly Budget Period ”) pursuant to Section 4.1 of the DIP Loan Agreement.

(b) Attached hereto as Schedule 1 is the weekly report for the Weekly Budget Period in the same form as the Budget indicating all receipts received and disbursements made by the Borrower in the week ending noted in paragraph (a) above, compared to the Budget and detailing any Variance as defined in Section 4.1 of the DIP Loan Agreement.

(c) The amount of the current draw request (if any) made by the Borrower under the DIP Loan Agreement is consistent with the net cash flow line item in the Budget for the Weekly Budget Period. The amount of such draw request (if any) does not exceed 100% of the projected operating deficit shown in the Budget for the Weekly Budget Period (subject to the variance described in Section 4.7 of the DIP Credit Agreement); provided , that any budgeted expenditures not paid in a particular Weekly Budget Period may be paid during a subsequent period and, for the purpose of this calculation, the Budget will be revised to move such expenditures to the later period.

(d) Attached hereto as Schedule 2 is the company prepared monthly accounts payable aging report for the month just ended.*

(e) Attached hereto as Schedule 3 is the company prepared running cumulative report indicating by vendor any weekly trade payables in excess of $5,000 for any week.

(f) Attached hereto as Schedule 4 is the company prepared balance sheet, cash flow and income statement covering the Borrower’s operations during the month ending [________] (the “Monthly Reporting Period”), prepared under GAAP, consistently applied.*

(g) Attached hereto as Schedule 5 is evidence of payment and satisfaction of all payroll, withholding and similar taxes due and owing by all Borrower with respect to the payroll period(s) occurring during the Monthly Reporting Period.*

_____________

¹ Capitalized terms used herein without definition shall have the meanings set forth in the DIP Loan Agreement.

*The Borrower need only provide Schedule 2 with the Compliance Certificate that is to be submitted immediately on the ____ of each month. The Borrower need only provide Schedule 4 and Schedule 5 with the Compliance Certificate that is to be submitted immediately after the applicable Monthly Reporting Period. The Borrower may satisfy these reporting requirements by attaching the monthly operating report for the applicable Monthly Reporting Period.

(h) There are no legal actions pending or threatened against Borrower that could reasonably be expected to result in damages or costs to Borrower of Twenty-Five Thousand Dollars ($25,000) or more,] except as set forth in Schedule 3.5 to the DIP Credit Agreement and Schedule 6.

(i) There has not occurred any event that materially and adversely affects the value of any Collateral, except as set forth in Schedule 7 .

(j) No Event of Default has occurred, except as set forth in Schedule 8 hereto, which includes a description of the nature and period of existence of such Event of Default and what action Borrower has taken, are undertaking and propose to take with respect thereto.

(k) Any financial statements or other materials delivered with this Certificate fairly present in all material respects the results of operations and financial condition of Borrower as of the dates and the accounting period covered by such financial statements or other materials.

(l) All of the representations and warranties contained in the DIP Loan Agreement or in any Financing Document are true and correct in all material respects.

(m) All of the foregoing statements and reports are true and correct in all material respects.

IN WITNESS WHEREOF , the undersigned, has executed and delivered this Certificate, on [________].



		ADAMS RESOURCES EXPLORATION
		CORPORATION

	By:
		Name:
		Title: [Chief Restructuring Officer or President]

Exhibit C

(Form of Notice of Borrowing)

________, [Chief Restructuring Officer or President] of Adams Resources Exploration Corporation (the “ Debtor” ), hereby certifies as follows:

1. Pursuant to section 364 of the Bankruptcy Code and the terms of those certain (a) Debtor in Possession Credit and Security Agreement , dated April __, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ DIP Credit Agreement ”) by and among Adams Resources Exploration Corporation, as Borrower, and Adams Resources & Energy, Inc., as Lender, and (b) Interim [Final] Order (1) Authorizing Debtors in Possession to Obtain Postpetition Financing; and (2) Granting Liens, Security Interests and Superpriority Claims (the “ DIP Order ”) ² the Debtor is authorized to borrow (the “ DIP Loan Facility ”) in an aggregate amount of up to $1,250,000 (the “ DIP Loan ”); solely in compliance with the DIP Loan Agreement and DIP Order. The Debtor acknowledges and agrees that delivery of this Borrowing Certificate is a condition precedent to each DIP Loan.

2. As of the date hereof, no Event of Default as enumerated in the DIP Order has occurred or is continuing,

3. The making of this DIP Loan shall not violate any requirement of law and shall not be enjoined, temporarily, preliminarily or permanently.

4. The DIP Order is in full force and effect in a form reasonably satisfactory to the Lender, and the Debtor has taken no action and is unaware of any action (actual or threatened) that may impair the rights of the Lender under the DIP Order.

5. The undersigned hereby certifies that, both before and after giving effect to the request above (a) each of the conditions precedent set forth in Section 7.2 of the DIP Loan Agreement have been satisfied, (b) all of the representations and warranties contained in the DIP Loan Agreement and the other Financing Documents are true, correct and complete as of the date hereof, except to the extent such representation or warranty relates to a specific date, in which case such representation or warranty is true, correct and complete as of such earlier date, and (c) no Event of Default has occurred and is continuing on the date hereof.

6. The amount requested under this DIP Loan is $___________ (this “ DIP Loan Request ”), representing the items identified at Exhibit A . The proceeds of the DIP Loan Request will be used for operating and other approved expenses, consistent with the terms of the Budget; there are no funds on deposit in the Debtor’s operating account available for such purpose; and reflects expenses (a) not subject to any prior requisition or payment or reimbursement from any other source, and (b) to be incurred in accordance with the Budget for the following week and are consistent with the amounts and categories set forth in the Budget; provided , that any budgeted expenditures not paid in a particular weekly period may be paid during a subsequent period and, for the purpose of this calculation.

_______________

² Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the DIP Order.

IN WITNESS WHEREOF, the undersigned has executed this Borrowing Certificate this day of __________ ___, 2017.



		ADAMS RESOURCES EXPLORATION
		CORPORATION

	By:
		Name:
		Title: [Chief Restructuring Officer or President]

Exhibit D

(Form of Payment Notification)

PAYMENT NOTIFICATION

This Payment Notification is given by _____________________, the [Chief Restructuring Officer or President] of Adams Resources Exploration Corporation (the “ Borrower Representative ”), pursuant to that certain Debtor in Possession Credit and Security Agreement, dated April __, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ DIP Loan Agreement ”) by and among Adams Resources Exploration Corporation, as Borrower, and Adams Resources & Energy, Inc., as Lender. Capitalized terms used herein without definition shall have the meanings set forth in the DIP Loan Agreement.

Please be advised that funds in the amount of $_____________ will be wire transferred to Lender on _________, 2017. Such funds shall constitute [an optional] [a mandatory] prepayment of the DIP Loans, with such prepayments to be applied in the manner specified in Section 2.7 of the DIP Loan Agreement. [Such mandatory prepayment is being made pursuant to Section 2.4 of the DIP Loan Agreement.]

Fax to [_________] no later than noon Central time.

Note: Funds must be received in the Payment Account by no later than noon Central time for same day application

IN WITNESS WHEREOF , the undersigned, has executed and delivered this Certificate, on [________].



		ADAMS RESOURCES EXPLORATION
		CORPORATION

	By:
		Name:
		Title: [Chief Restructuring Officer or President]

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

The following is a list of all subsidiary corporations of the registrant. All subsidiaries are wholly-owned by Adams Resources & Energy, Inc. (the “Company”). The Company’s consolidated financial statements include the accounts of all subsidiaries.



Subsidiary		Place of Incorporation

Adams Resources Exploration Company		Delaware
Service Transport Company		Texas
Ada Crude Oil Company		Texas
Ada Mining Corporation		Texas
Classic Coal Corporation		Delaware
Gulfmark Energy, Inc.		Texas
Adams Resources Medical Management, Inc.		Texas
Ada Resources, Inc.		Texas
Gulfmark Energy Marketing, Inc.		Nevada



TBPE REGISTERED ENGINEERING FIRM F-1580		FAX (713) 651-0849
1100 LOUISIANA SUITE 4600	HOUSTON, TEXAS 77002-5294	TELEPHONE (713) 651-9191

EXHIBIT 23.1

CONSENT OF RYDER SCOTT COMPANY, L.P.

The undersigned hereby consents to the references to our firm in the form and context in which they appear in the Annual Report on Form 10-K of Adams Resources & Energy, Inc. for the year ended December 31, 2017 (the “Annual Report”). We hereby further consent to the inclusion in the Annual Report of our report entitled “Adams Resources Exploration Corporation – Estimated Future Reserves and Income Attributable to Certain Leasehold and Royalty Interests – SEC Parameters – As of December 31, 2016” and to the inclusion of our report dated February 3, 2017 as an exhibit to the Annual Report.

/s/ Ryder Scott Company, L.P.

RYDER SCOTT COMPANY, L.P.

TBPE Firm Registration No. F-1580

Houston, Texas

March 12, 2018



SUITE 800, 350 7TH STREET, S.W.	CALGARY, ALBERTA T2P 3N9	TEL (403) 262-2799	FAX (403) 262-2790
621 17TH STREET, SUITE 1550	DENVER, COLORADO 80293-1501	TEL (303) 623-9147	FAX (303) 623-4258

Exhibit 31.1

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Townes G. Pressler, certify that:


1.	I have reviewed this annual report on Form 10-K of Adams Resources & Energy, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	March 12, 2018	By:	/s/ Townes G. Pressler
			Townes G. Pressler
			Executive Chairman

Exhibit 31.2

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Josh C. Anders, certify that:


1.	I have reviewed this annual report on Form 10-K of Adams Resources & Energy, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	March 12, 2018	By:	/s/ Josh C. Anders
			Josh C. Anders
			Chief Financial Officer

Exhibit 32.1

SARBANES-OXLEY SECTION 906 CERTIFICATION

CERTIFICATION OF TOWNES G. PRESSLER,

EXECUTIVE CHAIRMAN OF ADAMS RESOURCES & ENERGY, INC.

In connection with this annual report of Adams Resources & Energy, Inc. (the “Registrant”) on Form 10-K for the annual period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Townes G. Pressler, Executive Chairman of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	March 12, 2018	By:	/s/ Townes G. Pressler
			Townes G. Pressler
			Executive Chairman

Exhibit 32.2

SARBANES-OXLEY SECTION 906 CERTIFICATION

CERTIFICATION OF JOSH C. ANDERS,

CHIEF FINANCIAL OFFICER OF ADAMS RESOURCES & ENERGY, INC.

In connection with this annual report of Adams Resources & Energy, Inc. (the “Registrant”) on Form 10-K for the annual period ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Josh C. Anders, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.



Date:	March 12, 2018	By:	/s/ Josh C. Anders
			Josh C. Anders
			Chief Financial Officer